Organic Growth Company is presently testing a number of new agricultural seeds that it has recently harvested. To stimulate interest, it has decided to grant to five of its largest customers the unconditional right of return to these products if not fully satisfied. The right of return extends for 4 months. Organic Growth sells these seeds on account for $1,510,000 (cost $755,000) on November 1, 2016. AssumeOrganic Growth estimates returns of 10% based on prior experience
a. Prepare the journal entry for Organic Growth at November 1, 2016.
b. Assume that one customer returns the seeds on December 1, 2016, due to unsatisfactory performance. Prepare the journal entry to record this transaction, assuming this customer purchased $107,000 of seeds from Organic Growth.
c. Prepare the year-end adjustment for estimated returns on December 31, 2016. Organic Company believes its original estimate is correct.