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 $390,000. During 2021, Halifax sold merchandise on account for $12,400,000. Halifax's merchandise costs it 65% of merchandise selling price. Also during the year, customers returned $368,000 in sales for credit, with $203,000 of those being returns of merchandise sold prior to 2021, and the rest being merchandise sold during 2021. Sales returns, estimated to be 3% of sales, are recorded as an adjusting entry at the end of the year. a) Record the year-end adjusting entry for estimated returns.b) Record the adjusting entry for the estimated return of merchandise to inventory.c) What is the amount of the year-end refund liability after the adjusting entry is recorded?

Question
Asked Oct 19, 2019

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 $390,000. During 2021, Halifax sold merchandise on account for $12,400,000. Halifax's merchandise costs it 65% of merchandise selling price. Also during the year, customers returned $368,000 in sales for credit, with $203,000 of those being returns of merchandise sold prior to 2021, and the rest being merchandise sold during 2021. Sales returns, estimated to be 3% of sales, are recorded as an adjusting entry at the end of the year.

 

a) Record the year-end adjusting entry for estimated returns.

b) Record the adjusting entry for the estimated return of merchandise to inventory.

c) What is the amount of the year-end refund liability after the adjusting entry is recorded?

check_circle

Expert Answer

Step 1

a. Prepare the year-end adjusting entry for estimated returns:

Debit (S) Credit ($)
Account title and Explanation
Date
Sales return and allowance
$368,000
$368,000
Accounts receivable
|(To record the sales returns at invoice price)
Merchandise inventory ($368,000*65%)
Cost of goods sold
(To record the cost of goods sold)
$239,200
$239,200
help_outline

Image Transcriptionclose

Debit (S) Credit ($) Account title and Explanation Date Sales return and allowance $368,000 $368,000 Accounts receivable |(To record the sales returns at invoice price) Merchandise inventory ($368,000*65%) Cost of goods sold (To record the cost of goods sold) $239,200 $239,200

fullscreen
Step 2

b. Record the adjusting entry for the estimat...

Debit (S) Credit (S)
Account title and Explanation
Date
Sales returns
$4,000
Allowance for sales returns
(To record the sales returns at invoice price)
$4,000
Merchandise inventory ($4,000 * 65%
Cost of goods sold
(To record the cost ofgoods sold)
$2,600
$2,600
Working notes:
Estimated returns $12,400,000*3% = $372,000
Less: Actual returns
Remaining returns
-$368,000
= $4,000
help_outline

Image Transcriptionclose

Debit (S) Credit (S) Account title and Explanation Date Sales returns $4,000 Allowance for sales returns (To record the sales returns at invoice price) $4,000 Merchandise inventory ($4,000 * 65% Cost of goods sold (To record the cost ofgoods sold) $2,600 $2,600 Working notes: Estimated returns $12,400,000*3% = $372,000 Less: Actual returns Remaining returns -$368,000 = $4,000

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Accounting

Related Accounting Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: urrent Attempt in Progress Bramble and Miller Manufacturing is trying to determine the equivalent un...

A: In the above equation, the net units has been derived by subtracting ending work in progress units f...

question_answer

Q: The Aleutian Company produces two products, Rings and Dings. They are manufactured in two department...

A:  1. Calculation of overhead cost per unit of Dings: Results of the formulas used in the Excel table ...

question_answer

Q: Question 8

A: When net credit sales is divided with average accounts receivable it results in receivable turnover ...

question_answer

Q: (LO 5.4) Anthony, a self-employed plumber, makes a maximum contribution to a SEP for his employee, D...

A: Simplified employee pension (SEP):SEP is an individual retirement account with the certain tax benef...

question_answer

Q: Required Information [The following Information applies to the questions displayed below.] Chavez Co...

A: Bank reconciliation:Bank statement is prepared by bank, while companies maintains its own records fr...

question_answer

Q: A company has inventory of 17 units at a cost of $11 each on May 1. On May 5, they purchased 11 unit...

A: FIFO: In First-in-First-Out method, items purchased initially are sold first. So, the value of the e...

question_answer

Q: Question ask you to jurnalize the january transaction, prepare trial balance and jurnalize the adjus...

A: a.Journal entries

question_answer

Q: Sales price $6.54 per unit Variable costs $2.77 per unit Fixed Costs $10,874 Budgeted number of unit...

A: Determine contribution margin per unit.

question_answer

Q: Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tap...

A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question s...