Question

The records of Penny Co. indicated that $405,260 of merchandise should be on hand on December 31. The physical inventory indicates that $402,018 of merchandise is actually on hand. Required: Journalize the adjusting entry for the inventory shrinkage for the year ended December 31. Refer to the chart of accounts for exact wording of account titles.

a) Debit Merchandise Inventory $3,242, Credit Cost of Goods Sold $3,242
b) Debit Cost of Goods Sold $3,242, Credit Merchandise Inventory $3,242
c) Debit Merchandise Inventory $405,260, Credit Cost of Goods Sold $402,018
d) Debit Cost of Goods Sold $402,018, Credit Merchandise Inventory $405,260

Answer 1

The correct journal entry for inventory shrinkage is to debit Cost of Goods Sold for $3,242 and credit Merchandise Inventory for $3,242. The correct options are b,c.

Step-by-step explanation:

The student is asking for the correct journal entry to adjust for inventory shrinkage at the year-end. The records show that Penny Co. should have $405,260 worth of merchandise, but the physical count shows only $402,018 present. This indicates a discrepancy or shrinkage of $3,242 ($405,260 - $402,018). The correct journal entry is:

• Debit Cost of Goods Sold $3,242
• Credit Merchandise Inventory $3,242

The debit to Cost of Goods Sold represents the additional cost that was not anticipated due to inventory being less than what was recorded, while the credit to Merchandise Inventory reduces the asset account to match the actual inventory on hand. The correct options are b,c.