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 2021 with a refund liability of $360,000. During 2021, Halifax sold merchandise on account for $12,100,000. Halifax's merchandise costs is 70% of merchandise selling price. Also during the year, customers returned $594,000 in sales for credit, with $328,000 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:

1. Prepare entries to (a) record actual returns in 2021 of merchandise that was sold prior to 2021; (b) record actual returns in 2021 of merchandise that was sold during 2021; and (c) adjust the refund liability to its appropriate balance at year end.

Need help finding the numbers marked by "????". None of the other similar problems on here are correct.

Record the actual sales return of merchandise sold prior to 2021.	Debit	Credit
Refund Liability	328,000
Accounts Receivable		328,000

Record the cost of merchandise returned for goods sold prior to 2021.	Debit	Credit
Inventory	229,600
Inventory - estimated returns		229,600

Record the actual sales return of merchandise sold during 2021.	Debit	Credit
Sales Returns	266,000
Accounts Receivable		266,000

Record the cost of merchandise returned for goods sold during 2021	Debit	Credit
Inventory	186,200
Cost of Goods Sold		186,200

Record the year-end adjusting entry for estimated returns.	Debit	Credit
Sales Returns	????
Refund Liability		?????

The numbers I've tried above that were incorrect were "339,000" and "11,000"

Record the adjusting entry for the estimated return of merchandise to inventory.	Debit	Credit
Inventory - estimated returns	????
Cost of Goods sold		????

The numbers I've tried above that were incorrect were "237,300" and "7,700"

2. What is the amount of the year-end refund liability after the adjusting entry is recorded?

Ending balance in refund liability	????

The numbers I've tried above that were incorrect were "371,000" and "699,000"

Answer 1

Solution

Requirement - 1

Date	Particulars	Debit	Credit
1	Refund Liability	328000
	Accounts Receivable		328000
	(To record the actual sales return of merchandise sold prior to 2021)
2	Inventory	229600
	Inventory - estimated returns		229600
	(To record the cost of merchandise returned for goods sold prior to 2021)
3	Sales return	266000
	Accounts Receivable		266000
	(To record the actual sales return of merchandise sold during 2021)
4	Inventory	186200
	Cost of Goods Sold		186200
	(To record Record the cost of merchandise returned for goods sold during 2021)
5	Sales Returns	339000
	Refund Liability		339000
	(To recod the year end adjusting entry for estimated returns)
6	Inventory Estimated returns	237300
	Cost of goods sold		237300
	(To record adjusting entry for the estimated return of merchandise to inventory)

Requirement – 2

Ending balance in refund liability = Beginning Balance + Current year refund liability (created in part 5) – Refund liability paid (in part 1)

                                =             360000 + 339000 – 328000

                                =          371000

Working Note

Entry 3 -              

Return pertaining to 2021 =             Total returns – return prior to 2021

                                                                =             594000 – 328000

                                                                =             266000

Entry -4

Cost of returns in 2021 =             266000 / 70%

                                                               =             186200

Entry – 5

Total estimated return liability for 2021 (12100000*5%)                  =             605000

Less: Actual return from current year sales                                     =             (266000)

Remaining estimated returns                                                           =             339000

Entry – 6

Cost of remaining estimated returns =             399000 * 70%

                                                                                                =             237300