On December 2, a Customer Returned Merchandise, with a Selling

question 65

Multiple Choice

On December 2, a customer returned merchandise, with a selling price of $1,200 purchased on account, to a department store. Ignoring cost of goods sold, which journal entry should the department store prepare? Assume no sales discount was offered for early payment.

• A) Debit Sales Revenue for $1,200 and credit Sales Returns and Allowances for $1,200.
• B) Debit Sales Revenue for $1,200 and credit Accounts Receivable for $1,200.
• C) Debit Sales Returns and Allowances for $1,200 and credit Accounts Receivable for $1,200.
• D) Debit Sales Revenue for $1,200 and credit Cash for $1,200.

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Definitions:

Purchasing Power

The value of a currency expressed in terms of the quantity of goods or services that one unit of money can buy, often influenced by inflation.

Consumer Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, often used as an indicator of inflation.

Nominal Interest Rate

The interest rate before adjustments for inflation, indicating the basic rate at which interest is paid or earned.

Real Interest Rate

The interest rate that has been adjusted for inflation, showing the real cost of funds to the borrower and the real yield to the lender.