LESSON 14-1 4/20/2017 CHAPTER 14 Distributing Dividends and Preparing a Work Sheet for a Merchandising Business

STOCKHOLDERS’ EQUITY ACCOUNTS USED BY A CORPORATION LESSON 14-1 4/20/2017 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. (3000) STOCKHOLDERS’ EQUITY 3110 Capital Stock 3120 Retained Earnings 3130 Dividends 3140 Income Summary

LESSON 14-1 4/20/2017 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 4 6 5 1 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.

LESSON 14-1 4/20/2017 PAYING A DIVIDEND page 407 January 15. Paid cash for quarterly dividend declared December 15, $5,000.00. Check No. 379. 1 2 3 4 5 1. Write the date. 2. Write the account title. 3. Write the check number. 4. Write the debit account. 5. Write the credit amount.

RECORDING A TRIAL BALANCE ON A WORK SHEET LESSON 14-1 4/20/2017 14-2 Beginning an 8-Column Worksheet for a Merchandising Business RECORDING A TRIAL BALANCE ON A WORK SHEET page 410 1 2 1. Account title 2. Account balance 3. Total, prove, and rule the debit and credit columns 3

RECORDING SUPPLIES ADJUSTMENTS ON A WORK SHEET LESSON 14-1 4/20/2017 RECORDING SUPPLIES ADJUSTMENTS ON A WORK SHEET page 412 3 2 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.

ANALYZING AND RECORDING A PREPAID INSURANCE ADJUSTMENT LESSON 14-1 4/20/2017 ANALYZING AND RECORDING A PREPAID INSURANCE ADJUSTMENT page 413 3 1 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.

14-3 Planning & Recoding Merchandise Inventory Adjustment LESSON 14-1 4/20/2017 14-3 Planning & Recoding Merchandise Inventory Adjustment page 415

ANALYZING AND RECORDING A MERCHANDISE INVENTORY ADJUSTMENT LESSON 14-1 4/20/2017 ANALYZING AND RECORDING A MERCHANDISE INVENTORY ADJUSTMENT page 416 Merchandise inventory - the amount of goods on hand for sale to customers. 3 2 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.

Merchandise Inventory LESSON 14-1 4/20/2017 ANALYZING AN ADJUSTMENT WHEN ENDING MERCHANDISE INVENTORY IS GREATER THAN BEGINNING MERCHANDISE INVENTORY page 417 Jan. 1 Bal. 294,700.00 Adj. (d) 4,200.00 (New Bal. 298,900.00) Merchandise Inventory Income Summary

Uncollectible Accounts - Accounts receivable that cannot be collected. LESSON 14-1 4/20/2017 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: Reports balance sheet amount for Accts. Receivable to reflect the amount we expect to collect in the future. Recognizes the expense of uncollectible accounts in the same period in which related revenue is recorded.

ESTIMATING UNCOLLECTIBLE ACCOUNTS EXPENSE LESSON 14-1 4/20/2017 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 Uncollectible Accounts Expense = Percentage × Total Sales on Account $124,500.00 × 1% = $1,245.00

Accounts Receivable - Balance of Allowance LESSON 14-1 4/20/2017 ANALYZING AND RECORDING AN ADJUSTMENT FOR UNCOLLECTIBLE ACCOUNTS EXPENSE page 421 3 1 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

LESSON 14-5 Planning & Recording Depreciation Adjustments 4/20/2017 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.

CALCULATING DEPRECIATION EXPENSE AND BOOK VALUE LESSON 14-1 4/20/2017 CALCULATING DEPRECIATION EXPENSE AND BOOK VALUE page 424 (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 Total Depreciation Expense = Estimated Salvage Value – Original Cost $1,250.00 – $250.00 = $1,000.00 1 Annual Depreciation Expense = Years of Estimated Useful Life ÷ Estimated Total Depreciation Expense $1,000.00 ÷ 5 = $200.00 2

CALCULATING DEPRECIATION EXPENSE AND BOOK VALUE LESSON 14-1 4/20/2017 CALCULATING DEPRECIATION EXPENSE AND BOOK VALUE page 424 (continued from previous slide) 20X3 Accumulated Depreciation = 20X3 Depreciation Expense + 20X2 Accumulated Depreciation $400.00 + $200.00 = $600.00 Ending Book Value = Accumulated Depreciation – Original Cost $1,250.00 – $600.00 = $650.00

ANALYZING AND RECORDING ADJUSTMENTS FOR DEPRECIATION EXPENSE LESSON 14-1 4/20/2017 ANALYZING AND RECORDING ADJUSTMENTS FOR DEPRECIATION EXPENSE page 425 3 2 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 4/20/2017 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.

FEDERAL INCOME TAX EXPENSE ADJUSTMENT LESSON 14-1 4/20/2017 FEDERAL INCOME TAX EXPENSE ADJUSTMENT page 427 Total of Income Statement Credit column $ 500,253.10 Less total of Income Statement Debit column before federal income tax –396,049.91 Equals Net Income before Federal Income Tax $ 104,203.19

CALCULATING FEDERAL INCOME TAX LESSON 14-1 4/20/2017 CALCULATING FEDERAL INCOME TAX page 428

RECORDING THE FEDERAL INCOME TAX ADJUSTMENT LESSON 14-1 4/20/2017 RECORDING THE FEDERAL INCOME TAX ADJUSTMENT page 429 1 3 2 1. Calculate the amount of federal income tax expense adjustment. 2. Total and rule the Adjustments columns. 3. Extend account balances.

COMPLETING A WORK SHEET LESSON 14-1 4/20/2017 COMPLETING A WORK SHEET page 430 1 2 3 4 5 1. Total the Income Statement and Balance Sheet columns. 2. Calculate and enter the net income after federal income tax. 3. Extend the net income amount. After recording the adjustment for federal income tax, the worksheet is ready to be completed. 4. Calculate the column totals. 5. Rule double lines.

A COMPLETED 8-COLUMN WORK SHEET LESSON 14-1 4/20/2017 A COMPLETED 8-COLUMN WORK SHEET page 432

LESSON 14-1 4/20/2017 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, prove and rule 3. Extend adjusted balances