Fundamental Accounting Principles
Fundamental Accounting Principles
23rd Edition
ISBN: 9781259536359
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 11, Problem 11CP
To determine

Adjusting Entries:

The journal entries to recognize the revenue earned and expenses incurred during a specified accounting period is called adjusting entries. The adjusting entries are basically classified into two categories; deferral and accrual. The trial balance without adjusting the revenue and expenses recognized during the period is called an unadjusted trial balance and the trial after posting the adjusting entries is referred as adjusted trial balance.

To determine:

1.

a) The reconciled ending balance of cash and the amount of omitted check.

b) The adjustment needed to obtain the correct ending balance of the Allowance for Doubtful Accounts.

c) Compute the depreciation expense for the truck used during the year 2017.

d) Compute the total deprecation for the two items of equipment.

e) The adjusted 2017 ending balance of the Extermination Services Revenue and the Unearned Service Revenue accounts.

f) The adjusted 2017 ending balance of the Warranty Expense and the Estimated Warranty Liability accounts.

2.

Preparation of six column table by entering the appropriate adjustments for items a through g and then completing the adjusted trial balance.

3.

Journalize the adjusting entries for the adjustments entered on the six column table.

4.

Preparing a single-step income statement; a statement of owner’s equity and a classified balance sheet

Expert Solution & Answer
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Answer to Problem 11CP

Solution:

1.

a) The reconciled ending balance of cash is $15,750 and the amount of omitted check is $1,287.

b) The adjustment needed to obtain the correct ending balance of the Allowance for Doubtful Accounts is $551.

c) Deprecation expense for the truck used during the year 2017 is $6,000.

d) The total deprecation for the two items of equipment is $6,100(Sprayer; 3,000 and Injector; 3,100).

e) The adjusted 2017 ending balance of the Extermination Services Revenue account is $57,760 and the Unearned Service Revenue account is $2,240.

f) The adjusted 2017 ending balance of the Warranty Expense account is $1,444 and the Estimated Warranty Liability account is $2,844.

g) The adjusted 2017 ending balance of the Interest Expense account and Interest Payable account remains the same because the interest expense is not yet due in the current year.

2.

BUGS-OFF EXTERMINATORS
Trial Balance
December 31, 2017
  Unadjusted Adjusting entries Adjusted
  Debit Credit Debit Credit Debit Credit
Cash $17,000   $52 $1,302 $15,750  
Accounts Receivable $4,000     $679 $3,321  
Allowance for doubtful accounts   $828 $679 $551   $700
Merchandise Inventory $11,700       $11,700  
Trucks $32,000       $32,000  
Accumulated depreciation – Trucks   0   $6,000   $6,000
Equipment $45,000       $45,000  
Accumulated depreciation – Equipment   $12,200   $6,100   $18,300
Accounts Payable   $5,000 $1,287     $3,713
Estimated Warranty Liability   $1,400   $1,444   $2,844
Unearned Service Revenue   0   $2,240   $2,240
Interest Payable   0       -
Long-Term Notes payable   $15,000       $15,000
D. Buggs, Capital   $59,700       $59,700
D. Buggs, Withdrawals $10,000       $10,000  
Extermination Service Revenue   $60,000 $2,240     $57,760
Interest Revenue   $872   $52   $924
Sales (of Merchandise)   $71,026       $71,026
Cost of Goods Sold $46,300       $46,300  
Depreciation Expense – Truck 0   $6,000   $6,000  
Depreciation Expense – Equipment 0   $6,100   $6,100  
Wages Expense $35,000       $35,000  
Interest Expense 0       -  
Rent Expense $9,000       $9,000  
Bad Debts Expense 0   $551   $551  
Miscellaneous Expense $1,226   $15   $1,241  
Repairs Expense $8,000       $8,000  
Utilities Expense $6,800       $6,800  
Warranty Expense 0   $1,444   $1,444  
Total $226,026 $226,026 $18,368 $18,368 $238,207 $238,207

3.

Adjusting Entries for the transactions

  General journal    
a. Cash $52  
  Interest Revenue   $52
       
  Accounts Payable $1,287  
  Miscellaneous Expense $15  
  Cash   $1,302
       
b. Allowance for Doubtful Accounts $679  
  Accounts Receivable   $679
       
  Bad Debt Expense $551  
  Allowance for Doubtful Accounts   $551
       
c. Depreciation Expense – Truck $6,000  
  Accumulated Depreciation – Truck   $6,000
       
d Depreciation Expense – Equipment $6,100  
  Accumulated Depreciation – Equipment   $6,100
       
e. Extermination Service Revenue $2,240  
  Unearned Service Revenue   $2,240
       
f. Warranty Expense $1,444  
  Estimated Warranty Liability   1,444
       

4.

BUGS-OFF EXTERMINATORS
Single-Step Income Statement
December 31, 2017
Revenues:    
Service Revenue $57,760  
Interest Revenue $924  
Sales (Merchandise) $71,026  
    $129,710
Expenses:    
Cost of Goods Sold $46,300  
Depreciation Expense – Truck $6,000  
Depreciation Expense – Equipment $6,100  
Wages Expense $35,000  
Rent Expense $9,000  
Bad Debts Expense $551  
Miscellaneous Expense $1,241  
Repairs Expense $8,000  
Utilities Expense $6,800  
Warranty Expense $1,444 $120,436
Net Income   $9,274
BUGS-OFF EXTERMINATORS
Balance Sheet
December 31, 2017
Assets:
Current Assets  
Cash $15,750
Accounts Receivable $3,321
Merchandise Inventory $11,700
Total Current Assets $30,771
   
Fixed Assets
Trucks $32,000  
Accumulated depreciation – Trucks $6,000 $26,000
Equipment $45,000  
Accumulated depreciation – Equipment $18,300 $26,700
Total Fixed Assets $52,700
 
Total Assets $83,471
Liabilities
Current Liabilities  
Allowance for doubtful accounts $700
Accounts Payable $3,713
Estimated Warranty Liability $2,844
Unearned Service Revenue $2,240
Total Current Liabilities $9,497
Long-Term Liabilities  
Notes Payable $15,000
Total long term liabilities $15,000
 
Total Liabilities $24,497
Owner’s Equity
D. Buggs, Capital $58,974
   
Total Liabilities $ Owner’s Equity $83,471
BUGS-OFF EXTERMINATORS
Statement of Owner’s Equity
December 31, 2017
Unadjusted owner’s Equity as on December 31, 2017 $59,700
Add: Net Income during the year $ $9,274
Subtotal $68,974
Less: D. Buggs, Drawing $10,000
Adjusted Owner’s Equity $58,974

Explanation of Solution

Explanation:

1. a)

Computation of ending balance of cash and omitted check
Cash balance as per bank $15,100  
Less: Outstanding checks $1,800  
Add: Deposit in transit $2,450  
Reconcile cash balance   $15,750
     
Cash balance as per books $17,000  
Less: Bank service charge $15  
Add: Interest earned $52  
Cash balance before omitted check   $17,037
Less: Reconciled cash balance   $15,750
     
Amount of Omitted Check   $1,287
Adjusted Cash Balance
Unadjusted Cash Balance $17,000
Less: Omitted Check $1,287
Less: Bank Service Charge $15
Add: Interest revenue $52
Adjusted Cash Balance $15,750

b)

Adjustment of allowance for doubtful accounts
Unadjusted balance $828
Less: Bad debt written-off $679
Revised unadjusted balance $149
Desired ending balance $700
Adjustment of allowance for doubtful accounts $551

c) Computation of depreciation expense on truck (Straight-line method)

Depreciation expense = Original Cost of truck  Salvage ValueUseful life of the truck                                    =$32,000  $8,000 4 years                                     = $6,000

d) Depreciation expense of Sprayer and Injector

Sprayer = $27,000  $3,000 8 years              = $3,000 Injector = $18,000  $2,500 5 years              = $3,100

e) Computation of Service Revenue earned from August 1, to December 31.

Adjusted Unearned Service Revenue
Service Revenue received in advance $3,840
Less: Service Revenue earned $1,600*
Unearned Service revenue $2,240
   
Adjustment of Extermination Services Revenue Account
Unadjusted balance $60,000
Less: Unearned Service Revenue $2,240
Adjusted balance $57,760

Service Revenue per Month = Total Revenue in AdvancePeriod of Advance                                               = $3,84012 months                                               = $320 per month Service revenue for 5 months = Service revenue per month X Months of service provided                                               = $320 X 5 months                                               = $1,600 (earned) 

f)

Computation of Warranty Expense

Warranty Expense = Service Revenue X Warranty Percent                              = $57,760 X 2.5%                              = $1,444

Adjustment of Estimated warranty liability
Unadjusted balance $1,400
Add: Warranty Expense $1,444
Adjusted balance $2,844

g)

The Bug-Off Exterminator signed the long-term note payable with First National Bank on December 31, 2017 (current year), so the interest expense liable on December 31, 2018. Hence, no adjustment is required of interest expense and interest payable in the current year.

h) The ending inventory of merchandise determined in the additional information is same as the inventory provided in the unadjusted trial balance which means that the merchandise inventory balance is already adjusted.

Conclusion

Conclusion:

Thus, from the above we can get a clear idea of how to make the adjusted trial balance, adjusting entries and income statement.

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Chapter 11 Solutions

Fundamental Accounting Principles

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