Lopez Company reports unadjusted first-year merchandise sales of $100,000 and cost of merchandise sales of$30,000.

d. Is Inventory Returns Estimated an asset, liability, or equity account?

Lopez Company reports unadjusted first-year merchandise sales of $100,000 and cost of merchandise sales of$30,000.

a. Compute gross profit (using the unadjusted numbers above).

ProBuilder reports merchandise sales of $50,000 and cost of merchandise sales of$20,000 in its first year of operations ending June 30. It makes fiscal-year-end adjusting entries for estimated future returns and allowances equal to 2% of sales, or $1,000, and 2% of cost of sales, or$400.

a. Prepare the June 30 fiscal-year-end adjusting journal entry for future returns and allowances related to sales.

You are the financial officer for Music Plus, a retailer that sells goods for home entertainment needs. The business owner, Vic Velakturi, recently reviewed the annual financial statements you prepared and sent you an e-mail stating that he thinks you overstated net income. He explains that although he has invested a great deal in security, he is sure shoplifting and other forms of inventory shrinkage have occurred, but he does not see any deduction for shrinkage on the income statement. The store uses a perpetual inventory system.

Required

Prepare a brief memorandum that responds to the owner’s concerns.

Chico Company allows its customers to return merchandise within 30 days of purchase.

• At December 31, the end of its first year of operations, Chico estimates future-period merchandise returns of $60,000 (cost of$22,500) related to its current-year sales.

• A few days later, on January 3, a customer returns merchandise with a selling price of $2,000 for a cash refund; the returned merchandise cost 750 dollars and is returned to inventory as it is not defective.

c. Prepare the January 3 journal entries to record the merchandise returned.

Chico Company allows its customers to return merchandise within 30 days of purchase.

• At December 31, 2017, the end of its first year of operations, Chico estimates future-period merchandise returns of $60,000 (cost of$22,500) related to its 2017 sales.
• On January 3, 2018, a customer returns merchandise with a selling price of $2,000 for a cash refund; the returned merchandise cost$750 and is returned to inventory as it is not defective.

c. Prepare the January 3, 2018, journal entry(ies) to record the merchandise returned.