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	$	18,600
Accounts receivable		4,800
Allowance for doubtful accounts				$	844
Merchandise inventory		14,100
Trucks		40,000
Accum. depreciation—Trucks					0
Equipment		60,200
Accum. depreciation—Equipment					18,600
Accounts payable					5,400
Estimated warranty liability					1,800
Unearned services revenue					0
Interest payable					0
Long-term notes payable					23,000
Common stock					18,000
Retained earnings					59,700
Dividends		18,000
Extermination services revenue					76,000
Interest revenue					888
Sales (of merchandise)					81,826
Cost of goods sold		48,700
Depreciation expense—Trucks		0
Depreciation expense—Equipment		0
Wages expense		43,000
Interest expense		0
Rent expense		17,000
Bad debts expense		0
Miscellaneous expense		1,258
Repairs expense		12,000
Utilities expense		8,400
Warranty expense		0
Totals	$	286,058		$	286,058

The following information in a through h applies to the company at the end of the current year.

1. The bank reconciliation as of December 31, 2019, includes the following facts.

  

Cash balance per bank	$	15,900
Cash balance per books		18,600
Outstanding checks		2,200
Deposit in transit		2,850
Interest earned (on bank account)		68
Bank service charges (miscellaneous expense)		23

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.)

2. An examination of customers’ accounts shows that accounts totaling $687 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 $740.
3. 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	$	36,000
Expected salvage value	$	11,200
Useful life (years)		4

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	$	33,400			$	19,600
Expected salvage value	$	3,000			$	3,300
Useful life (years)		8				5

5. On September 1, 2019, the company is paid $12,300 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.
6. 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 $67,800 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.
7. The $19,000 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, 2019.
8. The ending inventory of merchandise is counted and determined to have a cost of $13,300. Bug-Off uses a perpetual inventory system.

Required:
1. Determine amounts for the following items:

1. Correct (reconciled) ending balance of Cash; and the amount of the omitted check.
2. Adjustment needed to obtain the correct ending balance of the Allowance for Doubtful Accounts.
3. Depreciation expense for the truck used during year 2019.
4. Depreciation expense for the two items of equipment used during year 2019.
5. The adjusted 2019 ending balances of the Extermination Services Revenue and Unearned Services Revenue accounts.
6. The adjusted 2019 ending balances of the accounts for Warranty Expense and Estimated Warranty Liability.
7. The adjusted 2019 ending balances of the accounts for Interest Expense and Interest Payable.

Answer 1