Q:
Revenue recognition at time of sale. Spencer Group and Marks Plc., a U.K. retailer, applies IFRS and reports its results in millions of pounds sterling. The notes to its financial statements for the year finished March 29, 2008, provide the subsequent information:
- Revenue comprises sales of goods to customers less a suitable deduction for returns and discounts. Marks and Spencer records revenues for sales of furniture and items brought online upon delivery to the customer.
- Spencer and Marks records trade receivables at their nominal amount less an allowance for any doubtful sales and accounts returns. The starting balance in the allowance for uncollectible accounts and sales returns was £1.1 million, and the ending balance was £3.3 million. There were no recoveries of uncollectible accounts through the year.
For the year ended 29th March, 2008, Marks and Spencer reported revenues (before discounts and returns) of £9,022.0 million. The cost of merchandise sold in 2008 was £5535.2 million. Suppose that Spencer and Marks estimates discounts and returns of 1 percent of sales. Further assume that it made all sales on credit and that it estimates that 1.5 percent of revenue will be uncollectible.
a. What journal entry did Spencer and Marks record during the ar ended March 29, 2008, to identify revenues and expenses?
b. What journal entry did Spencer and Marks make in the year ended March 29, 2008, to identify sales returns and bad debts expense?
c. What wits the combined write-offs of uncollectible accounts and amount of sales returns during the year ended March 29, 2008?
(a) Journal entry to identify revenues and expenses:
Accounts Receivable, Gross 9,022.0
Cost of Goods Sold 5,535.2
Sales Revenue _____?
Merchandise Inventory _____?
(b) Journal entry to identify sales returns and bad debts expense (combined):
Sales Returns 90.22
Bad Debt Expense 135.33
Allowance for Doubtful Accounts and Sales
Returns ______?
(c) Beginning Balance, Allowance £ 1.10
Sales Returns 90.22
Bad Debt Expense _____?
Less Ending Balance, Allowance (3.30)
Net Returns and Write-offs £223.35