Problem:
Mooncake Company uses the perpetual inventory method. The unadjusted balance in the company's Merchandise Inventory account is $120,000 at December 31, 2014. A physical count of its inventory on that date discloses that the cost of the merchandise inventory available is $119,000.
Required:
Question: How would the company record the adjusting entry relating to the inventory shrinkage at December 31, 2014?
- Debit Merchandise Inventory for $1,000 and credit Cost of Goods Sold for $1,000.
- Debit Cost of Goods Sold for $1,000 and credit Merchandise Inventory for $1,000.
- Debit Merchandise Inventory for $1,000 and credit Purchases for $1,000.
- Debit Purchases Expense for $1,000 and credit Merchandise Inventory for $1,000.
- Debit for Merchandise Inventory for $1,000 and credit Inventory Shrinkage Expense for $1,000
Note: Explain in detail.