Mineral Makers (MM) Company keeps its inventory records using a perpetual system.At December 31, 2011, the unadjusted balance in the inventory account is $64,000.Through a physical count on December 31, 2011, MM determines that its actual merchandise inventory at year-end is $62,500.Which of the following is true regarding the statement of financial position and the income statement of MM at December 31, 2011?

Question

Quizplus · Accepted Answer

Since the actual merchandise inventory is less than the unadjusted balance in the inventory account, it means that there is an overstatement of inventory in the accounting records. To correct this, inventory must be decreased and cost of goods sold must be increased. The adjustment needed is:

Actual inventory = $62,500
Unadjusted balance in inventory account = $64,000
Adjustment needed = $64,000 - $62,500 = $1,500

Therefore, the correct answer is B: Inventory is decreased and cost of goods sold is increased by $1,500.

Mineral Makers (MM) Company Keeps Its Inventory Records Using a Perpetual