For problem number 8, I am confused about how to solve it. In the table it says that merchandise inventory is already 11,700, so how would I make adjustments?
Bug-Off Exterminators (Review of Chapters 1?9)
CP 9 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. 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, 2011, includes the following facts. 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.)
2. An examination of customers' accounts shows that accounts totaling $679 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 $700.
3. A truck is purchased and placed in service on January 1, 2011. Its cost is being
depreciated with the straight-line method using the following facts and estimates. 4. 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. 5. 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. 6. The company offers a warranty for the services it sells. The expected cost of providing
warranty ser-vice 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.
7. The $15,000 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, 2011.
8. The ending inventory of merchandise is counted and determined to have a cost of
$11,700. Bug-Off uses a perpetual inventory system.
1. Use the preceding information to determine amounts for the following items.
1. Correct (reconciled) ending balance of Cash, and the amount of the omitted
2. Adjustment needed to obtain the correct ending balance of the Allowance for
3. Depreciation expense for the truck used during year 2011.
4. Depreciation expense for the two items of equipment used during year 2011.
5. The adjusted 2011 ending balances of the Extermination Services Revenue and
Unearned Services Revenue accounts.
6. The adjusted 2011 ending balances of the accounts for Warranty Expense and
Estimated Warranty Liability.
7. The adjusted 2011 ending balances of the accounts for Interest Expense and
Interest Payable. (Round amounts to nearest whole dollar.)
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
4. Prepare a single-step income statement, a statement of retained earnings (cash dividends
declared during 2011 were $10,000), and a classified balance sheet.