Halifax Manufacturing allows its customers to return merchandise for any reason
ID: 2580238 • Letter: H
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. 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 $300,000. During 2018, 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. 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? Complete this question by entering your answers in the tabs below Required 1 Required 2 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the actual sales returns. Note: Enter debits before credits. Year General Journal Debit Credit 2018Explanation / Answer
Answer:
Date
Description
Debit $
Credit $
2018
Sales return and allowance
450,000
To account receivable
450,000
( To record the sales return at
invoice price)
Date
Description
Debit $
Credit $
2018
Merchandise inventory
292500
To cost of goods sold
292500
(450,000*65%)
(to record the cost of goods sold)
Sales return estimated
(11,500,000*4%)
460000
Already returned
450,000
Adjusting entry requitred
10,000
Date
Description
Debit $
Credit $
2018
Sales return
10,000
To allowance for sales return
10,000
( To record the sales return at
invoice price)
Date
Description
Debit $
Credit $
2018
Merchandise inventory
6500
To cost of goods sold
6500
(10,000*65%)
(to record the cost of goods sold)
___________________________________________-
Ending balance of sales return and allowance
Ending balance in allowance
310,000
Working notes for the answer:
Beginning balance in allowance
300,000
Add: year end estimates
460,000
less: Actual return
-450,000
Ending balance in allowance
310,000
Date
Description
Debit $
Credit $
2018
Sales return and allowance
450,000
To account receivable
450,000
( To record the sales return at
invoice price)
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