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. The company began 2013 with an allowance for sales returns of $300,000.
During 2013, 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 the entry to record the merchandise returns and the year-end adjusting entry for estimated returns.
2. What is the amount of the year-end allowance for sales returns after the adjusting entry is recorded?