Shankar Company uses a perpetual system to record inventory transactions. The company purchases 1,500 units of inventory on account on February 2 for $55,500 ($37 per unit) but then returns 100 defective units on February 5. Record the inventory purchase on February 2 and the inventory return on February 5. (If no entry is required for a particular transaction/event, select "No journal entry required" in the first account

Debit Inventory  $55,500

Credit Accounts payable $55,500

and

Debit Account payable $3700

Credit Inventory account $3700

Explanation:

When inventory is purchased with cash, an asset is exchanged for another otherwise, the transaction would require the recognition of a liability in form of trade payables.

Given that the purchases 1,500 units of inventory on account on February 2 for $55,500 ($37 per unit), entries required

Debit Inventory  $55,500

Credit Accounts payable $55,500

Being entries to record inventory purchased on account

Where the company then returns 100 defective units on February 5

Cost of returns = 100 × $37

= $3700

Entries required

Debit Account payable $3700

Credit Inventory account $3700

Being entries to record inventory returned

the answer is a. $209,000