The trial balance of Marley Motorcycles shows Merchandise Inventory of $80,000. Based on a count taken on December 31, merchandise inventory at the end of the year actually totaled
$92,000. The company uses a periodic inventory system. The adjusting entry to record the new merchandise inventory balance would be:

Question

Quizplus · Accepted Answer

The adjusting entry must reflect the increase in merchandise inventory from $80,000 to $92,000. Therefore, the entry should be a debit to Merchandise Inventory for $92,000 and a credit to Income Summary for $92,000. This will update the inventory balance and recognize the increase in value as a positive adjustment to the company's income. Option A is incorrect because it only reflects the original balance of $80,000 and does not account for the increase in inventory. Option B is incorrect because it debits Purchases, which is not relevant to the adjustment, and also only reflects the original balance of $80,000. Option D is incorrect because it records a debit to Merchandise Inventory that is less than the actual increase, and also records a credit to Purchases, which is not necessary for this adjustment.

The Trial Balance of Marley Motorcycles Shows Merchandise Inventory of $80,000