Lopez Company reports unadjusted first-year merchandise sales of $100,000 and cost of merchandise sales of $30,000.
a. Compute gross profit (using the unadjusted numbers above).
b. The company expects future returns and allowances equal to 5% of sales and 5% of cost of sales.
1. Prepare the year-end adjusting entry to record the sales expected to be refunded.
2. Prepare the year-end adjusting entry to record the cost side of sales returns and allowances.
3. Recompute gross profit (using the adjusted numbers from parts 1 and 2).
c. Is the Sales Refund Payable an asset, liability, or equity account?
d. Is the Inventory Returns Estimated an asset, liability, or equity account?