Juniper Company, Inc. uses the gross method of recording purchases and a perpetual inventory system. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 26, it paid the full amount due. The correct journal entry to record the merchandise return on August 11 is:
A)Debit Accounts Payable $1,500; credit Merchandise Inventory $1,500.
B)Debit Accounts Payable $1,485; credit Merchandise Inventory $1,485.
C)Debit Merchandise Inventory $1,500; credit Purchase Returns and Allowances $1,500.
D)Debit Merchandise Inventory $1,500; credit Cash $1,500.
E)Debit Accounts Payable $1,500; credit Purchase Returns and allowances $1,500.

Question

Quizplus · Accepted Answer

When merchandise is returned to the supplier, the Accounts Payable account is debited and the Merchandise Inventory account is credited for the amount of the return. The gross method of recording purchases means that the purchase discount is not recorded until the invoice is paid. Therefore, the amount of the return is $1,500, not $1,485.