Mineral Makers (MM) Company keeps its inventory records using a perpetual system. At December 31, 2019, the unadjusted balance in the inventory account is €64,000. Through a physical count on December 31, 2019, 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, 2019?
A) Inventory is increased and cost of goods sold is decreased by €1,500.
B) Inventory is decreased and cost of goods sold is increased by €1,500.
C) Inventory is increased and cost of goods sold is increased by €1,500.
D) Inventory is decreased and cost of goods sold is decreased by €1,500.

Question

Quizplus · Accepted Answer

The physical count showed that the actual inventory was €1,500 less than what the company had on its books. Therefore, the inventory account needs to be decreased by €1,500 to reflect the actual inventory amount. This decrease in inventory will result in an increase in cost of goods sold by €1,500, as the cost of the missing goods needs to be accounted for in the income statement. Therefore, inventory is decreased and cost of goods sold is increased by €1,500.

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