Halifax Manufacturing allows its customers to return merchandise for any reason up to 90 days after delivery andreceive a credit to their accounts. All of Halifax’s sales are for credit (no cash is collected at the time of sale). Thecompany began 2018 with an allowance for sales returns of $300,000. During 2018, Halifax sold merchandiseon account for $11,500,000. This merchandise cost Halifax $7,475,000 (65% of selling prices). Also during theyear, customers returned $450,000 in sales for credit. Sales returns, estimated to be 4% of sales, are recorded as anadjusting entry at the end of the year.Required:1. Prepare an entry to record actual merchandise returns as they occur (not adjusting the allowance for salesreturns), and then record a year-end entry to adjust the allowance for sales returns to its appropriate balance.2. What is the amount of the year-end allowance for sales returns after the adjusting entry is recorded?
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 2018 with an allowance for sales returns of $300,000. During 2018, Halifax sold merchandise
on account for $11,500,000. This merchandise cost Halifax $7,475,000 (65% of selling prices). Also during the
year, customers returned $450,000 in sales for credit. Sales returns, estimated to be 4% of sales, are recorded as an
adjusting entry at the end of the year.
Required:
1. Prepare an entry to record actual merchandise returns as they occur (not adjusting the allowance for sales
returns), and then record a year-end
2. What is the amount of the year-end allowance for sales returns after the adjusting entry is recorded?
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