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12 August, 20:58

During 2021, its first year of operations, Hollis Industries recorded sales of $10,500,000 and experienced returns of $750,000. Cost of goods sold totaled $7,350,000 (70% of sales). The company estimates that 9% of all sales will be returned. Prepare the year-end adjusting journal entries to account for anticipated sales returns under the assumption that all sales are made for cash (no accounts receivable are outstanding).

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  1. 13 August, 00:10
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    The adjusting entries are as follows

    Explanation:

    The adjusting entries are as follows

    1. Sales return Dr $195,000

    To Refund liabilities $195,000

    (Being the sales return is recorded)

    It is computed below:

    = $10,500,000 * 9% - $750,000

    = $195,000

    2. Inventory estimated returns Dr $136,500

    To Cost of goods sold $136,500

    (Being the inventory estimated return is recorded)

    It is computed below:

    = $195,000 * 70%

    = $136,500
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