Question

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 2021 with a refund liability of $360,000. During 2021, Halifax sold merchandise on account for $12,100,000. Halifax's merchandise costs is 70% of merchandise selling price. Also during the year, customers returned $594,000 in sales for credit, with $328,000 of those being returns of merchandise sold prior to 2021, and the rest being merchandise sold during 2021. Sales returns, estimated to be 5% of sales, are recorded as an adjusting entry at the end of the year. Required: 1. Prepare entries to (a) record actual returns in 2021 of merchandise that was sold prior to 2021; (b) record actual returns in 2021 of merchandise that was sold during 2021; and (c) adjust the refund liability to its appropriate balance at year end. 2. What is the amount of the year-end refund liability after the adjusting entry is recorded?

I need a specific number, preferably a specific process.

Answer 1

1)

Date	Account title	Debit	credit
a
1	Refund liability	328000
	Accounts receivable		328000
2	Inventory	229600
	Inventory -estimated returns (328000*.70)		229600
b
3	Sales return	266000
	Accounts receivable		266000
4	Inventory	186200
	cost of goods sold		186200
c
5	Sales return	339000
	Refund liability		339000
6	Inventory -estimated returns	237300
	cost of goods sold		237300

working :

Part b)

3)Returns pertaining to 2021 = Total returns -returns prior to 2021

                          = 594000-328000

                           = 266000

4)Cost of returns in 2021= 266000*70%= 186200

Part C)

Total estimated return liability for 2021 (12100000*5%)	605000
less:Actual returns from current year sales	(266000)
Remaining estimated returns	339000

6)

cost of remaining estimated returns = 339000*70%=237300

Question 2)

Ending balance in refund liability =Beginning Balance + current year refund liability (created in part 5 )- Refund liability paid (in part 1)

            = 360000 + 339000- 328000

            = 371000