Question

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, 2018.

BUG-OFF EXTERMINATORS
December 31, 2018
	Unadjusted Trial Balance
Cash	$	15,800
Accounts receivable		4,300
Allowance for doubtful accounts					$	824
Merchandise inventory		11,100
Trucks		30,900
Accum. depreciation—Trucks						0
Equipment		53,000
Accum. depreciation—Equipment						14,000
Accounts payable						4,700
Estimated warranty liability						1,200
Unearned services revenue						0
Interest payable						0
Long-term notes payable						15,000
Common stock						11,000
Retained earnings						48,200
Dividends		11,000
Extermination services revenue						45,000
Interest revenue						860
Sales (of merchandise)						88,211
Cost of goods sold		46,000
Depreciation expense—Trucks		0
Depreciation expense—Equipment		0
Wages expense		33,000
Interest expense		0
Rent expense		7,400
Bad debts expense		0
Miscellaneous expense		1,205
Repairs expense		8,400
Utilities expense		6,890
Warranty expense		0
Totals	$	228,995			$	228,995

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, 2018, 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, 2018. 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 2016. 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, 2018, 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 $42,760 for 2018. No warranty expense has been recorded for 2018. All costs of servicing warranties in 2018 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, 2018.

h. The ending inventory of merchandise is counted and determined to have a cost of $11,700. Bug-Off uses a perpetual inventory system.

(Need answers for the following)

4-a. Prepare a single-step income statement for year 2018.

4-b. Prepare a statement of retained earnings (cash dividends during 2018 were $10,000) for year 2018.

4-c. Prepare a classified balance sheet as at 2018

Answer 1

Adjusted Trial Balance

Note -

1.Finding the value of value of cancelled check

Particulars	Amount
Balance as per bank	15,100
Add -Deposit in transit	2,450
Less- Check issued but not presented (Outstanding checks)	1,800
Less- Interest earned not accounted in the books	52
Add -Bank service charges not accounted	15
Sub total	15,713
Balance as per cash book	15,100
Cancellation of check (to be accounted)	613

In cash book cancellation of check, interest income and service charges are to be accounted (613 + 52 -15 = 650)

2.Depreciation trucks = 32,000 - 8,000 / 4 years => 6,000; Depreciation sprayer = 27,000 - 3,000 / 8 years =>3,000; Depreciation injector = 18,000 - 2,500 / 5 years =>3,100

3.Unearned service revenue = 3,840 x 7 / 12 => 2,240 (January 19 - July 19)

4.Estimated warranty lianbility = 2.5% of 42,760 => 1,069

5.Interest payable = 15,000 x 8% = 1,200

6.Cost of goods sold has been adjusted to increase the inventory value