form of the income statement contains several subsections and subtotals. 2. Expenses incurred in the selling of merchandise are reported on the income statement as expenses. 3. Expenses that cannot be traced directly to operations are reported as statement. expenses on the income Use the following data to complete items 4, 5 and 6 below: Data: Merchandise inventory January 1, 20XX is $5,700,000; on December 31, 20XX, a physical inventory shows Merchandise Inventory at $4,999,000: (assume Perpetual Invedntory) 4. The adjustment for the inventory for 20XX is: a. Increase in inventory of $701,000 b. Shrink inventory by $701,000 c. neither is correct 5. The adjusting entry is: a. debit inventory and credit cost of goods sold b. debit purchases and credit cost of goods sold c. debit cost of gods sold and credit inventory T F 6. Now $4,999,000 will be the inventory amount on the Balance Sheet at December 31, 20XX