Question: halifax manufacturing allows its customers to return merchandise for any...
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 $470,000. During 2018, Halifax sold
merchandise on account for $13,200,000. This merchandise cost
Halifax $7,920,000 (60% of selling prices). Also during the year,
customers returned $524,000 in sales for credit. Sales returns,
estimated to be 4% of sales, are recorded as an adjusting entry at
the end of the year.
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?