Question

Tweetie Company sold merchandise in the amount of $23,200 to Sylvester Cat Company on February 1, with credit terms of 2/10, n/30. The cost of the items sold is $9,600. On February 4, Sylvester Cat Company returns some of the merchandise, which was restored into Tweetie’s inventory. The selling price and the cost of the returned merchandise are $3,200 and $2,000, respectively.  

The entries that Tweetie Company must make on February 4 will not include: (assume both companies use the perpetual inventory method)

Select one:

A. Debit to Sales Returns and Allowances for $3,200

B. Debit to Inventory for $2,000

C. Credit to Accounts Receivable for $3,200

D. Credit to Cost of Goods Sold for $3,200

Answer 1

Answer

• Correct Answer = Option ‘D’
  Credit to Cost of Goods Sold for $ 3200 will not be included.
• In actual, cost of goods sold will be credited by the COST of the merchandise return.
  Hence,
  Credit to Cost of Goods Sold will be $ 2000