Reference no: EM132469976

Question 1 - 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 $390,000. During 2018, Halifax sold merchandise on account for $12,400,000. This merchandise cost Halifax $8,060,000 (65% of selling prices). Also during the year, customers returned $368,000 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?

Question 2 - Johnson Company uses the allowance method to account for uncollectible accounts receivable. Bad debt expense is established as a percentage of credit sales. For 2018, net credit sales totaled $5,200,000, and the estimated bad debt percentage is 1.30%. The allowance for uncollectible accounts had a credit balance of $49,000 at the beginning of 2018 and $43,500, after adjusting entries, at the end of 2018.

Required -

1. What is bad debt expense for 2018 as a percent of net credit sales?

2. Assume Johnson makes no other adjustment of bad debt expense during 2018. Determine the amount of accounts receivable written off during 2018.

3. If the company uses the direct write-off method, what would bad debt expense be for 2018?