Question

The City of Marshall uses the PURCHASES METHOD for recording its inventory of supplies in the General Funds. Rather than using a perpetual inventory system, inventories are updated at year-end based on a physical count. Physical inventories were $85,000 and $75,000 at December 31, 2013 and 2014, respectively. The adjusting journal entry on December 31, 2014, will include a:

Answer 1

The adjusting journal entry for the City of Marshall's General Funds will show a $10,000 increase in supplies expense and a corresponding $10,000 decrease in supplies inventory, reflecting the year's consumption of inventory.

Step-by-step explanation:

The City of Marshall uses the purchases method to record inventory in the General Funds. When preparing the adjusting journal entry at the year-end, the focus is on updating the inventory to reflect the actual physical count. Since inventories decreased from $85,000 in 2013 to $75,000 in 2014, it means there was a consumption of supplies during the year. The journal entry will reflect this consumption of supplies as an expense.

The adjusting entry would typically debit the supplies expense account and credit the supplies inventory account to reflect the reduction in inventory. Based on the information provided, the entry would decrease the inventory by $10,000 ($85,000 - $75,000) and increase the expense by the same amount.

In this case, assuming no other adjustments, the entry on December 31, 2014, would be: