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

Question

Amy Martinez is a student who plans to attend approximately four professional events a year at her college. Each event necessitates a financial outlay of $100–$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.

Answer 1

Assuming the co. didn't realise that the suit had been worn, and gives her the full refund, it would pass the following entry:
Dr Merchandise inventory (cost price)
Cr COGS (cost price)

Dr Sales (Selling price)
Cr Cash/charge card refund (selling price)

Answer 2

The Merchandising Company

Answer 3

There would not be a debit to sales. The debit would be to sales returns and allowances, a contra revenue account to sales.

dr merchandise inventory
cr cost of merchandise sold

dr sales returns and allowances
cr cash/accounts receivable

A debit to sales, for sales returns and allowances and sales discounts, would not be incorrect as far as the nature of debits and credits go, but, the sales account should be left alone. If there were frequent debits and credits posted to the account, a total sales figure would not be available.
With the use of the contra accounts, the total sales is at all times accessible.