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17 April, 07:30

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.

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  1. 17 April, 08:36
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    See explanation section

    Explanation:

    The journal entry to record the $100 received as allowance because of the poor quality product is as follows:

    Debit Accounts payable $100

    Credit Inventory/Merchandise Inventory $100

    Since the X-mart company purchased the inventory on account, the supplier became payable for X-mart. Therefore, he made a journal entry with a payable account as credit. As the X-mart company now returned the defective goods due to poor quality, the supplier will get less amount. Therefore, it (supplier - a payable) becomes a debit. As X-mart returned the product, the inventory becomes a credit.
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