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 $330,000. During 2018, Halifax sold merchandise on account for $11,800,000. This merchandise cost Halifax $8,260,000 (70% of selling prices). Also during the year, customers returned $345,000 in sales for credit. Sales returns, estimated to be 3% 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

Answer 1

Answer:

A.Halifax Manufacturing Journal entries

Dr Sales returns 345,000

Cr Refund liability 345,000

Dr Allowance for sales return 330,000

Cr Sales return 330,000

Dr Sales Return 339,000

Cr Allowance for sales return 339,000

Dr Inventory estimated return 237,300

Cr Cost of goods sold 237,300

B.$669,000

Explanation:

A.Calculation for sales return and allowance for sales return

(Merchandise on account for $11,800,000×Estimated sales return 3%)

= 354,000

345,000-330,000

=15,000

Hence ,

($11,800,000×3%)-15,000

354,000-15,000

=339,000

Calculation for Inventory estimated return and Cost of goods sold

237,300(339,000×70%)

B.

Beginning balance 330,000

Less Adjustment for last year 330,000

Add Current year created 354,000

($11,800,000×3%)

Less adjustment for current year 15,000

(345,000-330,000)

Ending balance in year end allowance $669,000