Reference no: EM132459670

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 $440,000. During 2018, Halifax sold merchandise on account for $12,900,000. Halifax's merchandise costs it 65% of merchandise selling price. Also during the year, customers returned $630,000 in sales for credit, with $347,000 of those being returns of merchandise sold prior to 2018, and the rest being merchandise sold during 2018. Sales returns, estimated to be 5% of sales, are recorded as an adjusting entry at the end of the year.

Required:

Problem 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.

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

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

Refund Liability                   347,000

Account Receivable            347,000

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

Inventory                                        225,550

Inventory-Estimated returns              225,550

Record the actual sales return of merchandise sold during 2018.

Sale Returns                              283,000

Accounts Receivable                    283,00

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

Inventory                             183,950

Cost of good Sold                  183,950

Record the year-end adjusting entry for estimated returns.

Sale returns 15,000-----Wrong Answer

Refund Liability 15,000-----Wrong Answer

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

Inventory--Estimated returns 9,750-------wrong answer

Cost of good sold                 9,750----wrong answer

Question 1: What is the amount of the year-end refund liability after the adjusting entry is recorded?

Ending balance in refund liability 455,000---wrong answer