Journal Entry???

Question

Transaction: Elite Corporation returned $800 of defective merchandise from its purchase. The returned merchandise, which had a cost of $640, was scrapped.

I've got:

Sales Returns and Allowances 800
Accounts Receivable 800

I don't know how to record the cost and return to inventory because the goods were scrapped...

Answer 1

You've got it right. When you first made the sale, you'd have:
Dr COGS xxx
Cr Merchandise inventory xxx

Now that the goods are returned and scrapped, you don't do anything. You don't put the goods back into inventory cos you can't sell them again. Effectively, the sales of other goods would have to cover the cost of those goods which are returned and scrapped.