Question

On July 10, 2017, Skysong Music sold CDs to retailers on account and recorded sales revenue of $644,000 (cost $502,320). Skysong grants the right to return CDs that do not sell in 3 months following delivery. Past experience indicates that the normal return rate is 15%. By October 11, 2017, retailers returned CDs to Skysong and were granted credit of $78,600.

Prepare Skysong’s journal entries to record (a) the sale on July 10, 2017, and (b) $78,600 of returns on October 11, 2017, and on October 31, 2017. Assume that Skysong prepares financial statement on October 31, 2017.

Answer 1

Date	General Journal	Debit	Credit
10-Jul-17	Accounts Receivable	$644,000
	Sales Revenue		$644,000
	(To record Sales)
	Cost of Goods Sold	$502,320
	Inventory		$502,320
	(To record the Cost of Goods Sold)
11-Oct-17	Sales Returns and Allowances	$78,600
	Accounts Receivable		$78,600
	(To record the Sales Returns)
	Returned Inventory	$61,308
	Cost of Goods Sold ((502320/644000)*78600)		$61,308
	(To record the Cost of Goods Sold)
31-Oct-17	No entries - Return period has expired