Question

In: Accounting

Halifax Manufacturing allows its customers to return merchandise for any reason up to 90 days after...

Halifax Manufacturing allows its customers to return merchandise for any reason up to 90 days after delivery and receive a crRecord the actual sales return of merchandise sold prior to 2018. Record the cost of merchandise returned for goods sold prio6 Record the adjusting entry for the estimated return of merchandise to inventory.

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 a refund liability of $300,000. During 2018, Halifax sold merchandise on account for $11,500,000. Halifax's merchandise costs it 65% of merchandise selling price. Also during the year, customers returned $450,000 in sales for credit, with $250,000 of those being returns of merchandise sold prior to 2018, and the rest being merchandise sold during 2018. Sales returns, estimated to be 4% of sales, are recorded as an adjusting entry at the end of the year. 


Required:

 1. Prepare entries to (a) record actual returns in 2018 of merchandise that was sold prior to 2018; (b) record actual returns in 2018 of merchandise that was sold during 2018; and (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?


1 Record the actual sales return of merchandise sold prior to 2018. 

2 Record the cost of merchandise returned for goods sold prior to 2018 

3 Record the actual sales return of merchandise sold during 2018 

4 Record the cost of merchandise returned for goods sold during 2018. 

5 Record the year-end adjusting entry for estimated returns.

6 Record the adjusting entry for the estimated return of merchandise to inventory.

Solutions

Expert Solution

General Journal Debit Credit
1 Sales return and allowance $250,000
Accounts receivable $250,000
(To record the sales return)
2 Merchandise Inventory $162,500 ($250,000 x 65%)
Cost of goods sold $162,500
(To record cost of goods sold related to sales return)
3 Sales return and allowance $200,000
Allowance for sales retuns $200,000
(To record the sales return)
4 Merchandise Inventory $130,000 ($200,000 x 65%)
Cost of goods sold $130,000
(To record cost of goods sold related to sales return)
5 Sales return and allowance $10,000
Allowance for sales retuns $10,000
6 Inventory - Estimated returns $6,500 ($10,000 x 65%)
cost of goods sold $6,500
Working
Estimated returns ($11,500,000 x 4%) $460,000
Less: Actual Returns $450,000
Remaining Estimated Returns $10,000

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