Dollar store purchases merchandise for $1,500 on terms of 2/5, n/30, fob shipping point, invoice dated november 1. 5 dollar store pays cash for the november 1 purchase. 7 dollar store discovers and returns $200 of defective merchandise purchased on november 1, and paid for on november 5, for a cash refund. 10 dollar store pays $90 cash for transportation costs for the november 1 purchase. 13 dollar store sells merchandise for $1,600 with terms n/30. the cost of the merchandise is $800. 16 merchandise is returned to the dollar store from the november 13 transaction. the returned items are priced at $160 and cost $80; the items were not damaged and were returned to in

Inventory  1500

Accounts Payable  1500

--to record purchase--  

Inventory  

Cash  

--to record payment of freights--  

Accounts Payable  200

Inventory  200

--to record returned goods--  

Accounts Payable  1300

Inventory  26

Cash  1274

--to record payment within discount--  

Inventory  90

Cash  90

--to record payment of freights--  

Accounts Receivables  1600

Sales Revenues  1600

--to record sale--  

COGS  800

Inventory  800

--to record COGS of the previous sale--    

Sales Returns  160

Accounts Receivables  160

--to record returned goods--  

Cash  1,440

Accounts Receivables  1440

--to record collection--  

Inventory  80

          COGS          80

--to record returned but, useful goods--  

Explanation:

We reduct from the balance of the account the returrned goods:

1,500 - 200 = 1,300 then we calcualte the discount of 2 = 26

net cash outlay: 1,300 - 26 = 1,274

The freight are part of the necessary cost to acquire the goods so it increase the inventory valuation

as the returned goods are still in good conditions we can returned to our nventory and decrease thecost of good sold associate with the sale.