please explain why the answer is B 25) A company purchased S1,800 of merchandise

Question

please explain why the answer is B

25) A company purchased S1,800 of merchandise on July S with terms 2/10, n/30 Omboes $200 worth of merchandise. On July 28, it paid the full amount due. Assuming the perpetual inventory system, and records purchases using the gross method, The record the purchase on July 5 is: 25) July 7, it returned company uses a A) Debit Merchandise Inventory $1,600; credit Cash $1,600. B) Debit Merchandise Inventory $1,800; credit Accounts Payable $1,800. C) Debit Accounts Payable S1,800; credit Merchandise Inventory $1,800. D) Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise Inventory $1,600. E) Debit Merchandise Inventory $1,800; credit Sales Returns $200; credit Cash S1,600.

Explanation / Answer

the gross method assumes that the customer will not take advantage of the cash or early payment discount hence merchandise is debited with 1800 and accounts payable is credited with 1800 assuming the payment will not be made in 10 days and cash discount of 2% will not be availed.

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