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omeli [17]
3 years ago
14

Halifax Manufacturing allows its customers to return merchandise for any reason up to 90 days after delivery and receive a credi

t to their accounts. All of Halifax's sales are for credit (no cash is collected at the time of sale). The company began 2020 with an allowance for sales returns of $200,000. During the year, Halifax sold merchandise on account for $12,000,000. This merchandise cost Halifax $8,520,000. Also during the year, customers returned $450,000 in sales for credit. Sales returns, estimated to be 4% of sales, are recorded as an adjusting entry at the end of the year.
Required:
1.
Prepare the entry to record the merchandise returns and the year-end adjusting entry for estimated returns. Note: Record the estimated returns at net amounts.

2.
What is the amount of the year-end allowance for sales returns after the adjusting entry is recorded?
Business
1 answer:
Mice21 [21]3 years ago
8 0

Answer and Explanation:

The Journal entry is shown below:-

1.

a. Sales return Dr,  $450,000

         To Accounts receivable  $450,000

(Being the actual sales returns is recorded)

b. Merchandise inventory Dr, $8,520,000

          To cost of goods sold $8,520,000

(Being the return of merchandise of stock is recorded)

c. Sales return Dr, $30,000

($12,000,000 × 4%) - $450,000

           To Allowance for sales return $30,000

(Being adjustment entry for estimated return is recorded)

d. Inventory estimated returns Dr, $30,000

($12,000,000 × 4%) - $450,000

            To cost of goods sold $30,000

(Being estimated return of merchandise inventory of merchandise to inventory is recorded)

2. The amount of the year-end allowance for sales returns is shown below:-

Beginning balance                             $200,000

Add:

Estimated returns during the year    $480,000

($12,000,000 × 4%)

Less:

Actual returns                                    $450,000

Ending balance                                 $230,000

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