[Tomas Hertz]

hello! If you come to the end of your accounting period and you find a shortage of inventory does that mean that the inventory was over-estimated or underestimated ?
I am trying to understand an accounting practice question. I have determined sales revenue, inventory cost and COGS sold by FIFO and calculated gross margin.
What confuses me is (1) whether theft with a resultant shortage meant you overestimated end inventory as I suggest above or underestimated it ?

I can calculate end inventory costs based on Gross Margin method with a gross margin percentage of 40% I understand all that well.
They say the company estimates 95% of the incorrectly prices units were sold (although an employee has stolen inventory).
What is the relevance of the 95% to my final answer, if any ?
Finally, what equation do I use to determine the adjusted entry between end inventory balance and the physical count?
Is the journal entry Dr COGS and Cr Inventory for this amount ? Im just a beginner. -Sincerely,

[Fidget1]

1) If the value of the end inventory count is less than you expected it to be, then you have overestimated the inventory account, or in other words, the balance on the inventory account is overstated.

2) The 95% will be relevant in one way or another. It depends on where the incorrect pricing occurred. Was it the unit cost that was incorrect, or was the unit cost correct but the selling price was incorrect? And was the incorrect price higher or lower than what it should've been?

3) Your journal entry to make the adjustment to the inventory account is fine.