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