During Q3 of 2015 medical alert co. sold $1,500,000 worth of medical equipment on terms 2/10 net 60 to various local hospitals. the cost of this equipment was 1,200,000. a medical alert has a generous return policy, and will accept all returns made within 90 days, no questions asked. based on past sales history, medical alert expects 10% of sales to be returned within the 90 day period. because returns are predictable, medical alert uses an allowance method to record sales revenue less expected returns, and the amount of inventory expected to be returned. because most hospitals do not pay within 60 days, medical alert uses the gross method to account for sales discounts.

A) provide Q3 journal entry to recognize total sales revenue and cost of goods sold after accounting for the expected returns on both revenues and cost of goods sold

B) During Q4 returns were sold on account for 100,000 (and still not paid for) were returned to medical alert, and medical alert accordingly credited the buyer's account (thus reducing their accounts receivable). of these goods, only 90% were re-saleable and placed back into inventory. the remaining 10% were written off to the cost of goods sold. provide the necessary journal entry to recognize the effect of these returns on both accounts receivable and inventory, assuming the cost of the inventory is a constant proportion to its sale price.

C) During Q 4 medical alert received payment on 800,000 worth of accounts receivable that was within the discount period (hint: less than 800,000 was thus collected by medical alert) provide the journal entry to account for the cash collected.

Answer rating: 100% (QA)

Quiz a Sales revenue Debit Credit Accounts Receivable 1350000 Allowance for Returns 150... View the full answer