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 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 $410,000. During 2018, Halifax sold merchandise on account for $12,600,000. This merchandise cost Halifax $8,190,000 (65% of selling prices). Also during the year, customers returned $491,000 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 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?

Prepare an entry to record actual merchandise returns as they occur (not adjusting the allowance for sales returns), and then record a year-end entry to adjust the allowance for sales returns to its appropriate balance.

Required 1: - Record the actual sales returns. - Record the return of merchandise to stock. - Record the year-end adjusting entry for estimated returns. - Record the adjusting entry for the estimated return of merchandise to inventory.

Required 2: What is the amount of the year-end allowance for sales returns after the adjusting entry is recorded?

	Ending balance in allowance account

Answer 1

Journal Entry
S. No.	Detail	Debit	Credit
1	Land	$402,000.00
	Building	$1,206,000.00
	Equipment	$804,000.00
	Goodwill	$25,500.00
	Common Stock		$1,250,000.00
	( Asset aquire in exchange of 12500 share, 100 Apr value
	Paid in Capital in excess of Par Value		$1,187,500.00
	( Excess of Par Value , 12500 share @ 95
2	Land & Building A/c	$519,620.00
	Cash		$519,620.00
	( Being Associated cost of Renovation of Building and Land)
3	Equipment	$310,340.00
	Cash		$304,360.00
	Discount on Cash Payment		$5,980.00
	( Being Equiment anf Freigh cost with Equipment Capitalised and cash discount adjuested
1. Journal Entry
S. No.	Detail	Debit	Credit
1	Sales Return	$491,000.00
	To Account Receivable		$491,000.00
	( Sales Return made and adjusted from Account Payable)
2	Inventory	$319,150.00
	To Cost of Goods Sold		$319,150.00
	( being Goods return taken on inventory
3	Provision for Sales Return	$491,000.00
	T0 Sales Return		$491,000.00
	( Actual Sales return adjusted from provision for sales return)
2. Computation of Amount of the year end Allowance for Sales Return after Adjusting Entry
	Opening Balance of Sales Return Allowance	$410,000.00
Add:	Sales Retur allowance made during the year	$504,000.00
	(Esimate= 4% of Sales ( $126,00,000)
Less:	Actual Return during the year	-$491,000.00
	Closing balance of Sales Return Allowance	$423,000.00