(Treatment of inventories-purchases method)

At the end of FY 2003, the City of Kensington has a balance of $\$ 6,000$ in its Reserve for supplies account. An inventory, taken at the end of 2004 reveals that supplies valued at $\$ 7,000$ are on hand. Kensington uses the purchases method to account for supplies.

Required: 1. What entry should be made at the end of 2004 to disclose this change in the amount of supplies on hand?

2. Suppose the inventory shows that supplies valued at $\$ 4,000$ are on hand. What entry should be made to disclose this fact?