The Knotty Splinter had sales during the month of June that totaled $5,300. Based on experience, company management expects 8 percent of the sales amount will be refunded to customers in the form of sales returns and allowances. The cost to The Knotty Splinter of the goods that are estimated to be returned is $260.

Requirements

1. Journalize the necessary journal entries to record the estimated refunds on June 30. No explanations are necessary.

2. How are the Estimated Refund Liability and Estimated Inventory Returns reflected on The Knotty Splinter’s financial statements for the month ended June 30?