Question

On June 3, 2017, Hunt Company sold to Ann Mount merchandise having a sales price of \(8,000 (cost \)6,000) with terms of n/60, f.o.b. shipping point. Hunt estimates that merchandise with a sales value of \(800 will be returned. An invoice totaling \)120 was received by Mount on June 8 from Olympic Transport Service for the freight cost. Upon receipt of the goods, on June 8, Mount returned to Hunt \(300 of merchandise containing flaws. Hunt estimates the returned items are expected to be resold at a profit. The freight on the returned merchandise was \)24, paid by Hunt on June 8. On July 16, the company received a check for the balance due from Mount.

Instructions

Prepare journal entries for Hunt Company to record all the events in June and July.

Short answer

Cash received by Hunt Company after-sales return is $7,700.

Step-by-step solution

Meaning of Sales return

A customer returns products to the seller in a sales return. The reason for the return is frequently because an excess quantity was ordered or transported, or because the items were faulty.

Journal entries for Hunt Company

Date	Particular	Debit ($)	Credit ($)
June 3, 2017	Account receivable a/c	8,000
	Sales revenue a/c		8,000
June 3, 2017	Cost of goods sold a/c	6,000
	Inventory a/c		6,000
June 8, 2017	Sales return and allowance a/c	300
	Account receivables a/c		300
June 8, 2017	Inventory a/c	225
	Cost of goods sold a/c		225
June 8, 2017	Freight expense a/c	24
	Cash a/c		24
July 16, 2017	Cash a/c	7,700
	Accounts receivables a/c		7,700

Working Notes:

Sales return = $300

Sales price = $8,000

Cost of goods sold = $6,000

$\begin{array}{rcl}\mathrm{Inventory}\mathrm{return}& =& \mathrm{Sales}\mathrm{return}\times \frac{\mathrm{Cost}\mathrm{of}\mathrm{goods}\mathrm{sold}}{\mathrm{Sales}\mathrm{price}}\\ & =& \$300\times \frac{\$6,000}{\$8,000}\\ & =& \$225\\ \mathrm{Cash}\mathrm{received}& =& \mathrm{Sales}\mathrm{price}-\mathrm{Sales}\mathrm{return}\\ & =& \$8,000-\$300\\ & =& \$7,700\end{array}$