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bulgar [2K]
3 years ago
5

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 2018 with an allowance for sales returns of $400,000. During 2018, Halifax sold merchandise on account for $12,500,000. This merchandise cost Halifax $8,750,000 (70% of selling prices). Also during the year, customers returned $613,000 in sales for credit. Sales returns, estimated to be 5% 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?
Business
1 answer:
Minchanka [31]3 years ago
7 0

Answer:

Please refer to the below explanations.

Explanation:

A.

Sales return and allowance a/c Dr $613,000

To accounts receivable A/c Cr $613,000

(Being retuned goods that is recorded)

Merchandise inventory A/c Dr $429,100

($613,000 × 70%)

To cost of goods sold A/c Cr $429,100

(Being cost of goods sold that was recorded)

Estimated return is therefore;

= Sale value of merchandise × return percentage - actual return

= $12,500,000 × 5% - $613,000

= $625,000 - $613,000

= $12,000

B.

Sales return and allowance A/c Dr $12,000

To accounts receivable A/c Cr $12,000

(Being returned goods that were recorded)

Merchandise inventory A/c Dr $8,400

($12,000 × 70%)

To cost of goods sold A/c Cr $8,400

(Being cost of goods sold that were recorded)

Therefore, the computation for the year end allowance for sales return is same as $8,400.

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<u>Trend Percentages</u>

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<u>Trends Favourable or Unfavourable</u>

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