On July 1, Ferguson Company sold merchandise in the amount of $5,800 to Tracey Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ferguson uses the perpetual inventory system and the gross method. On July 5, Tracey notifies Ferguson that some of the merchandise is defective. Ferguson agrees to a full refund for the items, and Tracey is allowed to keep the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise is $350. The entry or entries that Ferguson must make on July 5 is:
A.
| Accounts receivable | 500 | |
| Sales returns and allowances | 500 | |
| Cost of goods sold | 350 | |
| Merchandise inventory | 350 |
B.
| Sales returns and allowances | 500 | |
| Accounts receivable | 500 | |
| Merchandise inventory | 350 | |
| Cost of goods sold | 350 |
C.
| Sales returns and allowances | 500 | |
| Accounts receivable | 500 |
D.
| Sales returns and allowances | 350 | |
| Accounts receivable | 350 |
E.
| Accounts receivable | 500 | |
| Sales returns and allowances | 500 |
Answer: C
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