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

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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 is 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?

Answer & Explanation Solved by verified expert

4.2 Ratings (594 Votes)

Estimated returns for the year = $11500000 x 4% = $460000
Refund liability balance for last year = $300000-250000 = $50000
Adjustment = $460000 - 50000 = $410000

	Account Titles	Debit	Credit
a	Allowance for Refund Liability	$ 2,50,000
	Accounts Receivable		$ 2,50,000

	Inventory	$ 1,62,500
	Cost of Goods Sold		$ 1,62,500

b	Sales returns and allowances	$ 2,00,000
	Accounts Receivable		$ 2,00,000

	Inventory	$ 1,30,000
	Cost of Goods Sold		$ 1,30,000

c	Sales returns and allowances	$ 4,10,000
	Allowance for Refund Liability		$ 4,10,000

	Inventory	$ 2,66,500
	Cost of Goods Sold		$ 2,66,500

2. Year end refund liability = $460000

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Transcribed Image Text

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 is 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?