On October 2 2017 Sheridan Company sold 5510 of its elite ca

On October 2, 2017, Sheridan Company sold $5,510 of its elite camping gear (with a cost of $3,470) to Lynch Outfitters on credit. As part of the sales agreement, Sheridan includes a provision that if Lynch is dissatisfied with the product, Sheridan will grant an allowance on the sales price or agree to take the product back (although returns are rare, given the long-term relationship between Sheridan and Lynch). Sheridan expects total allowances to Lynch to be $770. On October 16, 2017, Sheridan grants an allowance of $390 to Lynch because the color for some of the items delivered was a bit different than what appeared in the catalog Prepare journal entries for Sheridan to record (1) the sale on October 2, 2017, (2) the granting of the allowance on October 16, 2017, and, (3) any adjusting required on October 31, 2017 (when Sheridan prepares financial statements). Sheridan now estimates additional allowances of $260 will be granted to Lynch in the future. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select \"No entry\" for the account titles and enter O for the amounts.)

Solution

No Account Titles and Explaination Debit Credit 1 Accounts Receivable $ 5,510 Sales revenue $ 5,510 (To record Sales) Cost of Goods Sold $ 3,470 Inventory $ 3,470 (To record cost of goods sold) 2 Sales Return and Allowances $     390 Accounts Receivable $     390 (To record Allowance) 3 Sales Returns and Allowances $     260 Allowances for Sales Returns and Allowances $     260 (To record estimated remaining allowances) Income Statement (Partial) For the quater ended October 31, 2017 Sales revenue $ 5,510 Less: Sales Return and Allowances ($390 + $260) $     650 Net Sales $ 4,860 Cost of Goods Sold $ 3,470 Gross Profit $ 1,390 Balance Sheet (Partial) At October 31, 2017 Accounts Receivable ($5,510 - $390) $ 5,120 Less: Allowances for Sales Returns and Allowances $     260 Accounts Receivable (net) $ 4,860