**Inventory Shrinkage Adjustment Example: Penny Co.**The records of Penny Co. indicated that $384,630 of merchandise should be on hand on December 31. The physical inventory indicates that $381,550 of merchandise is actually on hand.**Journalizing the Adjusting Entry for Inventory Shrinkage:**For the year ended December 31, Penny Co. needs to make an adjusting entry to account for inventory shrinkage. This involves recognizing the difference between the expected inventory amount and the actual physical count.- **Date:** December 31- **Account Credit/Debit Entries and Amounts:** 1. Begin by selecting the appropriate accounts in the accounting system's drop-down menus. 2. Enter the difference between the expected and actual inventory as the amount for shrinkage.The adjusting entry would typically look like this:1. Debit: Inventory Shrinkage (Expense) - to recognize the expense incurred due to shrinkage.2. Credit: Inventory - to reduce the inventory balance to match the physical count.**Calculation:**- Expected Inventory: $384,630- Actual Inventory: $381,550- Inventory Shrinkage: $384,630 - $381,550 = $3,080**Journal Entry:**- **Debit**: Inventory Shrinkage Expense $3,080- **Credit**: Inventory $3,080This adjustment ensures that the financial statements accurately reflect the company's true inventory levels and expenses for the period.

solution : given inventory as per records =$384630 inventory as per physical count…

Answered: The records of Penny Co. indicated that…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The records of Penny Co. indicated that $384,630 of merchandise should be on hand on December 31. The physical inventory indicates that $381,550 of merchandise is actually hand. Journalize the adjusting entry for the inventory shrinkage for the year ended December 31. Dec. 31