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
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 $340,000. During 2021, Halifax sold merchandise on account for $11,600,000. Halifax's merchandise costs it 75% of merchandise selling price. Also during the year, customers returned $575,000 in sales for credit, with $319,000 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: Prepare entries to record actual sales return of merchants sold prior to 2021, the cost of merchandise returned for goods sold prior to 2021, the actual sales return of merchandise sold during 2021, the cost of merchandise for goods sold during 2021, the year-end entry for estimated returns, and the entry for the estimated return of merchandise to inventory. Finally, what is the amount of the year end refund liability after the adjusting entry is recorded?
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