Question

Bug-Off Exterminators provides pest control services and sells extermination products manufactured by other companies. Following is the company's unadjusted trial balance as of December 31, 2019. December 31, 2019 Unadjusted Trial Balance Cash $ 20,000 Accounts receivable 5,500 Allowance for doubtful accounts $ 858 Merchandise inventory 16,200 Trucks 47,000 Accum. depreciation—Trucks 0 Equipment 92,400 Accum. depreciation—Equipment 24,200 Accounts payable 5,750 Estimated warranty liability 2,150 Unearned services revenue 0 Interest payable 0 Long-term notes payable 30,000 Common stock 25,000 Retained earnings 68,800 Dividends 25,000 Extermination services revenue 90,000 Interest revenue 902 Sales (of merchandise) 109,826 Cost of goods sold 50,800 Depreciation expense—Trucks 0 Depreciation expense—Equipment 0 Wages expense 50,000 Interest expense 0 Rent expense 24,000 Bad debts expense 0 Miscellaneous expense 1,286 Repairs expense 15,500 Utilities expense 9,800 Warranty expense 0 Totals $ 357,486 $ 357,486 The following information in a through h applies to the company at the end of the current year. The bank reconciliation as of December 31, 2019, includes the following facts. Cash balance per bank $ 16,600 Cash balance per books 20,000 Outstanding checks 2,550 Deposit in transit 3,200 Interest earned (on bank account) 82 Bank service charges (miscellaneous expense) 30 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.) An examination of customers’ accounts shows that accounts totaling $694 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 $775. A truck is purchased and placed in service on January 1, 2019. Its cost is being depreciated with the straight-line method using the following facts and estimates. Original cost $ 39,500 Expected salvage value $ 14,000 Useful life (years) 4 Two items of equipment (a sprayer and an injector) were purchased and put into service in early January 2017. They are being depreciated with the straight-line method using these facts and estimates. Sprayer Injector Original cost $ 39,000 $ 21,000 Expected salvage value $ 3,000 $ 4,000 Useful life (years) 8 5 On September 1, 2019, the company is paid $20,700 cash in advance to provide monthly service for an apartment complex for one year. The company began providing the services in September. When the cash was received, the full amount was credited to the Extermination Services Revenue account. 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 $76,200 for 2019. No warranty expense has been recorded for 2019. All costs of servicing warranties in 2019 were properly debited to the Estimated Warranty Liability account. The $22,500 long-term note is an 8%, five-year, interest-bearing note with interest payable annually on December 31. The note was signed with First National Bank on December 31, 2019. The ending inventory of merchandise is counted and determined to have a cost of $16,200. Bug-Off uses a perpetual inventory system. Required: 1. Determine amounts for the following items: Correct (reconciled) ending balance of Cash; and the amount of the omitted check. Adjustment needed to obtain the correct ending balance of the Allowance for Doubtful Accounts. Depreciation expense for the truck used during year 2019. Depreciation expense for the two items of equipment used during year 2019. The adjusted 2019 ending balances of the Extermination Services Revenue and Unearned Services Revenue accounts. The adjusted 2019 ending balances of the accounts for Warranty Expense and Estimated Warranty Liability. The adjusted 2019 ending balances of the accounts for Interest Expense and Interest Payable. 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. 4a. Prepare a single-step income statement for year 2019. 4b. Prepare the statement of retained earnings (cash dividends during 2019 were $25,000) for 2019. 4c. Prepare a classified balance sheet as at 2019.

Answer 1