Question

Hahn Flooring Company uses a perpetual inventory, system. 

A. The inventory account has a balance of $1,333,150, while physical inventory indicates that $1,309,900 of merchandise is on hand. Assume any shrinkage is a normal amount. 

B. Sales returns of $125,000 and merchandise returns of $80,000 are estimated for the current year's sales. 

Journalize the December 31 adjusting entries based on the above transactions. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

A. Inventory account balance = $1333150

Physical inventory count = $1309900

Difference is shortage / shrinkage = $23250

As per the question,shrinkage of $23250 is a normal account. It means that the cost of shrinkage will be borne by the good units. So, it will increase the cost of goods sold.

Required journal entry is:

Date	Description	Debit	Credit
A	Cost of goods sold	23250
	Ending inventory		23250
	(for adjusting inventory to match the physical count)

B. Journal entry for estimated sales returns:

Date	Description	Debit	Credit
B	Sales returns	125000
	Accounts receivable		125000
	(for recording sales return)
	Merchandise inventory	80000
	Cost of goods sold		80000
	(for recording merchandise return)