A corporation uses the perpetual inventory system. On May 1, it sells merchandise on account for $10,000 with terms 2/10, n/30. The corporation had paid $6,000 to acquire the merchandise. On May 7, the customer returns merchandise with an invoice price of $1,000 to the corporation. The merchandise returned to it had cost the corporation $600. On May 10, the corporation receives payment for the merchandise retained by the customer. How would the corporation record the return of merchandise from the customer on May 7?

a. Debit sales returns and allowances for $980; credit accounts receivable for $980.

b. It would record two journal entries. Debit sales returns and allowances for $1,000; credit inventory for $1,000. Debit cost of goods sold for $600; credit accounts receivable for $600.

c. Debit inventory for $1,000; credit sales returns and allowances for $1,000.

d. Debit sales returns and allowances for $1,000; credit accounts receivable for $1,000.

e. It would record two journal entries. Debit sales returns and allowances for $1,000; credit accounts receivable for $1,000. Debit inventory for $600; credit cost of goods sold for $600.

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