LESSON 14-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 14-1LESSON 14-1

Distributing Corporate Earnings to Stockholders

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LESSON 14-1CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

STOCKHOLDERS’ EQUITY ACCOUNTS STOCKHOLDERS’ EQUITY ACCOUNTS USED BY A CORPORATIONUSED BY A CORPORATION page 405

(3000) STOCKHOLDERS’ EQUITY3110 Capital Stock3120 Retained Earnings3130 Dividends3140 Income Summary

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DECLARING A DIVIDENDDECLARING A DIVIDEND

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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.

4. Write the debit amount.

3. Write the memorandum number.

2. Write the title of the account debited.

1. Write the date.

5. Write the title of the account credited.

6. Write the credit amount.

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PAYING A DIVIDENDPAYING A DIVIDEND

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page 407

January 15. Paid cash for quarterly dividend declared December 15, $5,000.00. Check No. 379.

1. Write the date.

2. Write the account title.

3. Write the check number.

4. Write the debit account.


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TERMS REVIEWTERMS REVIEW

retained earnings dividends board of directors declaring a dividend

page 408



Beginning an 8-Column Work Sheet for a Merchandising Business

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RECORDING A TRIAL BALANCE ON A RECORDING A TRIAL BALANCE ON A WORK SHEETWORK SHEET page 410

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221. Account title

2. Account balance

3. Total, prove, and rule the debit and credit columns

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ANALYZING AND RECORDING SUPPLIES ANALYZING AND RECORDING SUPPLIES ADJUSTMENTSADJUSTMENTS page 411

Adj. (a) 2,730.00

Supplies Expense—Office

Dec. 31 Bal. 3,480.00 Adj. (a) 2,730.00

(Adj Bal. 750.00)

Supplies—Office

Adj. (b) 2,910.00

Supplies Expense—Store

Dec. 31 Bal. 3,944.00 Adj. (b) 2,910.00

(Adj Bal. 1,034.00)

Supplies—Store

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RECORDING SUPPLIES ADJUSTMENTS RECORDING SUPPLIES ADJUSTMENTS ON A WORK SHEETON A WORK SHEET page 412

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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.

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ANALYZING AND RECORDING A ANALYZING AND RECORDING A PREPAID INSURANCE ADJUSTMENTPREPAID INSURANCE ADJUSTMENT

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page 413

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.



Planning and Recording a Merchandise Inventory Adjustment

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MERCHANDISE INVENTORYMERCHANDISE INVENTORY page 415

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ANALYZING AND RECORDING A ANALYZING AND RECORDING A MERCHANDISE INVENTORY ADJUSTMENTMERCHANDISE INVENTORY ADJUSTMENT

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page 416

1. Write the debit amount.

3. Label the two parts of this adjustment with a small letter d in parentheses.


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ANALYZING AN ADJUSTMENT WHEN ENDING ANALYZING AN ADJUSTMENT WHEN ENDING MERCHANDISE INVENTORY IS GREATER THAN MERCHANDISE INVENTORY IS GREATER THAN BEGINNING MERCHANDISE INVENTORYBEGINNING MERCHANDISE INVENTORY page 417

Jan. 1 Bal. 294,700.00

Adj. (d) 4,200.00

(New Bal. 298,900.00)

Merchandise Inventory

Adj. (d) 4,200.00

Income Summary

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TERM REVIEWTERM REVIEW

merchandise inventory

page 418



Planning and Recording an Allowance for Uncollectible Accounts Adjustment

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ALLOWANCE METHOD OF RECORDING ALLOWANCE METHOD OF RECORDING LOSSES FROM UNCOLLECTIBLE ACCOUNTSLOSSES FROM UNCOLLECTIBLE ACCOUNTS page 419

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EstimatedUncollectible

Accounts Expense

=Percentage×Total Saleson Account

$1,245.00=1%×$124,500.00

ESTIMATING UNCOLLECTIBLE ESTIMATING UNCOLLECTIBLE ACCOUNTS EXPENSEACCOUNTS EXPENSE page 420

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1. Enter the estimated uncollectible amount.

ANALYZING AND RECORDING AN ANALYZING AND RECORDING AN ADJUSTMENT FOR UNCOLLECTIBLE ADJUSTMENT FOR UNCOLLECTIBLE ACCOUNTS EXPENSEACCOUNTS EXPENSE

3. Label the two parts with a small letter e in parentheses.

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page 421

2. Enter the same amount in the Adjustments Debit column.

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uncollectible accounts allowance method of recording losses from

uncollectible accounts book value book value of accounts receivable

page 422



Planning and Recording Depreciation Adjustments

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CALCULATING DEPRECIATION EXPENSE CALCULATING DEPRECIATION EXPENSE AND BOOK VALUEAND BOOK VALUE page 424

Estimated TotalDepreciation

Expense=

EstimatedSalvage Value

–Original

Cost

$1,000.00=$250.00–$1,250.00

AnnualDepreciation

Expense=

Years ofEstimated

Useful Life÷

Estimated TotalDepreciation

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.

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(continued on next slide)

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CALCULATING DEPRECIATION EXPENSE CALCULATING DEPRECIATION EXPENSE AND BOOK VALUEAND BOOK VALUE page 424

20X3AccumulatedDepreciation

=20X3

DepreciationExpense

+20X2

AccumulatedDepreciation

$600.00=$200.00+$400.00

EndingBook Value

=AccumulatedDepreciation

–Original Cost

$650.00=$600.00–$1,250.00

(continued from previous slide)

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ANALYZING AND RECORDING ADJUSTMENTS ANALYZING AND RECORDING ADJUSTMENTS FOR DEPRECIATION EXPENSEFOR DEPRECIATION EXPENSE page 425

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1. Write the debit amounts.

2. Write the credit amounts.

3. Label the adjustments.

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current assets plant assets depreciation expense estimated salvage value straight-line method of depreciation accumulated depreciation book value of a plant asset

page 426



Calculating Federal Income Tax and Completing a Work Sheet

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FEDERAL INCOME TAX EXPENSE FEDERAL INCOME TAX EXPENSE ADJUSTMENTADJUSTMENT page 427

Total 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

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CALCULATING FEDERAL INCOME TAXCALCULATING FEDERAL INCOME TAX page 428

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1. Calculate the amount of federal income tax expense adjustment.

RECORDING THE FEDERAL INCOME RECORDING THE FEDERAL INCOME TAX ADJUSTMENTTAX ADJUSTMENT

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page 429

2. Total and rule the Adjustments columns.

3. Extend account balances.

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COMPLETING A WORK SHEETCOMPLETING A WORK SHEET

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1. Total the Income Statement and Balance Sheet columns.

5. Rule double lines.

4. Calculate the column totals.

3. Extend the net income amount.

2. Calculate and enter the net income after federal income tax.

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A COMPLETED 8-COLUMN A COMPLETED 8-COLUMN WORK SHEETWORK SHEET page 432

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A 10-COLUMN WORK SHEETA 10-COLUMN WORK SHEET page 434-435

1. Trial balance

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5. Extend balances

2. Adjustments

3. Extend adjusted balances

4. Total, prove, and rule

6. Calculate net income; total, prove and rule

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LESSON 14-1

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