In 20X5, Balla Shoe Corporation developed a new product, an electric shoe tree. To increase acceptance by retailers, Balla sold the product to retailers with an unconditional right of return, which expires on 1 February 20X6. Balla has estimated returns on the new product will be 10%. The following information is available regarding the product:

All sales are on credit. Cash collections related to the sales were $ 80,000 in 20X5. The remaining cash owing from the 20X5 sales was collected in February 20X6. Balla uses a perpetual inventory system. Assume all returned goods were in working condition and placed into inventory.

Required:
1. Assess the criteria to determine the point of the critical event.
2. Give journal entries for sales, returns, and collections related to the new product in 20X5 and 20X6. How much sales revenue should Balla recognize in20X5?

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$360,000 240,000 Sales-2OX5 Cost of goods sold-20X5 Returns-20X5 Returns-January 20X6 18,000 (cost, $12,000) 12,000 (cost, $8,000)