Question

False Value Hardware began 2021 with a credit balance of $32,900 in the refund liability account. Sales and cash collections from customers during the year were $730,000 and $690,000, respectively. False Value estimates that 7% of all sales will be returned. During 2021, customers returned merchandise for credit of $18,000 to their accounts.

Answer 1

Closing balance = $66,OOO

Step-by-step explanation:

DATA

Opening balance in allowance for sales return = 32,900

Sales = 730,000

Cash Collection= 690,000

Estimated sales return = 7% of all sales = 51100

Merchandise return for credit = 18,000

We can calculate the closing balance in the allowance for sales return account by adding estimated returns and deducting merchandise return from opening balance.

Closing balance = Opening balance + Estimated sales return - Merchandise return for credit

Closing balance = $32,900 + $51,100 - $18,000

Closing balance = $66,OOO