
Concept explainers
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
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
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

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 | ||
$4,000 | $679 | $3,321 | ||||
Allowance for doubtful accounts | $828 | $679 | $551 | $700 | ||
Merchandise Inventory | $11,700 | $11,700 | ||||
Trucks | $32,000 | $32,000 | ||||
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 | ||||
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)
d) Depreciation expense of Sprayer and Injector
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 |
f)
Computation of Warranty Expense
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:
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
Loose Leaf for Fundamental Accounting Principles
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