Answer and Explanation:
1.a. The journal entries are listed below:-
Refund liability Dr, $328,000
To Account Receivables $328,000
(To record actual merchandise sales return)
b. Inventory Dr, $229,600 ($328,000 × 70%)
To Inventory—estimated returns $229,600
(To record cost of returned merchandise)
c. Sales returns Dr, $266,000 ($594,000 - $328,000)
To Accounts receivable $266,000
(To record the actual sales return)
d. Inventory Dr, $186,200 ($266,000 × 70%)
To Cost of Goods Sold $186,200
(To record cost of returned goods)
e. Sales returns Dr, $307,000
To Refund liability $307,000
(To record year-end adjusting entry for estimated returns)
f. Inventory Dr, $214,900 ($307,000 × 70%)
To Cost of Good Sold $214,900
Estimated returns for 2021 sales = 5% × $12,100,000 $ 605,000
Less: Actual returns from 2021 sales ($266,000)
Remaining estimated returns from 2021 sales $ 339,000
2. The calculation for the year-end refund liability after adjustments is as follows:-
Beginning refund liability balance $360,000
Less: Actual returns from pre-2021 sales ($328,000)
Add: Necessary adjustment $307,000
Ending balance $339,000
