Adjustment for Merchandise Inventory Using T Accounts: Periodic Inventory System with Sales Returns and Allowances

Sam Edwards owns a business called Sams Stuff. A physical count determined his ending inventory as of December 31, 20-- was $75,000. Based on past experience, Sam estimates that $4,600 of sales from this year will be returned next year. The cost of the merchandise expected to be returned is $3,200. Using the partial Trial Balance provided below, set up T accounts for Merchandise Inventory, Estimated Returns Inventory, Customer Refunds Payable, Sales Returns and Allowances, and Income Summary and prepare the year-end adjustments for Merchandise Inventory and related accounts.

	TRIAL BALANCE (PARTIAL)
	DEBIT	CREDIT
Merchandise Inventory	63,000.00
Estimated Returns Inventory	2,600.00
Customer Refunds Payable		3,800.00
Sales Returns and Allowances	19,000.00
Income Summary

For grading purposes use the labels shown and enter transactions in alphabetical order.

TB Trial balance (beginning balance) ATB Adjusted trial balance (ending balance) (a) Remove the beginning balance in merchandise inventory. (b) Add the new balance per the physical count. (c) Adjust the customer refunds balance to the new estimate of next year returns (use one adjusting entry). (d) Remove the beginning balance in estimated returns inventory. (e) Add the new balance per the estimate of merchandise expected to be returned.