Question

Hazard Company began 2021 with a credit balance of $116,000 in the refund liability account. Sales and cash collections from customers during the year were $1,750,000 and $1,410,000, respectively. During 2021, customers returned merchandise for credit of $67,000 to their accounts. The balance in the refund liability account at the end of 2021 was $136,500. What percent of sales in 2021 does Hazard estimate to be returned?

Multiple Choice

• 3%

• 5%

• 6%

• 4%

Answer 1

Working Notes:
	Calculation of amount estimated during the year for refund liability
	Ending Balance of account of Refund liability	$1,36,500
	Add: Refunded liability during the year	$67,000
	Total	$2,03,500
	Less : Beginning balance of refund liability	$1,16,000
	Net Balance created estimated to be in 2021	$87,500
Solution :
	Calcuation of percentage of sales of estimated to be returned
	Amount estimated to be return	$87,500
	Divide By	"/" By
	Sales made during the year	$17,50,000
	Equal	5%
Answer = Option 2 = 5%