In its first year of business, Laker Corporation had sales of $2,100,000 and cost of goods sold of $1,250,000. Laker expects returns in the following year to equal 7% of sales and 7% of cost of goods sold. The adjusting entry or entries to record the expected sales returns is (are):

Laker Corporation

The Adjusting Journal Entries to record the expected sales returns are:

Debit Sales returns $147,000

Credit Accounts receivable $147,000

To record the sales returns.

Debit Inventory $87,500

Credit Cost of goods sold $87,500

To record the cost of goods returned.

Explanation:

a) Data and Calculations:

Sales revenue in the first year of business = $2,100,000

Cost of goods sold in the first year of business = $1,250,000

Expected sales returns = 7% of sales = $147,000 ($2,100,000 * 7%)

Expected sales returns = 7% of cost of goods sold = $87,500 ($1,250,000 * 7%)

Adjusting entries to record the expected sales returns are:

Sales returns $147,000 Accounts receivable $147,000

Inventory $87,500 Cost of goods sold $87,500

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