Comprehensive Problem Bug-Off Exterminators December 31, 2019 Unadjusted

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.

                                                                 Trial Balance

Cash                                                              $17,200   

 Accounts receivable                                     4,100    

Allowance for doubtful accounts                                                  $830 

Merchandise inventory                               11,500    

Trucks                                                            33,000    

Accum. depreciation—Trucks                                                             0 

Equipment                                                    46,000    

Accum. depreciation—Equipment                                                 13,000 

Accounts payable                                                                               5,050  

Estimated warranty liability                                                             1,450  

Unearned services revenue                                                               0  

Interest payable                                                                                  0 

Long-term notes payable                                                                  15,500  

D. Buggs, Capital                                                                                 61,600 

D. Buggs, Withdrawals                                 11,000     

Extermination services revenue                                                      61,350 

Interest revenue                                                                                 874 

Sales (of merchandise)                                                                       72,476 

Cost of goods sold                                      46,600    

Depreciation expense—Trucks                  0    

Depreciation expense—Equipment           0    

Wages expense                                           36,000    

Interest expense                                           0    

Rent expense                                              10,000    

Bad debts expense                                      0    

Miscellaneous expense                              1,230    

Repairs expense                                          8,500     

Utilities expense                                          7,000    

Warranty expense                                            0     

Totals                                                        $232,130                               $232,130 

 

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

1. 1). The bank reconciliation as of December 31, 2019, includes the following facts. Cash balance per bank$15,200Cash balance per books 17,200Outstanding checks 1,850Deposit in transit 2,500Interest earned (on bank account) 54Bank service charges (miscellaneous expense) 16

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.)

1. a). An examination of customers' accounts shows that accounts totaling $680 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 $705.
2. b). 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$32,500Expected salvage value$8,400Useful life (years) 4

1. 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$27,800  $18,200 Expected salvage value$3,000  $2,600 Useful life (years) 8   5 

1. a). On September 1, 2019, the company is paid $3,900 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.
2. b). The company offers a warranty for the services it sells. The expected cost of providing warranty service is 4% of the extermination services revenue of $58,750 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.
3. c). The $15,500 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.
4. d). The ending inventory of merchandise is counted and determined to have a cost of $11,500. Bug-Off uses a perpetual inventory system.

Required:

1. Determine amounts for the following items:

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

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 single-step income statement for year 2019.

4b. Prepare statement of owner's equity (cash withdrawals during 2019 were $11,000) for year 2019 and there were no investments by the owner in the current year.

4c. Prepare classified balance sheet as at 2019