Bug-Off Exterminators provides pest control services and sells extermination products manufactured by other companies. The following six-column table contains the company’s unadjusted trial balance as of December 31, 2011.
December 31, 2011
Unadjusted Trial Balance
Accounts receivable 4,000
Allowance for doubtful accounts 828
Merchandise inventory 11,700
Accum. depreciation-Trucks –
Accum. depreciation-Equipment 12,200
Accounts payable 5,000
Estimated warranty liability 1,400
Unearned services revenue –
Interest payable –
Long-term notes payable 15,000
D. Buggs, Capital 59,700
D. Buggs, Withdrawals 10,000
Extermination services revenue 60,000
Interest revenue 872
Sales (of merchandise) 71,026
Cost of goods sold 46,300
Depreciation expense-Trucks –
Depreciation expense-Equipment –
Wages expense 35,000
Interest expense –
Rent expense 9,000
Bad debts expense –
Miscellaneous expense 1,226
Repairs expense 8,000
Utilities expense 6,800
Warranty expense –
Totals 226,026 226,026
The following information in a through h applies to the company at the end of the current year.
a. The bank reconciliation as of December 31, 2011, includes the following facts.
Cash balance per bank 15,100
Cash balance per books 17,000
Outstanding checks 1,800
Deposit in transit 2,450
Interest earned (on bank account) 52
Bank service charges (miscellaneous expense) 15
Reported on the bank statement is a canceled check that the company failed to record. (Information from the bank reconciliation allows you to determine the amount of this check, which is a payment on an account payable.)
b. An examination of customers’ accounts shows that accounts totaling $679 should be written off as uncollectible. Using an aging of receivables, the company determines that the ending balance of the Allowance for Doubtful Accounts should be $700.
c. A truck is purchased and placed in service on January 1, 2011. Its cost is being depreciated with the straight-line method using the following facts and estimates.
Original cost 32,000
Expected salvage value 8,000
Useful life (years) 4
d. Two items of equipment (a sprayer and an injector) were purchased and put into service in early January 2009. They are being depreciated with the straight-line method using these facts and estimates.
Original cost 27,000 18,000
Expected salvage value 3,000 2,500
Useful life (years) 8 5
e. On August 1, 2011, the company is paid $3,840 cash in advance to provide monthly service for an apartment complex for one year. The company began providing the services in August. When the cash was received, the full amount was credited to the Extermination Services Revenue account.
f. The company offers a warranty for the services it sells. The expected cost of providing warranty service is 2.5% of the extermination services revenue of $57,760 for 2011. No warranty expense has been recorded for 2011. All costs of servicing warranties in 2011 were properly debited to the Estimated Warranty Liability account.
g. The $15,000 long-term note is an 8%, 5-year, interest-bearing note with interest payable annually on December 31. The note was signed with First National Bank on December 31, 2011.
h. The ending inventory of merchandise is counted and determined to have a cost of $11,700. Bug-Off uses a perpetual inventory system.
1. Use the preceding information to determine amounts for the following items.
a. Correct (reconciled) ending balance of Cash, and the amount of the omitted check.
b. Adjustment needed to obtain the correct ending balance of the Allowance for Doubtful Accounts.
c. Depreciation expense for the truck used during year 2011.
d. Depreciation expense for the two items of equipment used during year 2011.
e. The adjusted 2011 ending balances of the Extermination Services Revenue and Unearned Services Revenue accounts.
f. The adjusted 2011 ending balances of the accounts for Warranty Expense and Estimated Warranty Liability.
g. The adjusted 2011 ending balances of the accounts for Interest Expense and Interest Payable. (Round amounts to nearest whole dollar.)
2. Use the results of part 1 to complete the six-column table by first entering the appropriate adjustments for items a through g and then completing the adjusted trial balance columns. (Hint: Item b requires two adjustments.)
3. Prepare journal entries to record the adjustments entered on the six-column table. Assume Bug-Off’s adjusted balance for Merchandise Inventory matches the year-end physical count.
4.1 Prepare a single-step income statement for year 2011. (Input all amounts as positive values.
4.2 Prepare a Statement of owner’s equity (cash withdrawals during 2011 were $10,000) for year 2011.
4.3 Prepare a Classified balance sheet