At the end of its accounting year, Guild Corp.'s physical inventory count indicated that 540,000 units of inventory, costing $1.50 each, were on hand.The company's perpetual inventory system reported a balance of $817,200.The year-end adjusting entry is
A)debit Inventory and credit Loss on Inventory Due to Count, $7,200.
B)debit Loss on Inventory Due to Count and credit Inventory, $7,200.
C)debit Inventory and credit Loss on Inventory Due to Count, $277,200.
D)debit Loss on Inventory Due to Count and credit Inventory, $277,200.

Question

Quizplus · Accepted Answer

The year-end adjusting entry is required to adjust the balance in the perpetual inventory system with the physical inventory count. As the physical inventory count indicates a lower amount of inventory than what is recorded in the perpetual inventory system, there is a loss on inventory due to count. The adjusting entry to record this loss is to debit Loss on Inventory Due to Count and credit Inventory. The amount of the loss is calculated as follows:

Cost of physical inventory count = 540,000 units * $1.50 = $810,000 
Perpetual inventory system balance = $817,200

Loss on Inventory Due to Count = Cost of physical inventory count - Perpetual inventory system balance 
= $810,000 - $817,200 = $7,200

Therefore, the adjusting entry is to debit Loss on Inventory Due to Count and credit Inventory for $7,200. Choice B is the correct answer.

At the End of Its Accounting Year, Guild Corp