Mann Company Uses the Perpetual Inventory Method

question 60

Multiple Choice

Mann Company uses the perpetual inventory method.After negotiations with one of its customers concerning the color of the merchandise sold to that customer,Mann allowed the customer to return all of the merchandise and issued a credit memorandum to that customer for $1,000.The merchandise,which had a cost of $750,was restored to inventory.How would the company record this transaction?

• A)Debit Accounts Receivable for $1,000,debit Merchandise Inventory for $750,and credit Sales Returns and Allowances for $1,750.
• B)Debit Accounts Receivable for $1,000,credit Sales Returns and Allowances for $1,000,debit Merchandise Inventory for $750,and credit Purchase Returns and Allowances for $750.
• C)Debit Accounts Receivable for $1,000,credit Sales Returns and Allowances for $1,000,debit Cost of Goods Sold for $750,and credit Merchandise Inventory for $750.
• D)Credit Accounts Receivable for $1,000,debit Sales Returns and Allowances for $1,000,debit Merchandise Inventory for $750,and credit Cost of Goods Sold for $750.
• E)Debit Accounts Receivable for $1,000 and credit Sales Returns and Allowances for $1,000.

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Definitions:

Liquidated

Liquidated refers to the process of converting assets into cash, often associated with dissolving a company or selling off its assets to pay off debts.

Trading Securities

Financial instruments that are purchased with the intention of selling them in the near term to profit from their price movements.

Unrealized Loss

A loss that results from holding onto an asset that has decreased in price, but has not yet been sold or liquidated.

Income Statement

A financial statement that shows a company's revenue and expenses over a specific period, culminating in net income.