Presented below are selected transactions for Patterson Warehouse during April and May of the current year. Patterson uses a perpetual inventory system and the contract-based approach for revenue recognition. Patterson has a stated return policy of 15 days from the date of sale and management estimates returns at 10% of sales.
May 1 Purchased merchandise on account from Flores Company at a cost of $62,000, FOB destination, terms 2/10, n/30.

2 The correct company paid $1,500 of freight charges to Simmons Trucking on the May 1 merchandise purchase.

5 Returned for credit $3,000 of damaged goods purchased from Flores Company on May 1.

15 Sold the remaining merchandise purchased from Flores Company to Cooper Company for $94,400, terms n/30, FOB destination.

16 The correct company paid $1,700 of freight charges on the May 15 sale of merchandise.

17 Issued Cooper Company a credit of $9,440 for returned goods. These goods cost Patterson Company $5,900 and were returned to inventory.

28 Paid Flores Company the balance owing for the May 1 purchase. June 2 Purchased merchandise on account from Collins Company at a cost of $51,000, terms 2/10, n/30, FOB shipping point.

3 The correct company paid freight costs of $900 on the April 2 purchase.

12 Paid Collins Company the amount owing on the June 2 purchase.

14 Collected the amount due from Cooper Company.

June 15 Sold all of the merchandise purchased from Collins Company to Sanders Retail Store for $79,840, terms n/30, FOB shipping point.

16 The correct company paid $775 freight costs on the April 15 sale.

18 Sanders Retail Store returned damaged goods in the amount of $7,984. The goods cost Patterson Company $5,088 and were scrapped.

30 Received a cheque from Sanders Retail Store for the balance owing on the April 15 sale.

Instructions
Prepare journal entries to record the above transactions for Patterson Company.

Taking It Further

Patterson’s owner is wondering why sales returns are estimated each time a sale is made. Prepare a memo explaining why this practice is followed when using the contract-based approach and reference the sales transactions with Cooper Company in your answer.