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.)

Answer 1

ANSWER:

AS PER THE GIVEN QUESTION,

Account Titles and Explanation

Sales return   $ 347,000   
Accounts receivables       $ 347,000
(Being actual sales return recorded)  

   
Inventory ($347,000 X 65%)   $ 225,550  
Cost of goods sold       $ 225,550
(Being cost of goods sold recorded)  

  
Sales return   $ 298,000
Allowance for Sales return       $ 298,000
(Being allowance for Sales return adjusted)      
[($12,900,000 X 5%) - $347,000]      

Inventory - Estimated returns ($298,,000 X 65%)   $ 193,700   
Cost of goods sold       $ 193,700
(Being cost of goods sold recorded)      

Amount of year end allowance for sales return after adjusting entry:
Opening Balance   =   $ 440,,000
Add: Estimated Sales return ($12,900,000 X 5%)   = $ 645,000
Less: Actual Sales return   =   $ 347,000
Closing Balance   =   $ 738,000

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