Question

Suppose that after Wal-Mart sold the two Schwinn mountain bikes, the customer returned one to Wal-Mart. Assuming that the bike is still like new, Wal-Mart would refund the $200 selling price to the customer and take the bike back into inventory.

(analyze and record)

Answer 1

A customer returning a Schwinn mountain bike to Wal-Mart for a refund will necessitate an accounting adjustment, refunding the sale price and adjusting inventory.

Step-by-step explanation:

When a customer returns a product to a retail establishment like Wal-Mart, there are financial ramifications that need to be accounted for in the business's financial records. In the case mentioned, where a customer returns a Schwinn mountain bike priced at $200 and it is taken back into inventory, Wal-Mart would need to reverse the original sale transaction. This means they would make an accounting entry that refunds the $200 to the customer and increases inventory by one bike.

In a broader business context, this action also affects the demand curve for that product. If the return is due to a defect that leads to a recall and gains media attention, the demand curve could shift leftward, indicating a decrease in demand. Conversely, should there be a positive shift in the market, this could be seen as an increase in demand. Lastly, when considering the financial aspects of a business like Wal-Mart, the issuance of stock and the expectations of returns in the form of dividends or capital gains need to be taken into account by investors.