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False Value Hardware began 2021 with a credit balance of $32,000 in the refund liability account


False Value Hardware began 2021 with a credit balance of $32,000 in the refund liability account. Sales and cash collections from customers during the year were $650,000 and $610,000, respectively. False Value estimates that 6% of all sales will be returned. During 2021, customers returned merchandise for credit of $28,000 to their accounts. 


What is the balance in the refund liability account at the end of 2021? 

A) $11,000. 

B) $39,000. 

C) $43,000. 

D) $21,000.

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Answer #1

Answer - C) $ 43,000

Computation:

Opening balance of refund liability - Returns to customer + closing balance refund liability

= $ 32,000 - $ 28,000 + ($650,000 * 6%)

= $ 32,000 - $ 28,000 + $ 39,000

= $ 43,000.

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Answer #2

The answer is C. 

$650000*0.06 = 39000 total expected returns for the operating period

$39000-$28000 (received returns) = $11000 expected to still be returned

$32000 + $11000= $43000


answered by: Greg Martin
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