Adjusting Entries for Inventory of Supplies The Village of Baxter uses the purchases method of accounting for its inventories of supplies in the General Fund. GASB standards, however, require that the consumption method be used for the government-wide financial statements. Because its computer system is very limited, the Village uses a periodic inventory system, adjusting inventory balances based on a physical inventory of supplies at year-end. When supplies are received during the year, the Village records expenditures and expenses in the general journals of the General Fund and governmental activities, respectively. The Village’s inventory records showed the following information for the fiscal year ending December 31, 2011:

Balance of inventory, December 31, 2010                             $140,000

Purchases of inventory during 2011                                        720,000

Balance of inventory. December 31, 2011                              155,000

Required

a. Provide the required adjusting entries at the end of 2011, assuming that the December 31, 2011, balance of Inventory of Supplies has been confirmed by physical count. Make entries in the general journals of both the General Fund (omitting subsidiary detail) and governmental activities at the government- wide level.

b. Assume that the General Fund uses the consumption method for reporting inventories of supplies rather than the purchases method. Make the required adjusting entries for the General Fund and governmental activities at the government-wide level.