Question

The records of Alaska Company provide the following information for the year ended December 31.

	At Cost	At Retail
Jan 1 beginning inventory	\(469,010	\)928,950
Cost of Goods purchased	3,376,050	6,381,050
Sales		5,595,800
Sales return		42,800

Required

A year-end physical inventory at retail prices yields a total inventory of $1,686,900. Prepare a calculation showing the company’s loss from shrinkage at cost and at retail.

Short answer

Loss from shrinkage totals$36,873.

Step-by-step solution

Definition of Inventory Shrinkage

The amount of inventory present in the balance sheet but not present in the actual inventory during the physical count is known as inventory shrinkage.

Loss from Shrinkage

Particular	Amount $
Estimated Inventory at retail $\left[\left(\$928,950+\$6,381,050-\left(5,595,800-42,800\right)\right)\times 52.6\%\right]$	$924,182
Less: Physical inventory$\left(\$1,686,900\times 52.6\%\right)$	(887,309)
Loss from shrinkage	36,873