Thompson Company maintains perpetual inventory records. Thompson determined through a physical count that it had $10,300 of merchandise inventory on hand at the end of the accounting period. The balance in the Merchandise Inventory account in the general ledger was $10,700. The impact of the adjusting entry on the financial statements is

a.Merchandise Inventory increased $400

b.Cost of Goods Sold increased $400

c.Gross margin increased $400

d.Cash flow for operating activities decreased $400