For the year ended December 31, 2017, Modern Furniture made

For the year ended December 31, 2017, Modern Furniture made total sales of $1,000,000 but expects to receive requests for refunds of returned or damaged merchandise that are 2% of total sales. The company also expects to receive returns of merchandise costing $12,000. Prepare the adjusting entries required at year-end if 2017 is the company’s first year of operations.

Assume that the following year Modern Furniture (from problem #3) paid a refund of $4,500 for inventory costing $2,500. Prepare the journal entry to record this payment and reduction in inventory, which occurred on January 22, 2018.