A Company That Uses the Gross Method of Recording Purchases

Multiple Choice

A company that uses the gross method of recording purchases and a perpetual inventory system purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the merchandise return on July 7 is:

A) Debit Accounts Payable $196; credit Merchandise Inventory $196.
B) Debit Merchandise Inventory $200; credit Accounts Payable $200.
C) Debit Merchandise Inventory $200; credit Sales Returns $200.
D) Debit Accounts Payable $200; credit Merchandise Inventory $200.
E) Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise Inventory $1,600.