FBS Corporation uses the perpetual inventory method and the gross method for recording purchases on account. On May 11, it purchased $44,000 of inventory, terms 2/10, n/30. On May 13, FBS returned goods that cost $4,000. On May 19, FBS paid the supplier. On May 19, the company should credit

A. purchase discounts for $880.
B. inventory for $880.
C. purchase discounts for $800.
D. inventory for $800.

The correct answer is D

Explanation:

The journal entry are as follows:

On May 11

Inventory A/cDr  $44,000

     Accounts Payable A/cCr  $44,000

Being purchased inventory worth $44,000

On May 13

Inventory A/cDr  $4,000

      Purchase Return A/cCr $4,000

Being inventory worth $4,000 returned

On May 19

Accounts Payable A/cDr  $800

        Inventory A/cCr  $800

Being payment made to supplier

Working Note:

Payment amount = (Inventory purchased value - purchase return) × Discount

=($44,000 - $4,000) × 2%

= $40,000 × 2%

= $800

answer the law of increasing costs;