Halifax Manufacturing allows its customers to return merchandise for any reason

Question

Halifax Manufacturing allows its customers to return merchandise for any reason up to 90 days after delivery and receive a credit to their accounts. The company began 2013 with an allowance for sales returns of $300,000. During 2013, Halifax sold merchandise on account for $11,500,000. This merchandise cost Halifax $7,475,000 (65% of selling prices). 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: 1.1 Prepare the entry to record the merchandise returns. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.) 2.2 What is the amount of the year-end allowance for sales returns after the adjusting entry is recorded?

Explanation / Answer

Allowance for sales returns (Dr) 450000 Accounts receivable (Cr) 450000 Merchandise Inventory (Dr) 292500........(450000*.65) Cost of merchandise sold (Cr) 292500

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