1. LESSON 14-1 Distributing Corporate Earnings to Stockholders

2. 2 New Vocabulary Retained earnings: An amount earned by a corporation and not yet distributed to stockholders Dividends: Earnings distributed to stockholders Board of directors: A group of people elected by the stockholders to manage a corporation Declaring a dividend: Action by a Board of Directors to distribute corporate earnings to stockholders

3. 3 STOCKHOLDERS’ EQUITY ACCOUNTS USED BY A CORPORATION page 405 (3000) STOCKHOLDERS’ EQUITY 3110Capital Stock 3120Retained Earnings 3130Dividends 3140Income Summary Investment of all owners Earnings not yet distributed

4. 4 DECLARING A DIVIDEND page 406 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.

5. 5 PAYING A DIVIDEND page 407 January 15. Paid cash for quarterly dividend declared December 15, $5,000.00. Check No. 379.

6. 6 Audit Your Understanding Under what major chart of accounts division are the owners’ equity accounts for a corporation normally listed? Stockholders’ equity (300) How many accounts are kept for the investment of all owners of the Corporation? One account called Capital Stock

7. 7 Audit Your Understanding What account does a corporation use to record earnings not yet distributed to stockholders? Retained Earnings What action is required before a corporation can distribute income to its stockholders? The Board of Directors declares a dividend

8. 8 Work Together Aplia.com

9. 9 14-2 RECORDING A TRIAL BALANCE ON A WORK SHEET page 410 1 3 2 1.Account title 2.Account balance 3.Total, prove, and rule the debit and credit columns

10. 10 RECORDING SUPPLIES ADJUSTMENTS ON A WORK SHEET page 412

11. 11 ANALYZING AND RECORDING A PREPAID INSURANCE ADJUSTMENT page 413 1.Enter the amount of insurance used in the Adjustments Credit column.

12. 12 Audit Your Understanding What accounts are used for the adjustment to office supplies? Supplies—office and Supplies Expense— Office What accounts are used for the adjustment to prepaid insurance? Prepaid Insurance and Insurance Expense

13. 13 Work Together Aplia.com

14. 14 14-3 New Vocabulary Merchandise inventory: The amount of goods on hand for sale to customers

15. 15 MERCHANDISE INVENTORY page 415

16. 16 ANALYZING AND RECORDING A MERCHANDISE INVENTORY ADJUSTMENT page 416

17. 17 Audit Your Understanding What accounts are used for the adjustment for merchandise inventory? Merchandise Inventory and Income Summary

18. 18 Audit Your Understanding What adjusting entry is entered on a worksheet when the ending merchandise inventory is less than the beginning value? Debit Income Summary and credit Merchandise Inventory

19. 19 Work Together Aplia.com

20. LESSON 14-4 Planning and Recording an Allowance for Uncollectible Accounts Adjustment

21. 21 New Vocabulary Uncollectible Accounts: Accounts Receivable that cannot be collected Allowance method of recording losses from uncollectible accounts: Crediting the estimated value of uncollectible accounts to a contra account Book value: The difference between an asset’s account balance and its related contra account balance Book value of Accounts Receivable: The difference between the balance of Accounts Receivable and its contra account, Allowance for Uncollectible Accounts

22. 22 ALLOWANCE METHOD OF RECORDING LOSSES FROM UNCOLLECTIBLE ACCOUNTS page 419 This is a contra account for accounts receivable.

23. 23 Estimated Uncollectible Accounts Expense = Percentage × Total Sales on Account $1,245.00=1%×$124,500.00 ESTIMATING UNCOLLECTIBLE ACCOUNTS EXPENSE page 420

24. 24 ANALYZING AND RECORDING AN ADJUSTMENT FOR UNCOLLECTIBLE ACCOUNTS EXPENSE 1 2 page 421

25. 25 Audit Your Understanding Why is an uncollectible accounts recorded as an expense rather than as a reduction in revenue? Loss is considered a regular expense of doing business. Revenue was earned when the sale was made. Failing to collect an account does not cancel the sale. When do businesses normally estimate the amount of their uncollectible accounts expense? At the end of the fiscal period

26. 26 Audit Your Understanding What two objectives will be accomplished by recording an estimated amount of uncollectible accounts expense? (1) Report a balance sheet amount for Accounts Receivable that reflects the amount the business expects to collect in the future. (2) Recognize the expense of uncollectible accounts in the same period in which the related revenue is recorded.

27. 27 Audit Your Understanding Why is Allowance for Uncollectible Accounts called a contra account? It reduces its related asset account, Accounts Receivable How is the book value of Accounts Receivable calculated? The difference between the balance of Accounts Receivable and its contra account, Allowance for Uncollectible Accounts

28. 28 Work Together Aplia.com

29. LESSON 14-5 Planning and Recording Depreciation Adjustments

30. 30 New Vocabulary Current assets: Cash and other assets expected to be exchanged for cash or consumed within a year Plant assets: Assets that will be used for a number of years in the operation of the business Depreciation expense: the portion of a plant asset’s cost that is transferred to an expense account in each fiscal period during a plant asset’s useful life Estimated salvage value: the amount an owner expects to receive when a plant asset is removed from use

31. 31 New Vocabulary Straight-line method of depreciation: Charging an equal amount of depreciation expense for a plant asset in each year of useful life Accumulated depreciation: The full amount of depreciation expense that has been recorded since the purchase of a plant asset Book value of a plant asset: the original cost of a plant assets minus accumulated depreciation

32. 32 CALCULATING DEPRECIATION EXPENSE AND BOOK VALUE page 424 Estimated Total Depreciation Expense = Estimated Salvage Value – Original Cost $1,000.00 = $250.00–$1,250.00 Annual Depreciation Expense = Years of Estimated Useful Life ÷ Estimated Total Depreciation Expense $200.00 = 5 ÷ $1,000.00 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. 1 2 (continued on next slide)

33. 33 CALCULATING DEPRECIATION EXPENSE AND BOOK VALUE page 424 20X3 Accumulated Depreciation = 20X3 Depreciation Expense + 20X2 Accumulated Depreciation $600.00=$200.00+$400.00 Ending Book Value = Accumulated Depreciation –Original Cost $650.00= $600.00–$1,250.00 (continued from previous slide)

34. 34 ANALYZING AND RECORDING ADJUSTMENTS FOR DEPRECIATION EXPENSE page 425

35. 35 Audit Your Understanding What are the two categories of assets? Current assets and plant assets What three factors are used to calculate a plant asset’s annual depreciation expense? Original cost, estimated salvage value, and estimated useful life

36. 36 Work Together Aplia.com

37. 37 14-6 Calculating Federal Income Tax and Completing a Worksheet Federal income tax expense adjustment 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

38. 38 Calculating Federal Income Tax Page 428 (Example: 104,203.19) 15% of net income before taxes, $0 to $50,000 (.15 x first 50,000) Plus 25% of net income before taxes, $50,000 to $75,000 (.25 x next 25,000) Plus 34% of net income before taxes, $75,000 to $100,000 (.34 of next 25,000) Plus 39% of income before taxes, $100,000 to $335,000 (.39 x up to next 235,000) Plus 34% of net income before taxes over $335,000 (.34 x the rest of the income)

39. 39 Record the Federal Income Tax Adjustment Calculate the amount of federal income tax expense adjustment. Once you know the yearly fed tax, enter it in the Income Statement Debit Column. **So Important: The adjustment is the difference between the federal income tax for the year and the taxes already paid during the year. Enter the same amount in the adjustments debit column of the federal income tax expense line on the worksheet Enter the federal income tax expense adjustment in the adjustments column on the federal income tax payable line of the worksheet Then extend the balance to the Balance Sheet Credit column

40. 40 Finishing the Adjustments Column Total and rule the Adjustments column

41. 41 Completing a Worksheet Total the income statement and balance sheet columns Calculate and enter the net income after federal income tax Extend the net income amount Calculate the column totals Draw double lines

42. 42 Audit Your Understanding In what column is the income summary amount extended? It Depends on the Merchandise Inventory Balance: The Income Statement debit or credit column

43. 43 Work Together Aplia.com

44. 44 1% Error Rate… 200,000 incorrect prescriptions 30,000 babies accidentally dropped by doctors and nurses 4 days a year of contaminated water No electricity or heat for 15 minutes each day Newspapers not delivered 4 times a year 2 short or long landings by airliners

45. 45 Dream Car?