Question

Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. 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 16, it paid the full amount due. The amount of the cash paid on August 16 equals:A) Debit Merchandise Inventory $9,750; credit Sales Returns $1,500; credit Cash $8,250.B) Debit Accounts Payable $8,250; debit Purchase Returns $1,500; credit Merchandise Inventory $9,750.C) Debit Accounts Payable $9,750; credit Merchandise Inventory $9,750.D) Debit Merchandise Inventory $9,750; credit Cash $9,750.E) Debit Merchandise Inventory $9,750; credit Accounts Payable $9,750.

Answer 1

Answer:

The answer is: D) Debit Accounts Payable $1500; Credit Merchandise Inventory $1500

Explanation:

The correct records should be:

Dr Accounts Payable account 1,500

Cr Merchandise Inventory account 1,500

Accounts Payable is a liability, and when liabilities decrease (the returned merchandise reduces the debt), they should be debited.

Merchandise Inventory is an asset, and when assets decrease (some merchandise was returned), they should be credited.

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Explanation: