Inventory Shrinkage Adjustment Margie Johnson is a staff accountant at Toolex Company, a...
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Accounting
Inventory Shrinkage Adjustment
Margie Johnson is a staff accountant at Toolex Company, a manufacturer of tools and equipment. The company is under pressure from investors to increase earnings, and the president of the company expects the Accounting Department to make this happen. Margies boss, who has been a mentor to her, is concerned that if earnings do not increase, he will be terminated.
Shortly after the end of the fiscal year, the company performs a physical count of the inventory. When Margie compares the physical count to the balance in the inventory account, she finds a significant amount of inventory shrinkage. The amount is so large that it will result in a significant drop in earnings this period. Margies boss asks her not to make the adjusting entry for shrinkage this period. He assures her that they will get caught up on shrinkage in the next period, after the pressure is off to reach this periods earnings goal. Margies boss asks her to do this as a personal favor to him.
What should Margie do in this situation? What effect will not making the adjustment have to which accounts and which financial statements?
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