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Chapter 5: Q5-4TI (page 268)

Click Computers鈥� Merchandise Inventory account at year-end is showing a balance of \(43,000. The physical count of inventory came up with \)42,500. Journalize the adjusting entry needed to account for the inventory shrinkage. The company uses the perpetual inventory system.

Short Answer

Expert verified

The total debit and credit of the journal are $500.

Step by step solution

01

Meaning of Inventory Shrinkage

Inventory shrinkage refers to the loss of inventory for a business entity arising from theft, administrative error, and fraud. It represents the difference between actual inventory and inventory recorded in the books.

02

Preparation of journal entries

Date

Accounts and Explanation

Debit ($)

Credit ($)

Inventory shrinkage expenses

500

Merchandise inventory

500

(To record the adjustment for inventory shrinkage)

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Most popular questions from this chapter

Crazy Cookies earned net sales revenue of \(66,000,000 in 2018. The cost of goods sold was \)39,600,000, and net income reached $7,000,000, the company鈥檚 highest ever. Compute the company鈥檚 gross profit percentage for 2018.

Describe the journal entry(ies) when recording a sale of inventory using the periodic inventory system.

Journalize the following transactions that occurred in November 2018 for Julie鈥檚 Fun World. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name. Julie鈥檚 Fun World estimates sales returns at the end of each month.

Nov. 4 Purchased merchandise inventory on account from Vera Company, \(5,000. Terms 3/10, n/EOM, FOB shipping point.

6 Paid freight bill of \)100 on November 4 purchase

8 Returned half the inventory purchased on November 4 from Vera Company.

10 Sold merchandise inventory for cash, \(1,100. Cost of goods, \)400. FOB destination.

11 Sold merchandise inventory to Geary Corporation, \(11,100, on account, terms of 2/10, n/EOM. Cost of goods, \)6,105. FOB shipping point.

12 Paid freight bill of \(20 on November 10 sale.

13 Sold merchandise inventory to Caldwell Company, \)9,500, on account, terms of n/45. Cost of goods, \(5,225. FOB shipping point.

14 Paid the amount owed on account from November 4, less return and discount.

17 Received defective inventory as a sales return from the November 13 sale, \)500. Cost of goods, \(275.

18 Purchased inventory of \)3,600 on account from Rainman Corporation. Payment terms were 2/10, n/30, FOB destination.

20 Received cash from Geary Corporation, less discount.

26 Paid amount owed on account from November 18, less discount.

28 Received cash from Caldwell Company, less return.

29 Purchased inventory from Sandra Corporation for cash, \(12,300, FOB shipping point. Freight in paid to shipping company, \)170.

What account is debited when recording the payment of freight when using the periodic inventory system?

Match the accounting terms with the corresponding definitions.

1. Credit Terms a. The cost of the merchandise inventory that the business has sold to customers.

2. FOB Destination b. An amount granted to the purchaser as an incentive to keep goods that are not 鈥渁s ordered.鈥�

3. Invoice c. A type of merchandiser that buys merchandise either from a manufacturer or a wholesaler and then sells those goods to consumers.

4. Cost of Goods Sold d. A situation in which the buyer takes ownership (title) at the delivery destination point.

5. Purchase Allowance e. A type of merchandiser that buys goods from manufacturers and then sells them to retailers.

6. FOB Shipping Point f. A discount that businesses offer to purchasers as an incentive for early payment.

7. Wholesaler g. A situation in which the buyer takes title to the goods after the goods leave the seller鈥檚 place of business.

8. Purchase Discount h. The terms of purchase or sale as stated on the invoice.

9. Retailer i. A seller鈥檚 request for cash from the purchaser.
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