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Halifax Manufacturing allows its customers to return merchandisefor any reason up to 90 days...

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Accounting

Halifax Manufacturing allows its customers to return merchandisefor any reason up to 90 days after delivery and receive a credit totheir accounts. All of Halifax’s sales are for credit (no cash iscollected at the time of sale). The company began 2021 with arefund liability of $300,000. During 2021, Halifax sold merchandiseon account for $11,500,000. Halifax's merchandise costs it 65% ofmerchandise selling price. Also during the year, customers returned$450,000 in sales for credit, with $250,000 of those being returnsof merchandise sold prior to 2021, and the rest being merchandisesold during 2021. Sales returns, estimated to be 4% of sales, arerecorded as an adjusting entry at the end of the year.

Required:
1. Prepare entries to (a) record actual returns in2021 of merchandise that was sold prior to 2021; (b) record actualreturns in 2021 of merchandise that was sold during 2021; and (c)adjust the refund liability to its appropriate balance at yearend.
2. What is the amount of the year-end refundliability after the adjusting entry is recorded?

Req. 1:

Record the actual sales return of merchandise sold prior to2021.

Record the cost of merchandise returned for goods sold prior to2021.

Record the actual sales return of merchandise sold during2021.

Record the cost of merchandise returned for goods sold during2021.

Record the year-end adjusting entry for estimated returns.

Record the adjusting entry for the estimated return ofmerchandise to inventory.

Req. 2:

What is the amount of the year-end refund liability after theadjusting entry is recorded?

Answer & Explanation Solved by verified expert
3.8 Ratings (534 Votes)

1. Entries :

Sr. No. Account Debit ($) Credit ($) Calculations
(a) Refund Liability Dr. 250000
To Accounts Receivable 250000
Inventory Dr. 162500 =250000*65%
To Inventory-Estimated Returns 162500
Refund Liability Dr. 50000 =300000 opening-250000 refunded
To Inventory-Estimated Returns 32500 =50000*65%
To P&L 17500 =50000-32500
(b) Sales Return Dr 200000
To Accounts Receivable 200000
Inventory Dr 130000 =200000*65%
To Cost of Goods sold 130000
(c ) Sales Return Dr. 260000 (11500000*4%)-200000
To Refund Liability 260000
Inventory-Estimated Returns Dr 169000 =(Refund Liability)*65%
To Cost of Goods sold 169000 =(260000)*65%

2. Year-end Refund Liability = $260000.

Opening Balance 300000
-Refunded -250000
-reversed -50000
+created for current year 260000
Closing Balance 260000

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In: AccountingHalifax Manufacturing allows its customers to return merchandisefor any reason up to 90 days after...Halifax Manufacturing allows its customers to return merchandisefor any reason up to 90 days after delivery and receive a credit totheir accounts. All of Halifax’s sales are for credit (no cash iscollected at the time of sale). The company began 2021 with arefund liability of $300,000. During 2021, Halifax sold merchandiseon account for $11,500,000. Halifax's merchandise costs it 65% ofmerchandise selling price. Also during the year, customers returned$450,000 in sales for credit, with $250,000 of those being returnsof merchandise sold prior to 2021, and the rest being merchandisesold during 2021. Sales returns, estimated to be 4% of sales, arerecorded as an adjusting entry at the end of the year.Required:1. Prepare entries to (a) record actual returns in2021 of merchandise that was sold prior to 2021; (b) record actualreturns in 2021 of merchandise that was sold during 2021; and (c)adjust the refund liability to its appropriate balance at yearend.2. What is the amount of the year-end refundliability after the adjusting entry is recorded?Req. 1:Record the actual sales return of merchandise sold prior to2021.Record the cost of merchandise returned for goods sold prior to2021.Record the actual sales return of merchandise sold during2021.Record the cost of merchandise returned for goods sold during2021.Record the year-end adjusting entry for estimated returns.Record the adjusting entry for the estimated return ofmerchandise to inventory.Req. 2:What is the amount of the year-end refund liability after theadjusting entry is recorded?

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