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.
a. Record the year-end adjusting entry for estimated returns.
b. Record the adjusting entry for the estimated return of merchandise to inventory.
c. What is the amount of the year-end refund liability after the adjusting entry is recorded?