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Towbin Products has a fiscal year end of December 31. On December 1, Year 2,...

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Accounting

Towbin Products has a fiscal year end of December 31. On December 1, Year 2, Towbin Products sells merchandise on credit for $7,000. The merchandise cost Towbin $4,900 (70% of the selling price). Towbin estimates that returns and allowances will amount to 4% of sales. On December 22, a customer returns for credit merchandise originally sold on December 1 for $200. On January 5, Year 3, a customer returns for credit merchandise originally sold for $80.

Required:
1. Assume Towbin uses a periodic inventory system. Prepare the journal entries to record the preceding information.
2. Assume that Towbin uses a perpetual inventory system. Prepare the journal entries to record the preceding information.
3. Consider your answer to Requirements 1 and 2. How would the preceding information be reflected on Towbins December 31, Year 2, financial statements?
4. Next Level What is the conceptual advantage of recording sales returns and allowances as a reduction of revenue?

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