Presentation on theme: "LESSON 14-1 4/20/2017 CHAPTER 14 Distributing Dividends and Preparing a Work Sheet for a Merchandising Business."— Presentation transcript:
1 LESSON 14-14/20/2017CHAPTER 14Distributing Dividends and Preparing a Work Sheet for a Merchandising Business
2 STOCKHOLDERS’ EQUITY ACCOUNTS USED BY A CORPORATION LESSON 14-14/20/2017STOCKHOLDERS’ EQUITY ACCOUNTS USED BY A CORPORATIONpage 405A 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 companyCapital 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’ EQUITY3110 Capital Stock3120 Retained Earnings3130 Dividends3140 Income Summary
3 LESSON 14-14/20/2017DECLARING A DIVIDENDpage 406Board of Directors - A group of persons elected by the stockholders to manage a corporation.-An action by the board to distribute earnings to shareholdersis 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, Date of payment is January 15. Memorandum No. 79.3246511. 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 LESSON 14-14/20/2017PAYING A DIVIDENDpage 407January 15. Paid cash for quarterly dividend declared December 15, $5, Check No. 379.123451. Write the date.2. Write the account title.3. Write the check number.4. Write the debit account.5. Write the credit amount.
5 RECORDING A TRIAL BALANCE ON A WORK SHEET LESSON 14-14/20/201714-2 Beginning an 8-Column Worksheet for a Merchandising BusinessRECORDING A TRIAL BALANCE ON A WORK SHEETpage 410121. Account title2. Account balance3. Total, prove, and rule the debit and credit columns3
6 RECORDING SUPPLIES ADJUSTMENTS ON A WORK SHEET LESSON 14-14/20/2017RECORDING SUPPLIES ADJUSTMENTS ON A WORK SHEETpage 4123211. 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 LESSON 14-14/20/2017ANALYZING AND RECORDING A PREPAID INSURANCE ADJUSTMENTpage 4133121. 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.
9 ANALYZING AND RECORDING A MERCHANDISE INVENTORY ADJUSTMENT LESSON 14-14/20/2017ANALYZING AND RECORDING A MERCHANDISE INVENTORY ADJUSTMENTpage 416Merchandise inventory - the amount of goods on hand for sale to customers.3211. Write the debit amount.2. Write the credit amount.3. Label the two parts of this adjustment with a small letter d in parentheses.
10 Merchandise Inventory LESSON 14-14/20/2017ANALYZING AN ADJUSTMENT WHEN ENDING MERCHANDISE INVENTORY IS GREATER THAN BEGINNING MERCHANDISE INVENTORYpage 417Jan. 1 Bal. 294,700.00Adj. (d) 4,200.00(New Bal. 298,900.00)Merchandise InventoryIncome Summary
11 Uncollectible Accounts - Accounts receivable that cannot be collected. LESSON 14-14/20/201714-4 PLANNING AND RECORDING AN ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS ADJUSTMENTpage 419When 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 anexpense 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 reflectthe amount we expect to collect in the future.Recognizes the expense of uncollectible accounts in the sameperiod in which related revenue is recorded.
12 ESTIMATING UNCOLLECTIBLE ACCOUNTS EXPENSE LESSON 14-14/20/2017ESTIMATING UNCOLLECTIBLE ACCOUNTS EXPENSEpage 420Many businesses use a percentage of total sales on accountTo estimate uncollectible accounts expense. Hobby ShackUses 1%.Estimated Uncollectible Accounts Expense=Percentage×Total Sales on Account$124,500.00×1%=$1,245.00
13 Accounts Receivable - Balance of Allowance LESSON 14-14/20/2017ANALYZING AND RECORDING AN ADJUSTMENT FOR UNCOLLECTIBLE ACCOUNTS EXPENSEpage 4213121. 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 ofAccts. Rec.$14, $1, = $13,325.88Accounts Receivable - Balance of Allowance
14 LESSON 14-5 Planning & Recording Depreciation Adjustments 4/20/2017LESSON 14-5 Planning & Recording Depreciation AdjustmentsMost businesses use two broad categories of assets.Current Assets - Cash and other assets expected to be exchanged forcash 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, & LandIn order to match revenue with expenses used to earn the revenue, thecost of a plant asset should be expensed over the plant asset’s usefullife. A portion of a plant asset’s cost is transferred to an expenseaccount in each fiscal period the asset is used to earn revenue.Depreciation Expense - The portion of a plant assets cost that istransferred each fiscal period of the assets useful life.
15 CALCULATING DEPRECIATION EXPENSE AND BOOK VALUE LESSON 14-14/20/2017CALCULATING DEPRECIATION EXPENSE AND BOOK VALUEpage 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 MethodEstimated Total Depreciation Expense=Estimated Salvage Value–Original Cost$1,250.00–$250.00=$1,000.001Annual Depreciation Expense=Years of Estimated Useful Life÷Estimated Total Depreciation Expense$1,000.00÷5=$200.002
16 CALCULATING DEPRECIATION EXPENSE AND BOOK VALUE LESSON 14-14/20/2017CALCULATING DEPRECIATION EXPENSE AND BOOK VALUEpage 424(continued from previous slide)20X3 Accumulated Depreciation=20X3 Depreciation Expense+20X2 Accumulated Depreciation$400.00+$200.00=$600.00Ending Book Value=Accumulated Depreciation–Original Cost$1,250.00–$600.00=$650.00
17 ANALYZING AND RECORDING ADJUSTMENTS FOR DEPRECIATION EXPENSE LESSON 14-14/20/2017ANALYZING AND RECORDING ADJUSTMENTS FOR DEPRECIATION EXPENSEpage 4253211. Write the debit amounts.2. Write the credit amounts.3. Label the adjustments.
18 LESSON 14-6 Calculating Federal Income Tax and Completing a Work Sheet 4/20/2017LESSON 14-6 Calculating Federal Income Tax and Completing a Work SheetCorporations owing more than $500 a year in federal income taxesare required to pay estimated federal taxes each quarter.However you do not know what you actually owe until the end ofthe fiscal year.Hobby Shack estimated $18,000 in federal income tax and madefour 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 LESSON 14-14/20/2017FEDERAL INCOME TAX EXPENSE ADJUSTMENTpage 427Total of Income Statement Credit column $ 500,253.10Less total of Income Statement Debit column before federal income tax –396,049.91Equals Net Income before Federal Income Tax $ 104,203.19
20 CALCULATING FEDERAL INCOME TAX LESSON 14-14/20/2017CALCULATING FEDERAL INCOME TAXpage 428
21 RECORDING THE FEDERAL INCOME TAX ADJUSTMENT LESSON 14-14/20/2017RECORDING THE FEDERAL INCOME TAX ADJUSTMENTpage 4291321. Calculate the amount of federal income tax expense adjustment.2. Total and rule the Adjustments columns.3. Extend account balances.
22 COMPLETING A WORK SHEET LESSON 14-14/20/2017COMPLETING A WORK SHEETpage 430123451. 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 federalincome tax, the worksheet is ready to becompleted.4. Calculate the column totals.5. Rule double lines.
23 A COMPLETED 8-COLUMN WORK SHEET LESSON 14-14/20/2017A COMPLETED 8-COLUMN WORK SHEETpage 432
24 LESSON 14-14/20/2017A 10-COLUMN WORK SHEETpage123546Some large businesses with many accounts to be adjusted mayuse the 10 column worksheet.4. Total, prove, and rule1. Trial balance5. Extend balances2. Adjustments6. Calculate net income; total, prove and rule3. Extend adjusted balances