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17 June, 10:39

Arrow 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 Arrow's sales are for credit (no cash is collected at the time of sale). The company began 2021 with a refund liability of $400,000. During 2021, Arrow sold merchandise on account for $12,000,000. Also during the year, customers returned $520,000 in sales for credit, with $250,000 of those being returns of merchandise sold prior to 2021, and the rest being merchandise sold during 2021. Sales returns, estimated to be 5% of sales, are recorded as an adjusting entry at the end of the year. The amount to adjust the refund liability to its appropriate balance at year-end would be:A. 180,000B. 220,000C. 200,000D. 240,000

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  1. 17 June, 11:01
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    C. 200,000

    Explanation:

    Sales return are 5% of sales meaning gross sales

    therefore sales are $12million * 5% = $600,000

    therefore adjustment = Closing Balance - opening balance

    $600,000-$400,000

    = $200,000
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