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).

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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