Chico Company allows its customers to return merchandise within 30 days of purchase - At December 31 , the end of its first year of opcrations, Chico estimates fulure period merchandise returns of \( \$ 63,000 \) (rost of \( \$ 24,000 \) ) related to its current year sales - A few days later on January 3, a customer returns merchandise with a selling price of \( \$ 2.150 \) for a cash refund, the returned merchandise cost \( \$ 780 \) and is returned to inventory as it is not defective a. Prepare the December 31 year-end adjusting journal entry for estimated future sales returns and allowances (revenue side) b. Prepare the December 31 year end adjusting journal entry for estimated future inventory returns and allowances (cost side) c. Prepare the January 3 journal entries to record the merchandise returned Viow transestion list

To address the transactions you've provided regarding Chico Company, let's break down the journal entries for each situation. ### a. December 31 Year-End Adjusting Journal Entry for Estimated Future Sales Returns and Allowances (Revenue Side) **Journal Entry:** ``` Date Account Titles Debit Credit Dec 31 Sales Returns and Allowances $63,000 Allowance for Sales Returns and Allowances $63,000 ``` **Explanation:** This entry recognizes the estimated future sales returns that are expected to be made by customers, which will reduce the total sales revenue. --- ### b. December 31 Year-End Adjusting Journal Entry for Estimated Future Inventory Returns and Allowances (Cost Side) **Journal Entry:** ``` Date Account Titles Debit Credit Dec 31 Inventory Returns and Allowances $24,000 Cost of Goods Sold $24,000 ``` **Explanation:** This entry accounts for the expected return of inventory and increases inventory on the balance sheet while decreasing the cost of goods sold to reflect the inventory that will be returned. --- ### c. January 3 Journal Entries to Record the Merchandise Returned **Journal Entries:** ``` Date Account Titles Debit Credit Jan 3 Cash $2,150 Sales Returns and Allowances $2,150 Jan 3 Inventory $780 Cost of Goods Sold $780 ``` **Explanation:** The first entry records the cash refund to the customer by debiting cash and reducing the sales through the sales returns account. The second entry updates the inventory account to reflect the return of the merchandise into inventory and reduces the cost of goods sold accordingly.