Can someone give me the answer and explain please!Thanks! ### Understanding Inventory ShrinkageInventory shrinkage occurs when the actual inventory levels are lower than the recorded amounts. This discrepancy can be due to factors such as theft, loss, damage, or administrative errors. In this example, we assume the use of a perpetual inventory system and analyze the journal entries to account for inventory shrinkage.Based on the given data:- Perpetual records indicate that $191,400 of merchandise should be available.- Physical inventory count indicates that $185,625 of merchandise is actually on hand.- Therefore, the inventory shrinkage is calculated as $191,400 - $185,625 = $5,775.#### Journal Entries to Correct the Inventory ShrinkageBelow are the potential journal entries that might be used to correct the inventory records:1. **First Option** - Date: March 31 - **Description**: Merchandise Inventory - **Debit**: $5,575 - **Description**: Cost of Merchandise Sold - **Credit**: $5,5752. **Second Option** - Date: March 31 - **Description**: Cost of Merchandise Sold - **Debit**: $5,575 - **Description**: Merchandise Inventory - **Credit**: $5,5753. **Third Option** - Date: March 31 - **Description**: Cost of Merchandise Sold - **Debit**: $11,550 - **Description**: Merchandise Inventory - **Credit**: $11,5504. **Fourth Option** - Date: March 31 - **Description**: Cash - **Debit**: $11,550 - **Description**: Sales - **Credit**: $11,550#### Analysis of the Correct Entry:- The correct journal entry should decrease the Merchandise Inventory account and increase the Cost of Merchandise Sold account by the amount of shrinkage, which is $5,775. This adjustment ensures that the recorded inventory matches the actual physical count.Based on the provided options, the second option (Cost of Merchandise Sold debited $5,575 and Merchandise Inventory credited $5,575) appears to correctly journalize the inventory shrinkage.### SummaryCorrectly accounting for inventory shrinkage is essential for accurate financial reporting and inventory management. This example demonstrates the process of identifying shrinkage ## Perpetual Inventory System: Recording Merchandise Returns### Scenario:When using the perpetual inventory system, which of the following entries correctly records the return of merchandise by a cash customer on January 15 that was sold the previous year? The selling price of the returned merchandise was $6,000, and the merchandise originally cost $4,200. The customer was given a cash refund.### Possible Entries:#### Entry Option 1:**Date:** January 15| **DESCRIPTION** | **P. REF.** | **DEBIT** | **CREDIT** ||-------------------------------|-------------|-----------|------------|| Customer Refunds Payable | | $6,000 | || Cash | | | $6,000 || | | | || Merchandise Inventory | | $4,200 | || Estimated Returns Inventory | | | $4,200 |#### Entry Option 2:**Date:** January 15| **DESCRIPTION** | **P. REF.** | **DEBIT** | **CREDIT** ||-------------------------------|-------------|-----------|------------|| Customer Refunds Payable | | $6,000 | || Accounts Receivable | | | $6,000 || | | | || Merchandise Inventory | | $4,200 | || Estimated Returns Inventory | | | $4,200 |#### Entry Option 3:**Date:** January 15| **DESCRIPTION** | **P. REF.** | **DEBIT** | **CREDIT** ||-------------------------------|-------------|-----------|------------|| Cash | | $6,000 | || Accounts Receivable | | | $6,000 || | | | || Estimated Returns Inventory | | $4,200 | || Merchandise Inventory | | | $4,200 |#### Entry Option 4:**Date:** January 15| **DESCRIPTION** | **P. REF.** | **DEBIT** | **CREDIT** ||-------------------------------|-------------|-----------|------------|| Customer Refunds Payable | | $6,000 | |

Assume that a perpetual inventory system is used and the records indicate that$191,400 of merchandise should be on hand on March 31, 20Y4. The physical inventory indicates that $185,625 of merchandise is actually on hand. Select the entry below that is needed to correctly journalize the inventory shrinkage. DESCRIPTION P.REF. DEBIT CREDIT DATE Mar. 31 Merchandise Inventory $5,575 Cost of Merchandise Sold $5,575 DESCRIPTION P.REF. DEBIT CREDIT DATE Mar. 31 Cost of Merchandise Sold $5,575 Merchandise Inventory $5,575 Mar. 31 Cost of Merchandise Sold $11,550 Merchandise Inventory $11,550 DESCRIPTION P.REF. DEBIT CREDIT DATE Mar. 31 Cash $11,550 Sales $11,550

Assume that a perpetual inventory system is used and the records indicate that$191,400 of merchandise should be on hand on March 31, 20Y4. The physical inventory indicates that $185,625 of merchandise is actually on hand. Select the entry below that is needed to correctly journalize the inventory shrinkage. DESCRIPTION P.REF. DEBIT CREDIT DATE Mar. 31 Merchandise Inventory $5,575 Cost of Merchandise Sold $5,575 DESCRIPTION P.REF. DEBIT CREDIT DATE Mar. 31 Cost of Merchandise Sold $5,575 Merchandise Inventory $5,575 Mar. 31 Cost of Merchandise Sold $11,550 Merchandise Inventory $11,550 DESCRIPTION P.REF. DEBIT CREDIT DATE Mar. 31 Cash $11,550 Sales $11,550

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter11: Investment Planning

Section: Chapter Questions

Problem 8FPE

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