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 $440,000. During 2021, Halifax sold merchandise on account for $12,900,000. Halifax's merchandise costs it 65% of merchandise selling price. Also during the year, customers returned $630,000 in sales for credit, with $347,000 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? 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

Debit Credit Date Account Titles and Explantion (a) record actual returns in 2021 of merchandise that was sold prior to 2021 la. Record the actual sales return of merchandise sold prior to 2021. 2021 Refund liability Account Receivables $347,000 $347,000 $225,550 1b. Record the cost of merchandise returned for goods sold prior to 2021. 2021 Inventory ($347,000 x 65%). Inventory—estimated returns Record the cost of merchandise returned for goods sold prior to 2021. $225,550 1c. Record the actual sales return of merchandise sold during 2021. 2021 Sales returns ($630,000 - $347,000) = Accounts receivable $283,000 $283,0001 1d. Record the cost of merchandise returned for goods sold during 2021. 2021 Inventory ($283,000 x 65%) Cost of Good Sold $183,950 $183,950

(c) adjust the refund liability to its appropriate balance at year-end. le. Record the year-end adjusting entry for estimated returns 2021 Sales returns Refund liability T $298,000 L $298,000| 1f. Record the adjusting entry for the estimated return of merchandise to inventory. 2021 Inventory ($298,000 x 65% Cost of Good Sold $193.700 $193,700 Estimated returns of 2021 sales = 5% Ⓡ$12,900,000 Less: Actual returns of 2021 sales Remaining estimated returns of 2021 sales $645,000 -$283,000 $362,000 2 Beginning balance in refund liability Less: Actual returns of pre-2021 sales Plus: adjustment needed: Ending balance in refund liability (equal to amount estimated as necessary for remaining returns of 2021 sales) $411,000 -$347,000 $298,000 $362,0001