In: Accounting
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,
2017.
BUG-OFF EXTERMINATORS | ||||||
December 31, 2017 | ||||||
Unadjusted Trial Balance |
||||||
Cash | $ | 17,000 | ||||
Accounts receivable | 4,000 | |||||
Allowance for doubtful accounts | $ | 828 | ||||
Merchandise inventory | 11,700 | |||||
Trucks | 32,000 | |||||
Accum. depreciation—Trucks | 0 | |||||
Equipment | 45,000 | |||||
Accum. depreciation—Equipment | 12,200 | |||||
Accounts payable | 5,000 | |||||
Estimated warranty liability | 1,400 | |||||
Unearned services revenue | 0 | |||||
Interest payable | 0 | |||||
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 | 0 | |||||
Depreciation expense—Equipment | 0 | |||||
Wages expense | 35,000 | |||||
Interest expense | 0 | |||||
Rent expense | 9,000 | |||||
Bad debts expense | 0 | |||||
Miscellaneous expense | 1,226 | |||||
Repairs expense | 8,000 | |||||
Utilities expense | 6,800 | |||||
Warranty expense | 0 | |||||
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,
2017, 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, 2017. 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
2015. They are being depreciated with the straight-line method
using these facts and estimates.
Sprayer | Injector | ||||||
Original cost | $ | 27,000 | $ | 18,000 | |||
Expected salvage value | 3,000 | 2,500 | |||||
Useful life (years) | 8 | 5 | |||||
e. On August 1, 2017, 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 2017.
No warranty expense has been recorded for 2017. All costs of
servicing warranties in 2017 were properly debited to the Estimated
Warranty Liability account.
g. The $15,000 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,
2017.
h. The ending inventory of merchandise is counted
and determined to have a cost of $11,700. Bug-Off uses a perpetual
inventory system.
Required:
1. Determine amounts for the following
items:
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 2017.
4b. Prepare a statement of owner’s equity (cash
withdrawals during 2017 were $10,000) for year 2017 and there were
no investments by the owner in the current year.
4c. Prepare a classified balance sheet as at
2017.