BUG-OFF EXTERMINATORS
December 31, 2018
	Unadjusted Trial Balance
Cash	$	17,100
Accounts receivable		4,700
Allowance for doubtful accounts					$	801
Merchandise inventory		11,100
Trucks		34,000
Accum. depreciationTrucks						0
Equipment		41,000
Accum. depreciationEquipment						13,500
Accounts payable						4,400
Estimated warranty liability						1,400
Unearned services revenue						0
Interest payable						0
Long-term notes payable						16,200
Common stock						10,000
Retained earnings						47,700
Dividends		11,000
Extermination services revenue						47,000
Interest revenue						855
Sales (of merchandise)						80,174
Cost of goods sold		46,000
Depreciation expenseTrucks		0
Depreciation expenseEquipment		0
Wages expense		34,000
Interest expense		0
Rent expense		8,100
Bad debts expense		0
Miscellaneous expense		1,200
Repairs expense		7,100
Utilities expense		6,730
Warranty expense		0
Totals	$	222,030			$	222,030

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 $44,760 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.

Required:

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 2018.

d. Depreciation expense for the two items of equipment used during year 2018.

e. The adjusted 2018 ending balances of the Extermination Services Revenue and Unearned Services Revenue accounts.

f. The adjusted 2018 ending balances of the Warranty Expense and the Estimated Warranty Liability accounts.

g. The adjusted 2018 ending balances of the Interest Expense and the Interest Payable accounts.

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 4n the six-column table. Assume Bug-Offs adjusted balance for Merchandise Inventory matches the year-end physical count.

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.

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 2018.

d. Depreciation expense for the two items of equipment used during year 2018.

e. The adjusted 2018 ending balances of the Extermination Services Revenue and Unearned Services Revenue accounts.

f. The adjusted 2018 ending balances of the Warranty Expense and the Estimated Warranty Liability accounts.

g. The adjusted 2018 ending balances of the Interest Expense and the Interest Payable accounts. (Round amounts to nearest whole dollar.)

a.	Reconciled balance
	Omitted check
b.	Necessary adjustment
c.	Depreciation expense
d.	DepreciationSprayer
	DepreciationInjector
e.	Services revenue
	Unearned services revenue
f.	Warranty expense
	Estimated warranty liability
g.	Interest expense
	Interest payable