Exercise 7-8 (Static) Sales returns [LO7-4]

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 Halifaxs sales are for credit (no cash is collected at the time of sale). The company began 2021 with a refund liability of $300,000. During 2021, Halifax sold merchandise on account for $11,500,000. Halifax's merchandise costs is 65% of merchandise selling price. Also during the year, customers returned $450,000 in sales for credit, with $250,000 of those being returns of merchandise sold prior to 2021, and the rest being merchandise sold during 2021. Sales returns, estimated to be 4% 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?

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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

No	Year	General Journal	Debit	Credit
1	2021	Sales returnsselected answer incorrect	250,000selected answer correct	not attempted
		Accounts receivableselected answer correct	not attempted	250,000selected answer correct
2	2021	Inventoryselected answer correct	162,500selected answer correct	not attempted
		Sales returnsselected answer incorrect	not attempted	162,500selected answer correct
3	2021	Sales revenueselected answer incorrect	200,000selected answer correct	not attempted
		Accounts receivableselected answer correct	not attempted	200,000selected answer correct
4	2021	Inventoryselected answer correct	130,000selected answer correct	not attempted
		Cost of goods soldselected answer correct	not attempted	130,000selected answer correct
5	2021	Sales returnsselected answer correct	10,000selected answer incorrect	not attempted
		Accounts receivableselected answer incorrect	not attempted	10,000selected answer incorrect
6	2021	Inventoryselected answer incorrect	6,500selected answer incorrect	not attempted
		Sales returnsselected answer incorrect	not attempted	6,500selected answer incorrect

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

Ending balance in refund liability

$310,000selected answer incorrect