Question

Hahn Flooring Company uses a perpetual inventory system. A. Sales returns of $125,000 and merchandise returns of $80,000 are estimated for the current year's sales. B. The inventory account has a balance of $1,333,150, while physical inventory indicates that $1,309,900 of merchandise is on hand. Journalize the December 31 adjusting entries based on the above transactions. Assume that the inventory shrinkage is a normal amount. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

SOLUTION

S.No.	Date	Accounts titles and Explanation	Debit ($)	Credit ($)
A.	December 31	Sales returns and allowances	125,000
		Accounts receivable		125,000
		Merchandise Inventory	80,000
		Cost of Good sold		80,000
B.	December 31	Cost of Good sold	23,250
		Merchandise Inventory		23,250

Inventory shrinkage is calculated as follows:

Inventory Shrinkage = Account balance of inventory - Physical inventory on hand

= $1,333,150 - $1,309,900 = $23,250