Question

Saved The following information applies to the questions displayed below. Darlington Company entered into the following business events during its first month of operations. The company uses the perpetual inventory system. 1) The company purchased $12.500 of merchandise on account under terms 3/10, n/30. 2) The company returned $2,000 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period, 4) All of the merchandise purchased was sold for $19,000 cash. 7.03 What effect will the return of merchandise to the supplier in event (2) have on Darlington's financial statements? Multiple Choice O Assets and stockholders' equity decrease by $2,000 O Assets and abilities decrease by $2,000 Assets and liabilities decrease by $1,940.

Answer 1

Option (B) is Correct. Assets and Liabilities decrease by $2000 Reason: At the time of purchase the entry will be Merchandise inventory A/c Dr. To Accounts Payable Bothe Asset and Liability increase by that amount. Now in the return Situation., Reverse happens Accounts Payable To Merchandise inventory. 50 Asset and Liability Decreases