Zenith Company's Merchandise Inventory account at year-end has a balance of $91,820, but a physical count reveals that only $90,450 of inventory exists.

The adjusting entry to record this $1,370 of inventory shrinkage is:

A)

Purchases discounts 1,370

Cost of goods sold 1,370

B)

Cost of goods sold 1,370

Merchandise inventory 1,370

C)

Merchandise inventory 1,370

Inventory shrinkage expense 1,370

D)

Inventory shrinkage expense1,370

Cost of goods sold 1,370

E)

Cost of goods sold 90,450

Merchandise inventory 90,450

Question

Business

Adriel Jones

14 August, 14:00

Zenith Company's Merchandise Inventory account at year-end has a balance of $91,820, but a physical count reveals that only $90,450 of inventory exists.

The adjusting entry to record this $1,370 of inventory shrinkage is:

A)

Purchases discounts 1,370

Cost of goods sold 1,370

B)

Cost of goods sold 1,370

Merchandise inventory 1,370

C)

Merchandise inventory 1,370

Inventory shrinkage expense 1,370

D)

Inventory shrinkage expense1,370

Cost of goods sold 1,370

E)

Cost of goods sold 90,450

Merchandise inventory 90,450

+5

Answers (1)

Know the Answer?

Cortez · Answer 1

B) Cost of goods sold 1,370

Merchandise inventory 1,370

Explanation:

As the physical count revealed that $1,370 of inventory was missing, it is called inventory shrinkage. Inventory shrinkage can occur when there is a damaged or expired product in the inventory. When the company experience shrinkage, the following journal entries will be required.

Cost of goods sold 1,370

Merchandise inventory 1,370

In that case, inventory decreases and expense (cost of goods sold) increases.