Inventory Shrinkage: It represents the loss of inventory. In other words, it refers to the difference between the amount of inventory shown in the accounting records and the actual inventory. The difference indicates the issues with the inventory caused due to lost, theft, clerical errors, damaged goods or spoilage. In this case Company T is pressuring the accounting department to increase the earnings. Ms. M is an accountant in Company T. Ms. M’s boss already informed her that if the earnings will not increase then he will be terminated. After the end of the fiscal year Ms. M compares the physical count to the balance in the inventory account, and finds a huge amount of inventory shrinkage. This amount is so huge that the earnings will drop significantly. Ms. M’s boss requests her to not to make any adjusting entry for the inventory shrinkage. To Explain: The action of Ms. M for the above situation and its reason.

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Chapter 5, Problem 5.1TIF

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Inventory Shrinkage: It represents the loss of inventory. In other words, it refers to the difference between the amount of inventory shown in the accounting records and the actual inventory. The difference indicates the issues with the inventory caused due to lost, theft, clerical errors, damaged goods or spoilage.

In this case Company T is pressuring the accounting department to increase the earnings. Ms. M is an accountant in Company T. Ms. M’s boss already informed her that if the earnings will not increase then he will be terminated.

After the end of the fiscal year Ms. M compares the physical count to the balance in the inventory account, and finds a huge amount of inventory shrinkage. This amount is so huge that the earnings will drop significantly. Ms. M’s boss requests her to not to make any adjusting entry for the inventory shrinkage.

To Explain: The action of Ms. M for the above situation and its reason.

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Selected comparative financial statements of Korbin Company follow. Sales KORBIN COMPANY Comparative Income Statements For Years Ended December 31 2021 2020 $ 512,008 $ 392,240 2019 $ 272,200 Cost of goods sold 308,229 245,542 174,208 Gross profit 203,779 146,698 97,992 Selling expenses 72,705 54,129 35,930 Administrative expenses 46,081 34,517 22,593 Total expenses 118,786 88,646 58,523 Income before taxes .84,993 58,052 39,469 Income tax expense 15,809 11,901 8,012 Net income $ 69,184 $ 46,151 $ 31,457 KORBIN COMPANY Comparative Balance Sheets Assets Current assets Long-term investments Plant assets, net Total assets Liabilities and Equity Current liabilities Common stock Other paid-in capital Retained earnings December 31 2021 2020 2019 $ 54,370 0 $ 36,390 600 $ 48,645 3,870 99,436 90,776 53,339 Total liabilities and equity $ 153,806 $ 127,766 $ 105,854 $ 22,456 $ 19,037 $ 18,524 68,000 68,000 50,000 8,500 8,500 5,556 54,850 32,229 31,774 $ 153,806 $ 127,766 $ 105,854