a. Accounts Payable—Smith Co.; Merchandise Inventory
We assume that Jones Co. purchased merchandise on account.
In order to record the purchase returns we do the following,
Smith Co, debit, since this is a payable account and credit by nature, we debit it to reduce the balance payable amount by the amount of inventory returned.
We also credit out merchandise inventory, since it is reduced and no longer has the returns accumulated.
Option A is the right answer.
Hope that helps.