Question

Check my work Exercise 7-8 (Algo) Sales returns (LO7-4) points 8 01:56:53 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 $350,000. During 2021, Halifax sold merchandise on account for $12,000,000. Halifax's merchandise costs is 65% of merchandise selling price. Also during the year, customers returned $474,000 in sales for credit, with $262,000 of those being returns of merchandise sold prior to 2021, and the rest being merchandise sold during 2021. Sales returns, estimated to be 4% of sales, are recorded as an adjusting entry at the end of the year. Skipped eBook 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? Print References Complete this question by entering your answers in the tabs below. Required 1 Required 2 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list

Answer 1

Answer

Journal Entry for returned goods is as follows

Particulars

Debit

Credit

Sales return A/c	$474,000
To Accounts receivable A/c		$474,000

(being returned goods recorded)

Merchandise inventory A/c ($474,000 × 65%)	$308,100
To To Cost of goods sold		$308,100

(Being cost of goods sold recorded)

The computation of the estimated return is as follows:

= Sale value of merchandise × return percentage - actual return

= $12,000,000 × 4% - $474,000

= $480,000 - $474,000

= $6,000

December 31, Entry to record the estimated sales return will be

Sales return A/c	$6,000
To Allowance for Returns A/c		$6,000

(being returned goods recorded)

Merchandise inventory A/c ($6,000 × 65%)	$3,900
To Cost of goods sold		$3,900

(Being cost of goods sold recorded)

Ending balance in allowance account :
Beginning balance in allowance account             $350,000
Add: Year-end estimate ($474000+$6000)           $480,000
Less: Actual returns                                         ($474,000)

Ending balance       $356,000