In view of the information given, the following adjusting entries would be necessary:
For the first item:
Inventory Variation (CGS)
For the third item:
Cost of Sales
Since the goods in the first item were shipped prior to the taking of the physical inventory, the Inventory Control account was reduced by the cost of these goods in the adjustment that arose from the physical inventory. Since the client credited Inventory Control for the cost of these goods on December 16, one of these two credits must be removed. The above entry reverses that made on December 15 with respect to these goods and leaves Cost of Sales properly charged with the $28,400 as a result of the December 16 entry. The sales entry was made properly and requires no adjustment.
In the second item, the client has reduced the control account at the date of shipment, prior to the taking of the physical inventory. The control was in agreement with the physical count on December 15 so far as these goods were concerned, and the December 15 adjustment did not relate to these goods. Since the accounts involved are in agreement with the facts at both December 15 and December 31, no adjustment is necessary.
The third item is a sale recorded too early, and both the revenue and cost recognition need to be revised.
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