Comprehensive Problem Bug-Off Exterminators (Algo)

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, 2021.

December 31, 2021
	Unadjusted Trial Balance
Debit	Credit
Cash	$ 19,200
Accounts receivable	20,570
Allowance for doubtful accounts		$ 850
Merchandise inventory	15,000
Trucks	43,000
Accumulated depreciationTrucks		0
Equipment	51,600
Accumulated depreciationEquipment		14,070
Accounts payable		5,550
Estimated warranty liability		1,950
Unearned services revenue		0
Interest payable		0
Long-term notes payable		26,000
Common stock		21,000
Retained earnings		63,600
Dividends	21,000
Extermination services revenue		82,000
Interest revenue		894
Sales (of merchandise)		93,826
Cost of goods sold	49,600
Depreciation expenseTrucks	0
Depreciation expenseEquipment	0
Wages expense	46,000
Interest expense	0
Rent expense	20,000
Bad debts expense	0
Miscellaneous expense	1,270
Repairs expense	13,500
Utilities expense	9,000
Warranty expense	0
Totals	$ 309,740	$ 309,740

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, 2021, includes the following facts.

Cash balance per bank	$ 16,200
Cash balance per books	19,200
Outstanding checks	2,350
Deposit in transit	3,000
Interest earned (on bank account)	74
Bank service charges (miscellaneous expense)	26

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 $690 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 $755.

A truck is purchased and placed in service on January 1, 2021. Its cost is being depreciated with the straight-line method using the following facts and estimates.

Original cost	$ 43,000
Expected salvage value	$ 12,400
Useful life (years)	4

Two items of equipment (a sprayer and an injector) were purchased and put into service in early January 2019. They are being depreciated with the straight-line method using these facts and estimates.

	Sprayer	Injector
Original cost	$ 29,200	$ 22,400
Expected salvage value	$ 3,000	$ 3,600
Useful life (years)	8	5

On September 1, 2021, the company is paid $15,900 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 $71,400 for 2021. No warranty expense has been recorded for 2021. All costs of servicing warranties in 2021 were properly debited to the Estimated Warranty Liability account.

The $26,000 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, 2021.

The ending inventory of merchandise is counted and determined to have a cost of $13,900. 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-Offs adjusted balance for Merchandise Inventory matches the year-end physical count.

4a. Prepare a single-step income statement for 2021.

4b. Prepare the statement of retained earnings (cash dividends during 2021 were $21,000) for 2021.

4c. Prepare a classified balance sheet for December 31, 2021.