Question
Halifax Manufacturing allows its customers to return merchants for any reason up to 90 days after delivery and receive a credit to their accounts. All
Halifax Manufacturing allows its customers to return merchants 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 $ 300,000. During 2021,
Halifax sold merchandise on accounts for $ 11,500,00. Halifax's merchandise costs 65% of merchandise selling price. Also during the year, customers return
$ 450,000 in sales for credit, with $ 250,000 of those being returns of merchandise sold prior to 2021, and the rest being merchandise sold during 2021.
Sales returns, estimated to be 4% of sales, are recorded as adjusting entry at the end of the year.
Required:
1). Prepare entries to record (a) record actual return in 2021 of merchandise that was sold prior to 2021: (b) record actual returns in 2021 of merchandise
that was sold during 2021: ( 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?
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