Cycle Wholesaling sold merchandise on account, with terms n/60, to Sarah’s Cycles on February 1 for $1,000 (cost of goods sold of $600). On February 9, Sarah’s Cycles returned to Cycle Wholesaling one-quarter of the merchandise from February 1 (cost of goods returned was $155). Cycle Wholesaling uses a perpetual inventory system, and it allows returns only within 15 days of initial sale.

Accounts Receivables 1000 debit

Sales Revenues  1000 credit

--to record sale--  

COGS  600 debit

Inventory  600 credit

--to record COGS of the previous sale--    

Sales Returns  155 debit

Accounts Receivables  155 credit

--to record returned goods--  

Inventory            155 debit

       COGS                     155 credit

--to record goods in good state returning to inventory--

Explanation:

The sale will be reocrded normally then, the return will have two impacts:

first it will decrease the amount of the receivables and make the net sames decrease therefore we will decrease net sales

Last, for the inventory as the godo are in good form and could be resale we record the reception of those good and reverse that portion of COGS sold

answer; /// i believe that the correct answer is (b) money set aside for emergency repairs;

im confused need to go into details plz thx