Problem 1
In your first year of operations, your total sales were $3,500,000 and your cost of goods sold was $2,275,000. You allow your customers to return any merchandise purchased within 60 days of sale. By the end of the year, a total of $95,000 of sales were returned. The bookkeeper was unsure how to record the sales returns and simply debited the Miscellaneous Expense account for the returns.
Management estimates that 5% of all sales made will be returned.
Required:
Prepare any necessary adjusting entries at year end. Assume the entity follows IFRS.
Problem 2
You normally sell a particular piece of equipment for $15,000. You also offer a three- year maintenance package for $100 per month.
You offer the following 'package deal' to your customers: They can purchase the equipment at a discounted price of $10,000 if they agree to a three year maintenance contract at a price of $175 per month.
One of your customers purchases the package on January 2, 20x5. The monthly payments of $175 are due at the end of each month with the first payment due on January 31, 20x5.
Required:
Write the journal entries on January 2, 20x5 and January 31, 20x5. Assume that the effects of discounting are immaterial.