Download 1 - Madeira City Schools

CHAPTER 14
Distributing Dividends and
Preparing a Work Sheet for a
Merchandising Business
2
STOCKHOLDERS’ EQUITY ACCOUNTS
USED BY A CORPORATION
page 405
A corporation’s ownership is divided into units.
•Each unit of ownership is known as a share of stock.
•An owner of one or more shares of a corporation is known as a
stockholder.
•Each stockholder is an owner of the company
•Capital Stock is the shareholders owner’s equity account.
•Retained Earnings is the account for money that will be retained by the
company for business expansion.
•Dividends - A temporary account used to record the distribution of
earnings (dividends) to stockholders.
3110
3120
3130
3140
(3000) STOCKHOLDERS’ EQUITY
Capital Stock
Retained Earnings
Dividends
Income Summary
3
DECLARING A DIVIDEND
page 406
Board of Directors - A group of persons elected by the stockholders to manage
a corporation.
-An action by the board to distribute earnings to shareholders
is called declaring a dividend.
December 15. Hobby Shack’s board of directors declared a quarterly dividend of
$2.00 per share; capital stock issued is 2,500 shares; total dividend, $5,000.00.
Date of payment is January 15. Memorandum No. 79.
3
2
1
4
6
5
1. Write the date.
4. Write the debit amount.
2. Write the title of the account debited. 5. Write the title of the account cr.
3. Write the memorandum number.
6. Write the credit amount.
4
PAYING A DIVIDEND
page 407
January 15. Paid cash for quarterly dividend declared December
15, $5,000.00. Check No. 379.
1
1.
2.
3.
4.
5.
2
3
Write the date.
Write the account title.
Write the check number.
Write the debit account.
Write the credit amount.
4
5
14-2 Beginning an 8-Column Worksheet for a Merchandising Business
RECORDING A TRIAL BALANCE ON A WORK SHEET
1
1. Account title
2. Account balance
3. Total, prove, and
rule the debit and
credit columns
5
page 410
2
3
6
RECORDING SUPPLIES ADJUSTMENTS
ON A WORK SHEET
page 412
3
2
3
1
1. Write the debit amounts in the Adjustments Debit column.
2. Write the credit amounts in the Adjustments Credit column.
3. Label the two parts of the Supplies—Office adjustment with small letter
a and small letter b in parentheses.
7
ANALYZING AND RECORDING A
PREPAID INSURANCE ADJUSTMENT
page 413
3
1
3
2
1. Enter the amount of insurance used
in the Adjustments Credit column.
2. Enter the same amount in the
Adjustments Debit column.
3. Label the two parts of the
adjustment with a small letter c in
parentheses.
8
14-3 Planning & Recoding Merchandise
Inventory Adjustment
page 415
9
ANALYZING AND RECORDING A MERCHANDISE
INVENTORY ADJUSTMENT
page 416
Merchandise inventory - the amount of goods on hand for
sale to customers.
3
2
3
1
1. Write the debit amount.
2. Write the credit amount.
3. Label the two parts of this
adjustment with a small letter d
in parentheses.
ANALYZING AN ADJUSTMENT WHEN ENDING
MERCHANDISE INVENTORY IS GREATER THAN
BEGINNING MERCHANDISE INVENTORY
Jan. 1 Bal.
Adj. (d)
(New Bal.
Merchandise Inventory
294,700.00
4,200.00
298,900.00)
Income Summary
Adj. (d)
4,200.00
10
page 417
11
14-4 PLANNING AND RECORDING AN ALLOWANCE
FOR UNCOLLECTIBLE ACCOUNTS ADJUSTMENT
page 419
When you sell on account you take the risk that a customer will not pay.
Uncollectible Accounts - Accounts receivable that cannot be collected.
• This risk is a cost of doing business that should be recorded as an
expense in the same accounting period the revenue is earned.
We cannot predict which exact accounts will be uncollectible - if so,
we could credit each accounts receivable account. So we estimate.
Estimating accomplishes two objectives:
1. Reports balance sheet amount for Accts. Receivable to reflect
the amount we expect to collect in the future.
2. Recognizes the expense of uncollectible accounts in the same
period in which related revenue is recorded.
12
ESTIMATING UNCOLLECTIBLE
ACCOUNTS EXPENSE
page 420
Many businesses use a percentage of total sales on account
To estimate uncollectible accounts expense. Hobby Shack
Uses 1%.
Estimated
Total Sales
Uncollectible
× Percentage =
on Account
Accounts
Expense
$124,500.00
×
1%
=
$1,245.00
13
ANALYZING AND RECORDING AN ADJUSTMENT FOR
UNCOLLECTIBLE ACCOUNTS EXPENSE
3
3
2
1. Enter the estimated uncollectible
amount.
2. Enter the same amount in the
Adjustments Debit column.
3. Label the two parts with a small letter e
in parentheses.
Accounts Receivable - Bal. of Allow for Uncollectible Accts. = Book Value of
Accts. Rec.
$14,698.40
- $1,372.52
= $13,325.88
Accounts Receivable - Balance of Allowance
1
page 421
LESSON 14-5 Planning & Recording Depreciation Adjustments
Most businesses use two broad categories of assets.
Current Assets - Cash and other assets expected to be exchanged for
cash or consumed within one year.
Plant Assets - Assets that will be used for a number of years
- computers, cash registers, furniture, etc.
May have three major types of plant assets - Equipment, Buildings, & Land
In order to match revenue with expenses used to earn the revenue, the
cost of a plant asset should be expensed over the plant asset’s useful
life. A portion of a plant asset’s cost is transferred to an expense
account in each fiscal period the asset is used to earn revenue.
•Depreciation Expense - The portion of a plant assets cost that is
transferred each fiscal period of the assets useful life.
15
CALCULATING DEPRECIATION EXPENSE
AND BOOK VALUE
(continued on next slide)
1. Subtract the asset’s estimated salvage value from original cost.
2. Divide the estimated total depreciation expense by the years of
estimated useful life.
Straight-line Method
–
Estimated
Salvage
Value
=
Estimated Total
Depreciation
Expense
–
$250.00
=
$1,000.00 1
Estimated Total
Depreciation
Expense
÷
Years of
Estimated
Useful Life
=
$1,000.00
÷
5
=
Original
Cost
$1,250.00
Annual
Depreciation
Expense
$200.00 2
page 424
16
CALCULATING DEPRECIATION EXPENSE
AND BOOK VALUE
(continued from previous slide)
20X2
Accumulated
Depreciation
$400.00
Original Cost
$1,250.00
20X3
+ Depreciation =
Expense
+
$200.00
=
Accumulated
–
=
Depreciation
–
$600.00
=
20X3
Accumulated
Depreciation
$600.00
Ending
Book Value
$650.00
page 424
17
ANALYZING AND RECORDING ADJUSTMENTS
FOR DEPRECIATION EXPENSE
page 425
3
2
3
1
1. Write the debit amounts.
2. Write the credit amounts.
3. Label the adjustments.
LESSON 14-6 Calculating Federal Income
Tax and Completing a Work Sheet
Corporations owing more than $500 a year in federal income taxes
are required to pay estimated federal taxes each quarter.
-However you do not know what you actually owe until the end of
the fiscal year.
Hobby Shack estimated $18,000 in federal income tax and made
four quarterly payments of $4,500. At the end of the fiscal period,
we can calculate what we actually owe using the work sheet.
19
FEDERAL INCOME TAX EXPENSE ADJUSTMENT
page 427
Total of Income Statement Credit column
Less total of Income Statement Debit column
before federal income tax
Equals Net Income before Federal Income Tax
$ 500,253.10
–396,049.91
$ 104,203.19
20
CALCULATING FEDERAL INCOME TAX
page 428
21
RECORDING THE FEDERAL INCOME
TAX ADJUSTMENT
page 429
3
1
1
1. Calculate the amount
of federal income tax
expense adjustment.
2
3
2. Total and rule the Adjustments
columns.
3. Extend account balances.
22
COMPLETING A WORK SHEET
page 430
1
1
2
4
1.
2.
3.
4.
5.
5
3
Total the Income Statement and Balance Sheet columns.
Calculate and enter the net income after federal income tax.
Extend the net income amount.
After recording the adjustment for federal
Calculate the column totals.
income tax, the worksheet is ready to be
Rule double lines.
completed.
A COMPLETED 8-COLUMN
WORK SHEET
23
page 432
24
A 10-COLUMN WORK SHEET
page 434-435
1
2
3
5
4
6
Some large businesses with many accounts to be adjusted may
use the 10 column worksheet.
4. Total, prove, and rule
1. Trial balance
5. Extend balances
2. Adjustments
6. Calculate net income; total,
3. Extend adjusted balances
prove and rule