Multiple Choice Question On Dec. 20, X-Mart received a $100 allowance because the merchandise it purchased on account, earlier in the month, was of poor quality. Demonstrate the required journal entry on X-Mart's books for the allowance assuming the perpetual inventory method. Debit Accounts Payable $100; credit Merchandise Inventory $100. Debit Accounts Payable $100; credit Cash $100. Debit Accounts Payable $100; credit Purchase Returns $100. Debit Merchandise Inventory $100; credit Accounts Payable $100.

The correct option is debit accounts payable $100 and credit merchandise inventory $100

Explanation:

The option of crediting cash $100 would be applicable as there is no actual cash refund and even there was a cash refund the correct entry would have been a debit to cash account.

There is no need to credit purchases returns as that would been done when the faulty goods were returned.

The is evidence to support debiting merchandise inventory since no new stock was received, that also warrants credit accounts payable

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