Question

Company A allows its customers to return merchandise for any reason up to 90 days after delivery and receive a credit to their accounts. All of Company A's sales are for credit (no cash is collected at the time of sale). The company began 2024 with a refund liability of 380,000. During 2024, Company A sold merchandise on account for12,300,000. Also during the year, customers returned 603,000 in sales for credit, with333,000 of those being returns of merchandise sold prior to 2024, and the rest being merchandise sold during 2024. Sales returns, estimated to be __________.

Answer 1

Company A's estimated sales returns for merchandise sold during 2024 are $270,000, which is calculated by subtracting returns from prior year sales ($333,000) from total customer returns ($603,000).

Step-by-step explanation:

When dealing with sales returns and associated refund liabilities, it's important to understand the difference between returns from current year sales and prior year sales. For Company A, which allows customers to return merchandise up to 90 days after delivery, we need to calculate the sales returns estimated for the current year, 2024.

At the beginning of 2024, the company had a refund liability of $380,000. During the year, Company A made sales on account totaling $12,300,000. Customer returns amounted to $603,000, of which $333,000 were for sales made before 2024. This means that the rest of the returns, totaling $603,000 - $333,000 = $270,000, were for sales made during 2024.

Therefore, the estimated sales returns for sales made in 2024 are $270,000. This does not include the refund liability carried over from the previous year. The refund liability at the end of the year would be the beginning refund liability plus the returns from the prior year's sales, then subtracting the returns from this year's sales.