eBookPrintReferencesCheck my workCheck My Work button is now enabledItem 3Required information Required information Learning Objective 07-04 Describe the accounting treatment for merchandise returns. Skip to question [The following information applies to the questions displayed below.] When merchandise returns are anticipated, a refund liability should be recorded, and sales revenue should be reduced by anticipated sales returns. Sales Returns -0:00 1x Knowledge Check 01 At the end of its first year of operations, Loring Industries estimates that sales returns in the amount of $20,000 will occur during Year 2. The cost of the inventory expected to be returned is $12,000. All of Loring's sales are made for cash and the company uses a perpetual inventory system. Assume that no returns have occurred as of the end of Year 1. Prepare the appropriate adjusting journal entry to record the expected sales returns and the inventory expected to be returned in Year 2