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 it 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?

No

Year

General Journal

Debit

Credit

1

2021

Sales revenue

250,000

Accounts receivable

250,000

2

2021

Inventory

162,500

Sales returns

162,500

3

2021

Sales returns

200,000

Accounts receivable

200,000

4

2021

Inventory

130,000

Cost of goods sold

130,000

5

2021

Sales returns

10,000

Accounts receivable

10,000

6

2021

Inventoryestimated returns

6,500

Sales returns

6,500

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

Ending balance in refund liability

$310,000

What is the amount of the year-end refund liability after the adjusting entry is recorded? Ending balance in refund liability $ 310,000