Hahn Flooring Company uses a perpetual inventory system. Journalize the December 31 adjusting entries based upon the following: A. Sales returns of $125,000 and merchandise returns of $80,000 are estimated for the current year's sales.
B. The inventory account has a balance of $1,333,150, while physical inventory indicates that $1,309,900 of merchandise is on hand.
Journalize the December 31 adjusting entries based on the above transactions. Assume that the inventory shrinkage is a normal amount.

Date         Accounts titles                                    Debit          Credit

A)

Dec. 31    Sales returns and allowances            $125,000

               Accounts receivable                                                 $125,000

               Merchandise Inventory                        $80,000

               Cost of Good sold                                                      $80,000

B)

Dec. 31     Cost of Good sold                                $23,250  

                 Merchandise Inventory                                             $23,250

Note: Inventory Shrinkage = Account balance of inventory - Physical inventory on hand

= $1,333,150 - $1,309,900

= $23,250

answer; correct answer is investing activity;