Vaughn Company is presently testing a number of new agricult

Vaughn Company is presently testing a number of new agricultural seeds that it has recently harvested. To stimulate interest, it has decided to grant to five of its largest customers the unconditional right of return to these products if not fully satisfied. The right of return extends for 4 months. Vaughn estimates returns of 20%. Vaughn sells these seeds on account for $1,400,000 (cost $630,000) on January 2, 2017, Customers are required to pay the full amount due by March 15, 2017. Prepare the journal entry for Vaughn at January 2, 2017. (Credit account titles are automatically indented when 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.) Date Account Titles and Explanation Debit Credit Jan. 2, 2017 (To recognize revenue.) To record cost of goods sold.)

Solution

Date Account Titles and Explaination Debit Credit (a) 01-02-17 Accounts Receivable $ 14,00,000 Sales revenue $ 14,00,000 (To recognize revenue) Cost of Goods Sold $   6,30,000 Inventory $   6,30,000 (To record cost of goods sold) (b) 03-01-17 Sales Return and Allowances $       95,000 Accounts Receivable $       95,000 (To record sales returns) Returned Inventory $       42,750 Cost of Goods Sold $       42,750 ($6,30,000 / $14,00,000) X $95,000 = $42,750 (To record cost of goods returned) 03-15-17 Cash $ 13,05,000 Accounts Receivable $ 13,05,000 ($14,00,000 - $95,000) (c) 03-31-17 Sales Returns and Allowances $   1,85,000 Allowances for Sales Returns and Allowances $   1,85,000 (To record sales returns) Estimated Inventory Returns $       83,250 Cost of Goods Sold $       83,250 ($6,30,000 / $14,00,000) X $1,85,000 = $83,250 (To record cost of goods returned)