Question

The City of Marshfield uses the purchases method for recording its inventory of supplies in the General Fund. Rather than using a perpetual inventory system, inventories are updated at year-end based on a physical count. Physical inventories were $112,000 and $128,000 at December 31, 2016 and 2017, respectively. The adjusting journal entry on December 31, 2017, will include a?

Answer 1

The year-end adjusting entry for the City of Marshfield will include a debit to inventory supplies and a credit to non-spendable fund balance - inventory, each for $16,000, to reflect the increase in physical inventory from $112,000 to $128,000.

Step-by-step explanation:

The City of Marshfield's adjustment to inventory for the General Fund using the purchases method will reflect the change in inventory from the physical counts at the end of the years 2016 and 2017. With the inventory being $112,000 at December 31, 2016, and then $128,000 at December 31, 2017, we determine an increase in inventory of $16,000 ($128,000 minus $112,000).

The adjusting journal entry on December 31, 2017, to record the increase in inventory would include a debit to inventory supplies for $16,000 to reflect the additional inventory on hand and a credit to non-spendable fund balance - inventory for $16,000 to indicate that this amount of fund balance is not available for spending because it is tied up in inventory.