Question

6-7. Halifax Manufacturing allows its customers to return merchandise for any reason up to 90 days after delivery and receive a credit to their accounts. All of Halifax's sales are for credit (no cash is collected at the time of sale). The company began 2018 with an allowance for sales returns of $380,000. During 2018, Halifax sold merchandise on account for $12,300,000. This merchandise cost Halifax $8,610,000 (70% of selling prices). Also during the year, customers returned $603,000 in sales for credit. Sales returns, estimated to be 5% of sales, are recorded as an adjusting entry at the end of the year.

1. Prepare an entry to record actual merchandise returns as they occur (not adjusting the allowance for sales returns), and then record a year-end entry to adjust the allowance for sales returns to its appropriate balance.

2. What is the amount of the year-end allowance for sales returns after the adjusting entry is recorded?

Complete this questions by entering your answers below.

Prepare an entry to record actual merchandise returns as they occur (not adjusting the allowance for sales returns), and then record a year-end entry to adjust the allowance for sales returns to its appropriate balance. (If no entry is required for a transaction/event, write "no journal entry required: in the first account field.)

Record the actual sales returns._________________________

Record the return of merchandise to stock.

Record the year-end adjusting entry for estimated returns.

Record the adjusting entry for the estimated return of merchandise to inventory

Year General Journal Debit Credit

2018 _________________________   ____________ ___________

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What is the amount of the year-end allowance for sales returns after the adjusting entry is recorded?

Ending balance in allowance account_____________________________

Answer 1

	Journal Entries	Debit	Credit
	Sales Return and Allowance	$ 603,000.00
	Accounts Receivable		$ 603,000.00
	(To record the sales return at invoice price)
	Merchandise Inventory [70% of$603000]	$ 422,100.00
	Cost of Goods Sold		$ 422,100.00
	(To record the cost of goods sold)
	Estimated Return [$12,300,000*5%]	$ 615,000.00
	Less: Actual Return	$ 603,000.00
	Remaining Return	$    12,000.00
	Sales Return	$    12,000.00
	Allowance for Sales Return		$    12,000.00
	(To record the sales return at invoice price)
	Merchandise Inventory [$12000*70%]	$      8,400.00
	Cost of Goods Sold		$      8,400.00
	(To record the cost of goods sold)
2	Compute the year end balance of sales return
	Beginning Balance in Allowance Account	$ 380,000.00
	Add: Year end estimate	$ 615,000.00
	Less: Actual return	$ 603,000.00
	Ending Balance in Allowance Account	$ 392,000.00