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, 2011.
BUG-OFF EXTERMINATORS
December 31, 2011
Unadjusted Trial Balance
Cash 17,000
Accounts receivable 4,000
Allowance for doubtful accounts 828
Merchandise inventory 11,700
Trucks 32,000
Accum. depreciation-Trucks -
Equipment 45,000
Accum. depreciation-Equipment 12,200
Accounts payable 5,000
Estimated warranty liability 1,400
Unearned services revenue -
Interest payable -
Long-term notes payable 15,000
D. Buggs, Capital 59,700
D. Buggs, Withdrawals 10,000
Extermination services revenue 60,000
Interest
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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 2009. 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, 2011, 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 $57,760 for 2011. No warranty expense has been recorded for 2011. All costs of servicing warranties in 2011 were properly debited to the Estimated Warranty Liability account.
g. The $15,000 long-term note is an 8%, 5-year, interest-bearing note with interest payable annually on December 31. The note was signed with First National Bank on December 31, 2011.
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
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Astaire Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May.
The equipment is expected to cost $240,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 96,000 units of the equipment’s product each year. The expected annual income related to this equipment follows.
If the present is Year 0 and rates compound annually, in what year does the first outlay of $45,000 occur? Hint, you’re using the perpetuity approach to valuation.
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