Question

False Value Hardware began 2018 with a credit balance of $23,000 in the allowance for sales returns account (i.e., the estimated return liability). Sales and cash collections from customers during the year were $680,000 and $720,000, respectively. False Value estimates that 4% of all sales will be returned. During 2018, customers returned merchandise for credit of $32,000 to their accounts. What is the balance in the allowance for sales returns account at the end of 2018?

Answer 1

Answer:

balance in sales returns account = $18200

Explanation:

given data

credit balance = $23,000

Sales = $680,000

cash collections = $720,000

returned = 4%

credit = $32,000

to find out

balance in the allowance for sales returns account

solution

we get here estimates for returns that is

estimates for returns = 4% of $680,000

estimates for returns = $27200

so

balance in the allowance for sales returns account will be express as

balance in the allowance for sales returns account = credit balance + estimates for returns - credit    ....................1

put here value we get

balance in sales returns account = $23,000 + $27200 - $32,000

balance in sales returns account = $18200