Problem - 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.
1. Prepare the entry to record the merchandise returns.
Record the actual sales returns.
Record the return of merchandise to stock.
2. Prepare the entry to record the year-end adjusting entry for estimated returns.
Record the year-end adjusting entry for estimated returns.
Record the adjusting entry for the estimated return of merchandise.
3. What is the amount of the year-end allowance for sales returns after the adjusting entry is recorded?