The Garrett Company uses the perpetual inventory system.The company's records showed a book balance of $18,000 in the Merchandise Inventory account,and a physical count finds only $16,250 of inventory.Which of the following indicates the effect of the necessary write-down entry?

Question

Quizplus · Accepted Answer

The inventory shrinkage of $1,750 (or $18,000 - $16,250)decreases assets (inventory)and stockholders' equity (retained earnings).It increases expenses (cost of goods sold)and decreases net income.It does not affect cash flows.

The Garrett Company Uses the Perpetual Inventory System