11–1 McQuaig Bille 1 College Accounting 10 th Edition McQuaig Bille Nobles © 2011 Cengage Learning PowerPoint presented by Douglas Cloud Professor Emeritus of Accounting, Pepperdine University Chapter 11 Work Sheet and Adjusting Entries

11–2 After studying this chapter, you should be able to: After you have completed this chapter, you will be able to do the following: Prepare an adjustment for supplies. 1 Prepare an adjustment for unearned revenue. 2 Prepare an adjustment for merchandise inventory under the periodic inventory system. 3 (continued) LEARNING OBJECTIVES

11–3 Complete the work sheet. 5 Journalize the adjusting entries for a merchandising business under the periodic inventory system. 6 Prepare and journalize the adjusting entry for merchandise inventory under the perpetual inventory system. 7 After studying this chapter, you should be able to: After you have completed this chapter, you will be able to do the following: Record the adjusting data in a work sheet (including merchandise inventory, unearned revenue, supplies remaining, expired insurance, depreciation, and accrued wages or salaries). 4

11–4 Accounting Language  We have talked about the journals and accounts kept by a merchandising business.  Now we take another step toward completing the accounting cycle by presenting the related adjustments and the work sheet.  Let’s briefly review the adjusting entries you have learned so far using Slides 5 through 7. (continued)

11–5 Insurance expired, $3,600. (The amount expired is the amount used.) (continued) Review

11–6 Review Additional depreciation, $1,800. (Add to both accounts.) (continued)

11–7 Accrued wages (owed but not yet paid), $2,900. (Add to both accounts.) Review

11–8 Learning Objective 1 Prepare an adjustment for supplies.

11–9 If the amount of supplies held at the end of the accounting period is substantial, then an adjustment should be made to capitalize the supplies that were not consumed during the accounting period. (continued) Adjustment for Supplies

11–10 Adjustment for Supplies Marlin & Co. has a balance of $12,000 in the Supplies Expense account. At year end, a count determines that $11,052 of supplies are left.

11–11 PRACTICE EXERCISE 1 Assume that Bowie Corporation has a balance of $9,340 in the Supplies Expense account as a result of buying supplies throughout the year. However, after taking a count of the supplies on hand, it is determined that $2,599 of supplies are left. Journalize the year-end adjusting entry for Bowie Corporation.

11–12 PRACTICE EXERCISE 1 SOLUTION

11–13 Learning Objective 2 Prepare an adjustment for unearned revenue.

11–14 Unearned revenue is cash received in advance for goods or services to be delivered or performed later.  A professional sports team sells tickets in advance  A magazine publisher sells subscriptions in advance An unearned revenue account is classified as a liability. (continued) Adjustment for Unearned Revenue

11–15 On April 1, Ressor Publishing Company receives $73,000 in cash for subscriptions paid in advance (crediting Unearned Subscriptions). At the end of the year, Ressor finds that $32,400 of the subscriptions had been earned. (continued) Adjustment for Unearned Revenue

11–16 On November 1, Trey’s Landscape Supply receives $2,400 in fees for a three-month landscape maintenance course (crediting Unearned Course Fees). On December 31, $1,600 (2/3 of $2,400) has been earned. (continued) Adjustment for Unearned Revenue

11–17 Occasionally, there is an accounting “rule of thumbs” that is helpful in determining an accounting procedure. Here’s one for unearned revenue: Any account beginning with the word “Unearned” is always a liability. Adjustment for Unearned Revenue

11–18 PRACTICE EXERCISE 2 On June 1, Thompson Company receives $148,540 in cash for subscriptions covering two years. At the end of the year, Thompson finds that $94,302 of the subscriptions have been earned. Record in general journal form (a) the original receipt of cash on June 1 and (b) the year-end adjusting entry for Thompson Company.

11–19 PRACTICE EXERCISE 2 SOLUTION

11–20 Learning Objective 3 Prepare an adjustment for merchandise inventory using the periodic inventory system.

11–21 Adjustment for Merchandise Inventory Using the Periodic Inventory System  Under the periodic inventory system, we do not make an entry in the Merchandise Inventory account until an actual physical inventory or count of stock of goods on hand has been taken.  A firm has a Merchandise Inventory balance of $183,000. A count of stock on hand determines the cost of the ending inventory to be $186,000. (continued)

11–22 STEP 1. Eliminate the amount of the beginning inventory from the Merchandise Inventory account by transferring the amount into Income Summary. Adjustment for Merchandise Inventory Using the Periodic Inventory System (continued)

11–23 STEP 2. Enter the ending or latest physical inventory count of Merchandise Inventory (the ending inventory). Adjustment for Merchandise Inventory Using the Periodic Inventory System (continued)

11–24 FIGURE 1 Trial balance section of Whitewater Raft Supply’s work sheet

11–25 PRACTICE EXERCISE 3 Morkin Company’s beginning inventory amounted to $264,072. A physical count at the end of the year reveals that the ending inventory amount is $267,332. Record the adjustment needed into the T accounts.

11–26 PRACTICE EXERCISE 3 SOLUTION

11–27 Learning Objective 4 Record the adjustment data in a work sheet (including merchandise inventory, unearned revenue, supplies remaining, expired insurance, depreciation, and accrued wages or salaries).

11–28 Data for the Adjustments a-b.Ending merchandise inventory, $64,800. The adjustments for inventory generally are placed first. (continued)

11–29 Data for the Adjustments c.Course fees earned, $800. (continued)

11–30 Data for the Adjustments d.Ending supplies inventory, $415. (continued)

11–31 Data for the Adjustments e.Insurance expired, $520. (continued)

11–32 (continued) Data for the Adjustments f.Additional year’s depreciation of building, $3,500.

11–33 (continued) Data for the Adjustments g.Additional year’s depreciation of equipment, $4,900.

11–34 Data for the Adjustments h.Wages owed but not paid to employees at end of year, $1,030. (continued)

11–35 FIGURE 2 Trial balance and adjustments sections of Whitewater Raft Supply’s work sheet

11–36 PRACTICE EXERCISE 4 Following are the adjustment data for Majors Company: Record these data in the Adjustments column of the worksheet found in Slide 37. a ‒ b.Merchandise Inventory, $64,800. c.Course fees earned, $1,800. d.Supplies inventory, $2,415. e.Insurance expired, $1,520. f.Depreciation of building, $13,500. g.Depreciation of equipment, $5,900. h.Wages accrued, $2,030. (continued)

11–37 PRACTICE EXERCISE 4 (concluded)

11–38 PRACTICE EXERCISE 4 SOLUTION The solution to Practice Exercise 4 can be found in Slide 39. (continued)

11–39 PRACTICE EXERCISE 4 SOLUTION (concluded)

11–40 Learning Objective 5 Complete the work sheet.

11–41  To reduce the number of columns in the work sheet, the “Adjusted Trial Balance” columns have been eliminated.  The account balances after the adjusting entries are carried directly into the “Income Statement” and “Balance Sheet” columns. (continued) Completion of the Work Sheet

11–42 FIGURE 3 Completed work sheet for Whitewater Raft Supply (continued) Net Income

11–43 FIGURE 3 Completed work sheet for Whitewater Raft Supply (concluded) Net Income

11–44 STEP 1.Record the trial balance, and make sure that the total of the Debit column equals the total of the Credit column before going to the adjustments. (continued) Completion of the Work Sheet

11–45 STEP 2.Record the adjustments in the “Adjustments” columns, and make sure that the totals are equal before extending the new totals into the “Income Statement” and “Balance Sheet” columns. (continued) Completion of the Work Sheet

11–46 STEP 3.Complete the “Income Statement” and “Balance Sheet” columns by recording the adjusted balance for each account. The accounts and classifications pertaining to a merchandising business using the periodic inventory system appear in Slide 47. (continued) Completion of the Work Sheet

11–47 Completion of the Work Sheet (continued)

11–48 Completion of the Work Sheet

11–49 PRACTICE EXERCISE 5 Complete the Income Statement and Balance Sheet columns of the work sheet for Majors Company from Practice Exercise 4. PRACTICE EXERCISE 5 SOLUTION For your convenience, the solution for Practice Exercise 4 is in Slides 50 and the solution to Practice Exercise 5 is in Slide 51. (continued)

11–50 Net Income

11–51 Net Income PRACTICE EXERCISE 5 SOLUTION (concluded)

11–52 Learning Objective 6 Journalize the adjusting entries for a merchandising business under the periodic inventory system.

11–53 FIGURE 4 Adjusting entries for Whitewater Raft Supply (continued)

11–54 FIGURE 4 Adjusting entries for Whitewater Raft Supply (concluded)

11–55 PRACTICE EXERCISE 6 Prepare the year-end adjusting entries from the Adjustments column of Major Company’s work sheet from Practice Exercise 4. PRACTICE EXERCISE 6 SOLUTION The solution to Practice Exercise 4 is found in Slide 56 and the solution to Practice Exercise 6 is in Slides 57 and 58.

11–56

11–57 (continued) PRACTICE EXERCISE 6 SOLUTION

11–58 PRACTICE EXERCISE 6 SOLUTION (concluded)

11–59 Learning Objective 7 Prepare and journalize the adjusting entry for merchandise inventory under the perpetual inventory system.

11–60 Adjustment for Merchandise Inventory Using the Perpetual Inventory System  Under the perpetual inventory system, a business continually maintains a record of each item in stock.  When merchandise is purchased, the Merchandise Inventory account (not the Purchases account) is debited.  If the amount shown by a physical count is less than the computer record, this is called inventory shrinkage.

11–61 FIGURE 5 A portion of the trial balance section of Whitewater Raft Supply’s work sheet (perpetual inventory system)

11–62 Adjusting Entry Using the Perpetual Inventory System 1.A firm that has a beginning inventory of $75,000 bought merchandise on account, $50,000. (continued)

11–63 Adjusting Entry Using the Perpetual Inventory System 2.Sold merchandise on account for $84,000 having a cost of $60,300.

11–64 Adjusting Entry Using the Perpetual Inventory System 3a.A physical count of inventory revealed that $63,200 was on hand. The perpetual record showed $64,700 ($75,000 + $50,000 ‒ $60,300). (continued)

11–65 Adjusting Entry Using the Perpetual Inventory System 3b.Suppose, on the other hand, that the physical count of the stock of merchandise ($65,200) were more than the recorded amount ($64,700). The adjusting entry is to debit Merchandise Inventory and credit Cost of Goods Sold for the difference ($65,200 – $64,700 = $500). (See Figure 6 in Slide 66).

11–66 FIGURE 6 Adjusting entry for ending inventory under the perpetual inventory system

11–67 Comparison of Periodic and Perpetual Systems

11–68 PRACTICE EXERCISE 7 Larkin Company employs the perpetual inventory system. The computer record shows the amount of ending inventory to be $369,583, while the physical count shows ending inventory to be $362,720. Record the adjustment into T accounts and then journalize the adjusting entry.

11–69 PRACTICE EXERCISE 7 SOLUTION

11–70 THE END