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 $340,000. During 2021, Halifax sold merchandise on account for $11,900,000. Halifax's merchandise costs it 65% of merchandise selling price. Also during the year, customers returned $580,000 in sales for credit, with $321,000 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. 2. What is the amount of the year-end refund liability after the adjusting entry is recorded?
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 $340,000. During 2021, Halifax sold merchandise on account for $11,900,000. Halifax's merchandise costs it 65% of merchandise selling price. Also during the year, customers returned $580,000 in sales for credit, with $321,000 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. 2. What is the amount of the year-end refund liability after the adjusting entry is recorded?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text: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 $340,000. During 2021, Halifax sold merchandise on account for $11,900,000. Halifax's merchandise costs it 65% of
merchandise selling price. Also during the year, customers returned $580,000 in sales for credit, with $321,000 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.
2. What is the amount of the year-end refund liability after the adjusting entry is recorded?
Complete this question by entering your answers in the tabs below.
Required 1 Required 2
What is the amount of the year-end refund liability after the adjusting entry is recorded?
Ending balance in refund liability
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Step 1: Introduction of Sales Returns and Allowances:
VIEWStep 2: The actual returns in 2021 of merchandise that was sold before 2021:
VIEWStep 3: The actual returns in 2021 of merchandise that was sold during 2021:
VIEWStep 4: The refund liability adjusted to its appropriate balance at year-end:
VIEWStep 5: What is the amount of the year-end refund liability after the adjusting entry is recorded:
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