Question

On July 1, Ferguson Company, Inc. sold merchandise in the amount of $5,800 to Tracey Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ferguson uses the perpetual inventory system. On July 5, Tracey returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Ferguson must make on July 5 is:

a. Sales returns and allowances - 500 Accounts receivable - 500Merchandise inventory - 350 Cost of goods sold - 350

b. Sales returns and allowances - 500 Accounts receivable - 500

c. Accounts receivable - 500 Sales returns and allowances - 500
d. Accounts receivable - 500 Sales returns and allowances - 500Cost of goods sold - 350 Merchandise inventory - 350
e. Sales returns and allowances - 350 Accounts receivable - 350

Answer 1

The option a. is correct

Step-by-step explanation:

a.is correct

The journal entry will be;

Sales Returns and Allowances Dr.$500

Accounts Receivable Cr.$500

(To record reversal of the sale of $500 on return of merchandise)

Merchandise Inventory Dr.$350

Cost of Goods Sold Cr.$350

(To record the inventory increase on return on its cost price )