At the end of its accounting year, Colin Corp.'s physical inventory count indicated that 180,000 units of inventory, costing $1.75 each, were on hand. The company's perpetual inventory system reported a balance of $357,600. The year-end adjusting entry is
A) debit Inventory and credit Loss on Inventory Due to Count, $42,600.
B) debit Loss on Inventory Due to Count and credit Inventory, $42,600.
C) debit Inventory and credit Loss on Inventory Due to Count, $92,400.
D) debit Loss on Inventory Due to Count and credit Inventory, $92,400.

Question

Quizplus · Accepted Answer

The perpetual inventory system reported a balance of $357,600, which represents the value of the 180,000 units at their cost of $1.98 each ($357,600 ÷ 180,000 = $1.98). However, the physical count revealed that the actual cost per unit was $1.75, resulting in a loss of $0.23 per unit. The total loss on the 180,000 units is $41,400 ($0.23 per unit × 180,000 units). The adjusting entry will be to debit Loss on Inventory Due to Count and credit Inventory for the amount of the loss, which is $41,400. Therefore, the correct option is B.

At the End of Its Accounting Year, Colin Corp