Maxwell Inc.uses the periodic inventory method.Maxwell requested a price reduction from a vendor because the merchandise that was purchased did not meet specifications.The vendor sent Maxwell a credit memorandum for $4,100 to resolve the issue.How would Maxwell record this transaction?
A)Debit Cost of Goods Sold for $4,100 and credit Accounts Payable for $4,100.
B)Debit Merchandise Inventory for $4,100 and credit Accounts Payable for $4,100.
C)Debit Accounts Payable for $4,100 and credit Merchandise Inventory for $4,100.
D)Debit Purchase Returns and Allowances for $4,100 and credit Accounts Payable for $4,100.
E)Debit Accounts Payable for $4,100 and credit Purchase Returns and Allowances for $4,100.

Question

Quizplus · Accepted Answer

Maxwell would debit Accounts Payable to reduce the liability owed to the vendor and credit Purchase Returns and Allowances to reflect the reduction in inventory cost due to the credit memorandum.