Question

Heidi's Accessories bought 50 necklaces for $10 each on account. The invoice included a 6% sales tax and payment terms of 2/10, n/30. Five necklaces were returned prior to payment. The entry to record the return would include a debit to

-accounts payable for $50.00 or $53.00
-purchases returns and allowances for $50.00 or $53.00
-

Answer 1

The correct answer is B. Accounts payable for US$ 53.oo

Explanation:

1. Let's recall what is the Journal entry when a company return part of the inventory previously purchased:

Debit

The amount Heidi's accessories owed to the supplier would have been sitting as a credit on the accounts payable account because the invoice has not been payed. In the case of this return, we should debit it because we should diminish the amount due.

Credit

The goods Heidi's accessories are returning and therefore, the asset of inventory decreases. The credit to purchase returns reduces the value of the total purchases. That's why options C and D are incorrect.

2. Now, let's calculate the amount of the return that Heidi's accessories made, this way:

Return = Number of necklaces * Price of each necklace + Sales taxes

Replacing with the real values, we have:

Return = 5 * 10 + (5 * 10) * 0.06

Return = 50 + (50) * 0.06

Return = 50 + 3 = 53

The correct answer is B. Accounts payable for US$ 53.oo