One of Hawk Company's customers returned a product that cost Hawk $300,which was sold on account for $450.Which of the following does not correctly describe the effect of the return on the financial statements?
A)Gross profit decreases $150.
B)Total current assets decrease $150.
C)Sales returns and allowances increase $450.
D)Operating expenses increase $150.

Question

Quizplus · Accepted Answer

The return does not increase operating expenses, as Hawk Company has already recorded the expense related to the sale when it recognized the cost of goods sold, which is $300. The return only affects the revenue and gross profit recognized at the time of sale, as well as the accounts receivable (current asset) and sales returns and allowances accounts. Therefore, option D is the incorrect statement.

One of Hawk Company's Customers Returned a Product That Cost