Prepare entries to record actual returns

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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 2021 with a refund liability of $440,000. During 2021, Halifax sold merchandise on account for $12,900,000. Halifax's merchandise costs is 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 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?

Reference no: EM132513688

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