Concept explainers
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
MinrrfTTTrTB | Adjusted | ||
December 31. 2019 | Trial Balance | Adjustments | Trial Balance |
Cash.......................... | ......... i 17.000 | ||
Accounts receivable............. | ......... 4.000 | ||
Allowance for doubtful accounts .. | ........ S 82B | ||
Merchandise inventory........... | ......... 11,700 | ||
Trucks......................... | ..... 32J0OO | ||
Accum. depreciation—Trucks...... | ......... 0 | ||
Equipment..................... | ......... 45J0OO | ||
Accum. depreciation—Equipment . | ........ 12.200 | ||
Accounts payable............... | ........ 5.000 | ||
Estimated warranty liability........ | ........ 1.400 | ||
Unearned services revenue....... | ......... 0 | ||
Interest payable................. | ......... 0 | ||
Long-term notes payable......... | ........ 15,000 | ||
D. Buggs,Capital................ | ......... 59,700 | ||
D. Buggs, Withdrawals........... | ......... 10,000 | ||
Extermination services revenue____ | ........ 60.000 | ||
Interest revenue................ | ........ 872 | ||
Sales (of merchandise)........... | ......... 71.026 | ||
Cost of goods sold............... | ......... 46.300 | ||
Depreciation expense—Trucks | ......... 0 | ||
Depreciation expense—Equipment | ......... 0 | ||
Wages expense................. | ......... 35,000 | ||
Interest expense................ | ......... 0 | ||
Rent expense................... | ......... 9,000 | ||
........ 0 | |||
Miscellaneous expense........... | ........ 1,226 | ||
Repairs expense................ | ......... a.ooo | ||
Utilities expense................ | ......... 6.B00 | ||
Warranly expense............... | ......... 0 | ||
Totals......................... | ......... S226.026 $226,026 | ||
The following information in a through h ap | iplies to the company at the end of the current | year. | - |
3. The bank reconciliation as of December 31. 2019. includes the following facts. | |||
Cash balance per bank.............. | $15,100 Deposit in transit............... | ........... $2,450 |
Cash balance per books.............. 17.000 Interest earned (on bank account}.................. 52
Outstanding checks................. 1.800 Bankservicecharges(mrscellaneousexpense)....... 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 S679 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 S700.
C. A truck is purchased and placed in service on January 1= 2019. Its cost is being
Original cost....... J32.000 Expected salvage value......... SE.000 Useful life (years)........ 4
Introduction:
An account is generally a part of accounting system that classifies, summarizes and presents increase or decrease in various element of business. A normal accounting cycle has four steps, analyze the transaction, prepare journal entries, posting into ledger, and preparation of trial balance.
To calculate:
a) The amounts for the following items.
b) Adjustment needed to obtain the correct ending balance of the Allowance for Doubtful Accounts.
c) Depreciation expense for the truck used
d) Depreciation expense for the two items of equipment used during year
e) The adjusted ending balances of the Extermination Services Revenue and Unearned Services Revenue accounts.
f) The adjusted ending balances of the accounts for Warranty Expense and Estimated Warranty Liability.
g) The adjusted ending balances of the accounts for Interest Expense and Interest Payable.
Answer to Problem 11CP
a) Reconciled ending of cash and amount of omitted check:
Balance as per bank | 15,100 |
(+) Deposit in transit | 2,450 |
(-) outstanding cheque | 1,800 |
Reconciled balance | 15,750 |
Balance as per books | 17,000 |
(+) Interest earned | 52 |
(-) Service Charge | 15 |
Balance before omitted check | 17,037 |
Reconciled balance (from above) | 15,750 |
Amount of omitted cheque | 1,287 |
b)
Unadjusted balance (Credit) | 828 |
Anticipated write-off (Debit) | 679 |
Revised unadjusted balance (Credit) | 149 |
Desired ending balance (Credit) | 700 |
Necessary adjustment (Credit) | 551 |
c) Depreciation Expense on the Truck:
= (Original cost - salvage value) / Useful life Depreciation on truck
= (32,000-8,000)/4
= Depreciation on truck 6,000
d) Depreciation Expense on the Equipment:
Depreciation on sprayer
= (Original cost - salvage value )/ Useful life Depreciation on sprayer
= (27000-3000)/8 = $3000
Depreciation on injector:
= (Original cost - salvage value )/ Useful life Depreciation on injector
= (18000-2500)/5 = $3100
e)
Total advance received | $3,840 |
Months in contract | 12 |
Revenue per month | $320 |
Months of services provided | 5 |
Total earned ($320x5 months) | $1,600 |
Over statement of revenue | $2,240 |
Extermination Services Revenue account Unadjusted balance | $60,000 |
Overstatement | $2,240 |
Adjusted balance | $57,760 |
Unearned Services Revenue account Unadjusted balance | $0 |
Adjustment | $2,240 |
Adjusted balance | $2,240 |
f)
Warranty Expense ($57,700 * 2.5%) | $1,444 |
Estimated Warranty Liability | $ 1,400 |
Warranty Expense | $1,444 |
Adjusted Estimated Warranty Liability | $ 2,844 |
g)
Interest Expense ($15,000 * 8%) | $1,200 |
Adjusted Interest Payable | $1,200 |
Explanation of Solution
a) A bank reconciliation statement is a document that matches the cash balance on a company's balance sheet to the corresponding amount on its bank statement. Reconciling the two accounts helps determine if accounting changes are needed. Here, we determined first the closing balance as per cash book and then identified the amount of omitted cheques as balancing figure.
Conclusion:
Amount of omitted check is 1,287.
b) Allowance for Doubtful Accounts is a contra current asset account associated with Accounts Receivable. In the given instance, desired closing balance is given and necessary adjustment is required to make to keep the desired closing balances. The credit balance in this account exists from the entry wherein Bad Debts Expense is debited.
Conclusion:
Adjustment needed to obtain the correct ending balance of the Allowance for Doubtful Accounts is 551 (credit)
c) In the straight line depreciation, the value of asset is decreased equally over each given period until it reaches its residual value. SLM is the most commonly used and easiest depreciation method for allocation of cost of an asset. the formula of SLM is derived by dividing the cost of an asset, less its residual value, by the life of the asset.
Conclusion:
Depreciation expense for the truck used is 6,000
d) In the straight line depreciation, the value of asset is decreased equally over each given period until it reaches its residual value. SLM is the most commonly used and easiest depreciation method for allocation of cost of an asset. the formula of SLM is derived by dividing the cost of an asset, less its residual value, by the life of the asset.
Conclusion:
The depreciation expense of equipment i.e.sprayer and injector will be, $3,000 and $3,100 respectively.
e) In the given instance, Extermination Services Revenue was over stated by $2,240. hence the same was reduced from the revenue recorded. The same was then showed as closing balance in Unearned Services Revenue accounts.
As the company will earn the adjusted unearned revenue, it reduces the balance in the unearned revenue account (with a debit) and increases the balance in the revenue account (with a credit).
Conclusion:
The adjusted ending balances of the Extermination Services Revenue and Unearned Services Revenue accounts will be $ 57, 760 and $2,240.
f) The warrant expense will be recorded as a actual percentage of service revenue. Since it is assumed to be payable now, it will be recorded as an credit to estimated warranty liability. The liability will be reduced by the actual expenditures to repair or replace the product
Conclusion:
The adjusted ending balance of the accounts for warranty expense is $1,444 and for Adjusted Estimated Warranty Liability is $2,844.
g) Interest Payable is a liability account that reports the amount of interest the company owes as of the balance sheet date. The company should be reporting some amount in Interest Expense and in Interest Payable, unless interest is paid up to date.
Conclusion:
The note originated on December 31, thus the interest will be payable on 31 December 2020. Hence the adjusted balance of both the account as on today will be zero.
Introduction:
An account is generally a part of accounting system that classifies, summarizes and presents increase or decrease in various element of business. A normal accounting cycle has four steps, analyze the transaction, prepare journal entries, posting into ledger, and preparation of trial balance.
To calculate:
The adjusted trial balance columns.
Answer to Problem 11CP
The total of adjusted trial balance is 238,207
PARTICULARS | UNADJUSTED DEBIT | UNADJUSTEDCREDIT | ADJUSTMENT | ADJUSTED DEBIT | ADJUSTED CREDIT |
CASH | 17,000 | - | 1,250 | 15,750 | - |
ACCOUNTS RECEIVABLE | 4,000 | - | 679 | 3,321 | - |
ALLOWANCE FOR DOUBTFUL ACCOUNTS | - | 828 | 128 | - | 700 |
MERCHANDISE INVENTORY | 11,700 | - | - | 11,700 | - |
TRUCK | 32,000 | - | - | 32,000 | - |
ACCUM DEPRECIATION- TRUCKS | - | - | 6,000 | - | 6,000 |
EQUIPMENT | 45,000 | - | - | 45,000 | - |
ACCUM 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 | - | - | 2,240 | - | 2,240 |
INTEREST PAYABLE | - | - | - | - | - |
LONG TERM NOTES PAYABLE | - | 15,000 | - | - | 15,000 |
D.BUGGS CAPITAL | - | 59,700 | - | - | 59,700 |
D.BUGS WITHDRAWLS | 10,000 | - | - | 10,000 | - |
EXTERMINATION SERVICE REVENUE | - | 60,000 | 2,240 | - | 57,760 |
INTEREST REVENUE | - | 872 | 52 | - | 924 |
SALES (OF MECHANDISE) | - | 71,026 | - | - | 71,026 |
COST OF GOODS SOLD | 46,300 | - | - | 46,300 | - |
DEPRECIATION EXPENSE-TRUCKS | - | - | - | 6,000 | - |
DEPRECIATION EXPENSE-EQUIPMENT | - | - | - | 6,100 | - |
WAGES EXPENSE | 35,000 | - | - | 35,000 | - |
INTEREST EXPENSE | - | - | - | - | - |
RENT EXPENSE | 9,000 | - | - | 9,000 | - |
BAD DEBTS EXPENSE | - | - | 551 | 551 | - |
MISCELLANEOUS EXPENSE | 1,226 | - | 15 | 1,241 | - |
REPAIRS EXPENSE | 8,000 | - | - | 8,000 | - |
UTILITIES EXPENSE | 6,800 | - | - | 6,800 | - |
WARRANTY EXPENSE | - | - | 1,444 | 1,444 | - |
TOTAL | 226,026 | 226,026 | - | 238,207 | 238,207 |
Explanation of Solution
An unadjusted trial balance is given in the question. However to proceed with the solution first, the trial balance needs to be adjusted with the adjusting journal entries. Adjusting entries here includes revenues earned but not yet recorded, and the expenses incurred but not yet recorded. Accrued expenses and the related liabilities often involve(as in our question) warranty, interest, depreciation, unearned revenues etc.Conclusion:
The total of adjusted trial balance is 238,207
Introduction:
In every book keeping system, any transaction related to business is first recorded as journal. The journalized amount appears in journal in chronological order and then further posted
To calculate:
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.
Answer to Problem 11CP
The journal entry will be passed as under:
S.NO. | PARTICULARS | DR AMOUNT | CR AMOUNT |
1 | Cash A/c Dr
Interest revenue A/c | $52 |
$52 |
2 | Miscellaneous expense A/c Dr
To Cash A/c | $15 |
$15 |
3 | Accounts payable A/c Dr
To cash A/c | $1287 |
$1287 |
4 | Allowance for doubtful debts A/c Dr
To accounts receivable A/c | $128 |
$128 |
5 | Depreciation expense-trucks A/c Dr
To accum depreciation-trucks A/c | $6000 |
$6000 |
6 | Depreciation expense-equipment A/c Dr
To accum depreciation-equipment A/c | $6100 |
$6100 |
7 | Extermination service revenue A/c Dr
To Unearned Services Revenue A/c | $1444 |
$1444 |
8 | Warranty Expense A/c Dr
To Estimated warranty liability A/c | $1500 |
$1500 |
Explanation of Solution
Adjusting entries are journalised at the end of accounting period (to which it relates) after a trial balance is prepared(such trial balance is usually an unadjusted trial balance). The adjusting entries are passed just to adjust revenues and expenses to the accounting period in which they occurred, but are not yet recorded.
After the entries are made in the accounting journals, next step is to post them to the general ledger and further into trial balance. General examples of such entries would be accrued revenues, accrued expenses, unearned revenue, depreciation and prepaid expense.
Conclusion:
The above mentioned journal entry will be passed
Introduction:
An Income statement is the summary of all the income and expenses of a company over a periodA statement of owners equity summarizes changes in the capital balance of a business over a defined period
Balance sheet is a statement of assets and liabilities and capital of a business at a particular point of time
Prepare a single-step income statement, a statement of owner's equity (cash withdrawals during 2019 were $10,000), and a classified balance sheet.
Answer to Problem 11CP
The overall financial will be stated as below:
The income statement as on December 31st will be as under
PARTICULARS | AMOUNT |
Revenue | 57,760 |
Sales - cost of goods sold | 24,726 |
Interest revenue | 924 |
Expenses: | |
Depreciation expenses-trucks | 6,000 |
Depreciation expenses-Equipment | 6,100 |
Wages Expenses | 35,000 |
MISCELLANEOUS EXPENSE | 1,241 |
Rent Expenses | 9,000 |
Repair Expenses | 8,000 |
Utility expense | 6,800 |
Warranty Expense | 1,444 |
Bad debts expense | 551 |
TOTAL EXPENSES | 74,136 |
Operating Income | 9,274 |
Owners Equity as on December 31, 2019
Opening Capital | 59,700 |
(+) Income earned | 9,274 |
(-) Losses incurred | |
(+) Owners Contribution during the period | |
(-) Owners draw during the period | 10,000 |
Closing Capital | 58,974 |
Balance Sheet as on December 31, 2019
Assets | Liabilities | ||
Truck | 26,000 | Owners Equity | 58,974 |
Computer Equipment | 26,700 | Current Liabilities | |
Cash | 15,750 | Accounts Payable | 3,713 |
Accounts Receivable | 2,621 | Estimated Warranty liability | 2,844 |
Closing inventory | 11,700 | Unearned service revenue | 2,240 |
Long Term notes payable | 15,000 | ||
82,771 | 82,771 |
Explanation of Solution
Financial statements present the results of operations and the financial position of the company.
The balance sheet works on the accounting equation:
Assets = Liabilities + Owners Equity
Financial statement includes, income statement, owner's equity statement and balance sheet.
After passing adjusting entries and preparing adjusted trial balance for the year end, balances or related accounts is posted in either income statement, or equity statement or balance sheet. The operating income is transferred to Owner's equity account since it is a proprietary concern. And balance of Owner's equity account is then reflected in balance sheet.
Conclusion:
The operating income for the year is $9,274.
The closing balance of owner's equity is $58,974
The total of Balance sheet will be $82,771
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Chapter 11 Solutions
FUND. ACCOUNTING PRINCIPLES >CUSTOM<
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