A company 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. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the merchandise return on July 7 is:
A. Debit Accounts Payable $200; credit Merchandise Inventory $200.
B. Debit Merchandise Inventory $200; credit Sales Returns $200.
C. Debit Merchandise Inventory $200; credit Accounts Payable $200.
D. Debit Merchandise Inventory $1,600; credit Cash $1,600.
E. Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise Inventory $1,600.
Answer: A
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