Answer and Explanation:
1.a. The Journal entries are shown below:-
Refund liability Dr, $328,000
To Account Receivables $328,000
(Being actual sales return of merchandise sold is recorded)
b. Inventory Dr, $229,600 ($328,000 × 70%)
To Inventory—estimated returns $229,600
(Being cost of merchandise returned for goods is recorded)
c. Sales returns Dr, $266,000 ($594,000 - $328,000)
To Accounts receivable $266,000
(Being actual sales return of merchandise is recorded)
d. Inventory Dr, $186,200 ($266,000 × 70%)
To Cost of Goods Sold $186,200
(Being cost of merchandise returned for goods is recorded)
e. Sales returns Dr, $ 307,000
To Refund liability $307,000
(Being year-end adjusting entry for estimated returns is recorded)
f. Inventory Dr, $214,900 ($307,000 × 70%)
To Cost of Good Sold $214,900
Estimated returns of 2021 sales = 5% × $12,100,000 $ 605,000
Less: Actual returns of 2021 sales ($266,000)
Remaining estimated returns of 2021 sales $ 339,000
2. The computation of amount of the year-end refund liability after the adjusting entry is shown below:-
Beginning balance in refund liability $360,000
Less: Actual returns of pre-2021 sales ($328,000)
Add: Adjustment needed $307,000
Ending balance $339,000
