A merchandising company’s ledger on May 31, its fiscal year-end, includes the following accounts that have normal balances (it uses the perpetual inventory system). A physical count of its May 31 year end inventory reveals that the cost of the merchandise inventory still available is $656.

(a) Prepare the entry to record any inventory shrinkage.

(b) Prepare the four closing entries as of May 31.

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Merchandise inventory.... $ 756 1,000 Common stock...... Retained earnings. Dividends..... 1,300 150 Sales ... Sales discounts. Other operating expenses Cost of goods sold..... $4,300 50 300 2,100 Depreciation expense.. Salaries expense... Sales returns and allowances... $400 600 250