Question

BTN 4-3 Amy Martin is a student who plans to attend approximately four professional events a year at her college. Each event necessitates a financial outlay of \(100 to \)200 for a new suit and accessories. After incurring a major hit to her savings for the first event, Amy developed a different approach. She buys the suit on credit the week before the event, wears it to the event, and returns it the next week to the store for a full refund on her charge card.

Required

1. Comment on the ethics exhibited by Amy and possible consequences of her actions.

2. How does the merchandising company account for the suits that Amy returns?

Short answer

Answer

1. The action of Amy is unethical.
2. The company would account for returns by reducing the accounts receivable first and then increasing the inventory.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of Purchase Returns

The goods returned by the buyer to the supplier due to the wrong product or any defect are reported as purchase returns.

Ethics exhibited

The actions adopted by Amy are unethical because she is returning the suit to get a full refund from the company. Also, she is returning well after using it once. Therefore, such a practice is unethical and unfair.

Such action of Amy might hurt the company because of excessive sales return. Such action might reduce the future sales of the business entity and thereby reducing the future sales revenue.

Accounting for merchandise returned

Date	Accounts and Explanation	Debit $	Credit $
1	Sales return and allowance
	Accounts receivable
2	Merchandise inventory
	Cost of goods sold