Question

On October 9, 2023, Sport Ready paid $7 in freight on calculators from Pledmont Supply. On October 10, 2023, Sport Ready returned 3 calculators to Pledmont Supply for a cash refund of $90 (including freight). What journal entry should Sport Ready record on October 10, 2023?

(A) Debit Accounts Payable $90, Credit Inventory $90
(B) Debit Freight Expense $7, Credit Accounts Payable $97
(C) Debit Accounts Payable $90, Credit Sales Returns and Allowances $90
(D) Debit Sales Returns and Allowances $90, Credit Accounts Payable $83

Answer 1

On October 10, 2023, Sport Ready should record a journal entry that reflects a debit to Cash for $90 and a credit to Inventory for $90, assuming that the returned calculators were initially paid in cash.

Step-by-step explanation:

The journal entry Sport Ready should record on October 10, 2023, for the return of calculators involves reversing the inventory account for the amount paid and accounting for the cash refund. Given that the returned calculators were initially included in inventory, the correct entry is to debit Cash for the refund received and credit Inventory for the cost of the calculators plus the freight. However, since only the refund amount is provided ($90 including freight), we do not have a breakdown of the cost of calculators and the exact freight. In a real-world scenario, one would also reverse any freight costs associated with those calculators. As the question does not provide such details, we will only focus on the cash refund we are aware of. Hence, the entry should be:

Debit Cash $90
Credit Inventory $90

No information was given about Accounts Payable already being credited for the initial purchase. Assuming there was a credit to Accounts Payable initially and the cash was refunded, the entry would include clearing that payable. But since the question specifically mentions a cash refund, we do not affect Accounts Payable.