Bug-Off Exterminators provides pest control services and sells extermination products manufacture by other companies. The following table contains the company’s unadjusted trial balance as of December 31, 2005, the end of the company fiscal year.
BUG-OFF EXTERMINATORS - December 31, 2005
Unadjusted Trial Balance

Cash $17,000
Accounts receivable 4,000
Allowance for doubtful accounts 828
Promissory note 30,000
Merchandise inventory 11,700
Trucks 32,000
Accum. Depreciation-Trucks 0
Equipment 45,000
Accum. Depreciation - Equipment 12,200

Accounts payable 5,000
Estimated warranty liability 1,400
Unearned services revenue 3,840
Long-term notes payable 15,000
Interest payable 0
Common Stock 10,000
Retained earnings 71,026
Dividends 10,000
Extermination services revenue 60,000
Interest revenue 872
Sales (of merchandise) 75,860
Cost of goods sold 46,300
Depreciation expense - Trucks
Depreciation expense - Equipment 0
Wages expense 35,000
Interest expense 0
Rent Expense 9,000
Bad debts expense 0
Miscellaneous expense 1,226
Repairs expense 8,000
Utilities expense 6,800
Warranty expense 0
_______ ________
Totals $256,026 $256,026


The following information applies to the company for the month of December, 2005.
a. The bank reconciliation as of December 31, 2005, includes these facts;
Balance per bank……………………………………………….. $ 15,447
Balance per books…………………………………………………17,000
Outstanding checks……………………………………………….. 1,800
Deposit in transit………………………………………………….. 2,450
Interest earned (on bank account)………………………………… 52
Bank service charges (miscellaneous expense)…………………… 15
NSF Check(Customer Accounts) 200
Reported on the bank statement is a canceled check for $740 in payment of an outstanding accounts payable that the company failed to record.

b. An examination of customers’ accounts shows that accounts totaling $350 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 ($1,000).

c. A truck purchased and placed in service on June 1, 2005. Its cost is being depreciated with the double declining balance method using these facts and estimates:
Original cost………………….. $ 32,000
Expected salvage value………. 3,500
Useful life (years)……………. 5

d. Two items of equipment (a sprayer and an injector) were purchased and put into service in early January 2004. 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) 5 8

e. On January 1, 2005, the company was paid $3,840 in advance to provide monthly service for an apartment complex for one year. The company began providing the services on May 1.

f. The company offers a warranty for the services it sells. The expected cost of providing warranty service is 2% of the extermination services revenue of $61,600 for 2005. No warranty expense has been recorded for 2005. All costs of servicing warranties in 2005 were properly charged to the Estimated Warranty Liability account.

g. The $15,000 long-term note listed on the trial balance is 8%, five-year, interest-bearing note with interest payable annually on December 31. The note was signed with First National Bank on December 31, 2005.

h. The ending inventory of merchandise is counted and determined to have a cost of $10,590. Bug-Off uses a periodic inventory system. Hint: The inventory count is performed on Dec. 31, and is the final entry before the closing entries.

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I. The company purchased the following items, on credit, for its merchandise inventory,
Terms: 1%/30, n/60:
12/3 100 cases for $11,900
12/7 100 cases for $11,700
12/14 100 cases for $11,400
12/21 100 cases for $11,300

j. Sales are as follows, on credit:
12/5 100 cases for $17,757
12/12 100 cases for $17,757
12/19 100 cases for $17,756
12/28 100 cases for $17,756

k. The company uses FIFO to record the Cost of Goods sold.

l. The company, on 12/31 discounts the promissory note at the local bank. The note was created on 06/30/05 with a term of one year, and an interest rate of 8%. The bank’s discount rate is 12%.

m. The Company on 12/31 pays for the cases purchased on 12/3 and 12/7


REQUIRED
1. Prepare a multi-step income statement, a statement of retained earnings (cash dividends declared during 2005 were $10,000), and a classified balance sheet for the Year Ended December 31, 2005.

2. Determine the following ratios:
Return on assets
Debt ratio
Profit margin (Percent)
Current ratio
Acid-test ratio
Gross margin (Percent)
Inventory turnover ratio
Days’ sales in inventory
A/R turnover ratio
Days’ sales uncollected

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