On April 3, Villa Corp. returned merchandise that had a selling price of $1,200 for a cash refund. The merchandise originally cost $720. What is the effect on the accounting equation of the following entries for this return?
Apr. 3 Customer Refunds Payable1,200 Cash 1,200 Apr. 3Inventory720 Estimated Return Inventory 720?
?
What will be an ideal response?
The first entry reduces assets and liabilities by the amount of the refund. The second entry increases an asset (Inventory) and decreases an asset (Estimated Return Inventory)
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