Final answer:
Adjustments to Metlock Company's inventory values are required after a physical inventory count revealed $352,335 of inventory on hand as of December 31, 2025, using the periodic method of recording inventory. A comparison of the physical inventory to the book inventory determines whether to record a shrinkage loss or an overage gain.
Step-by-step explanation:
The student's question pertains to the task of adjusting Metlock Company's inventory values on the books as of December 31, 2025. Since Metlock uses the periodic method of recording inventory, adjustments are made periodically at the end of the accounting period, rather than continuously. A physical count of inventory is taken to ascertain the actual inventory on hand, which has been found to be $352,335.
To prepare the necessary adjustments, one would compare this physical inventory count to the book inventory (the recorded inventory balance prior to the physical count). If the physical count is lower than the book inventory, an inventory shrinkage loss would be recorded, which decreases the Inventory account and the Income Summary or Cost of Goods Sold account. Conversely, if the physical count is higher, an inventory overage gain is recognized. The final step is to adjust the Inventory account on the balance sheet to match the physical count value.