Question

Exercise 7-8 (Algo) Sales returns (LO7-4] 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. 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?

Answer 1

Answer logy - Estimated ruins $ 262,000 X 65. = $ 170,300 year General Journal credit (& Refund liability Debilla $262.000 1. 2001 Accounts receivable $262.000 inventory $140,300 2021 $170,300 inventory-Estimated returns Astead ootcarnes in sos de merchandise that was cold dining 2001: sales voternes = actual sales returns during the yeary - Returny of merchandise - sold prior to 2001 -- $474,000 – 362,000 = $212,000 Year Debit C Gredit(&). Gieneral Journal sales returns Account receivable $112.000 3 2021 $ 22,000 cost of goods sold = ald, 000 X657. = $137,800

a) year General Tournal inventory cost of goods sold Debitc) $131, 800 editc37 4. 0021 $137,800 Refund liability = Estimated sales return -actual wekening during the year 0,000 X 4 ) -- 474,000 = 480,000 -474,000 =$6000 2 Улау credited) General Journal sales re-ferns Refund liability Debitco. $6,000 2001 $6,000 inventory Estimated refereny = $6.000 XG5.8 - $3900 No 9021 year General Tournal Debit (4 creditce). inventory Estimated recturing $3,900 . Cost of goods sold 1 +3,900 Ending balance in refund liability = beginning balance in refund liability + Esformarled sales reten - actual sales relewiny during they

Ending balanec in refeind liability=$350,000 + 480,000 - 474,000 -- $356,000 17:12000,000x4.1. = 480,000 5. Ending balance in refund liability = $ 356,000

Answer 2

31-Dec	Refund Liability				$  262,000			Refund   Liability
	Account receivable					$ 262,000		$ 262,000	$          350,000
									$          88,000	pre closing bals
	Inventory (262000*.65)				$  170,300				$        180,000
	Inventory Est. Return					$ 170,300			$        268,000	ending balance refund   liability
31-Dec	Sales return (474000-262000)				$  212,000
	Account receivable					$ 212,000
	Inventory (212000*.65)				$  137,800
	Cost of goods sold					$ 137,800
31-Dec	Sales return (12000000*.04-212000-88000				$  180,000
	Refund Liability					$ 180,000
	Inventory Est. Return (180000*.65)				$  117,000
	Cost of goods sold					$ 117,000