Homework #2
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1. Which of these transactions would produce $10,000 of revenue in December? (check all that apply) BOC Realty leases space to a tenant for December and Januar y. The tenant prepaid the $20,000 rent for the two months in November. Correct Response
The two revenue recognition criteria are earned and realized. Both criteria are satisတed in December.
BOC Bank is owed $10,000 of interest on a loan for December and receives the payment in January. Correct Response
The two revenue recognition criteria are earned and realized. Both criteria are satisတed in December.
BOC Realty leases space to a tenant for December and sends a bill for the $10,000 rent to be paid in January. Correct Response
The two revenue recognition criteria are earned and realized. Both criteria are satisတed in December.
BOC Bank receives a check for $10,000 in December for November's interest amount.
Correct Response
The two revenue recognition criteria are earned and realized. In this choice, the revenue would be recorded in November when the interest was earned.
BOC Realty leases space to a tenant for December and the tenant pays the $10,000 rent in cash in December. Correct Response
The two revenue recognition criteria are earned and realized. Both criteria are satisတed in December.
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2. Which of these transactions would produce $10,000 of expenses in December? (check all that apply) BOC sells batteries costing $10,000 in December for $12,000 cash. Correct Response
These are product costs, which will become expenses when the batteries are sold. The $10,000 cost of the batteries becomes Cost of Goods Sold expense in December.
BOC signs a contract in December to buy $10,000 of copper. Incorrect Response
These are product costs, which will become expenses when the batteries are sold. No batteries have been sold yet.
BOC uses copper to make batteries at a total cost of $10,000 in December. Incorrect Response
These are product costs, which will become expenses when the batteries are sold. No batteries have been sold yet.
BOC sells batteries costing $8,000 in December for $10,000 cash. Incorrect Response
These are product costs, which will become expenses when the batteries are sold. The Cost of Goods Sold expense would be $8,000 in this case.
BOC buys $10,000 of copper in December.
Incorrect Response
These are product costs, which will become expenses when the batteries are sold. No batteries have been sold yet.
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3. Which journal entry reects the following transaction?: BOC receives $2,000 cash from a customer, of which $1,000 was for goods delivered now and $1,000 was a deposit on custom goods that will be delivered next month. Dr. Cash
2,000
Cr. Revenue Dr. Cash
2,000
2,000
Cr. Revenue
1,000
Cr. Advances from Customers 1,000 Correct Response
We debit Cash to increase it. We credit Revenue for the $1,000 of goods delivered now. We credit Advances from Customers (L) for $1,000 to create a liability for the obligation to deliver goods in January.
Dr. Cash
2,000
Cr. Inventory 2,000 Dr. Cash
2,000
Cr. Advances from Customers Dr. Revenue Cr. Cash
2,000
2,000 2,000
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4. Which journal entry(s) reects the following transaction?: BOC received $10,000 of cash from a customer who took delivery of goods that originally cost BOC $8,000 to acquire.
Dr. Cash
10,000
Cr. Revenue
10,000
Dr. Accounts Payable 8,000 Cr. Inventory
8,000
Dr. Cash
10,000
Cr. Revenue
10,000
Dr. Cost of Goods Sold 8,000 Cr. Inventory
8,000
Correct Response
We need two entries: (1) debit Cash and credit Revenue for the cash received for the delivery of goods and (2) debit Cost of Goods Sold and credit Inventory for the original cost of the goods delivered to the customer.
Dr. Cash 10,000 Cr. Inventory
8,000
Cr. Revenue
2,000
Dr. Cash
10,000
Cr. Revenue Dr. Cash
10,000 10,000
Cr. Inventory
10,000
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5. How much annual depreciation expense would be recognized for a truck that originally cost $30,000 and has an estimated useful life of 5 years with a $5,000 salvage value? $3,333 $5,000 Correct Response
Under straight-line depreciation, the annual expense would be: (30,000 - 5,000) / 5 = 5,000.
$10,000 $7,000 $6,000
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6. Which journal entry reects the adjusting entry needed on December 31?: It is December 31, the end of the တscal year. During December, employees earned $800,000 in salaries, but paychecks do not get issued until January 2. No entry is needed. Dr. Salaries Payable Cr. Cash
800,000 800,000
Dr. Salary Expense Cr. Salaries Payable
800,000 800,000
Correct Response
We recognize (debit) Salary Expense based on the employees working for us and we credit the liability Salaries Payable to record our obligation to pay them in January.
Dr. Cash
800,000
Cr. Salaries Payable Dr. Salary Expense Cr. Cash
800,000 800,000 800,000
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7. Which journal entry reects the adjusting entry needed on December 31?: Last year, BOC purchased software for $10,000. The expected life of the software is 2 years and it has no expected salvage value. Now, it is December 31, the end of the တscal year. No other entries were recorded for this software during the year. No entry needed.
Dr. Software Amortization Expense
5,000
Cr. Cash
5,000
Dr. Software Amortization Expense
5,000
Cr. Software
5,000
Correct Response
The journal entry for an Intangible Asset amortization is Dr. Software Amortization Expense and Cr. Software. The amount is (10,000 - 0) / 2 = 5,000.
Dr. Software Amortization Expense 5,000 Cr. PP&E 5,000 Dr. Software Amortization Expense
5,000
Cr. Software Revenue
5,000
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8. Which journal entry reects the adjusting entry needed on December 31?: In November, BOC received a $5,000 cash deposit from a customer for custom-build goods that will be delivered in January (BOC recorded an entry for this $5,000 in November). Now, it is December 31, the end of the တscal year. Dr. Cash
5,000
Cr. Revenue
5,000
Incorrect Response
Assuming the $5,000 was properly recorded in November (Dr. Cash, Cr. Unearned Revenue), no entry is needed now. BOC has still not earned the revenue; it won't until it delivers the goods.
Dr. Unearned Revenue
5,000
Cr. Inventory
5,000
Dr. Advances from Customers 5,000 Cr. Revenue Dr. Unearned Revenue Cr. Revenue
5,000 5,000 5,000
No entry needed.
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9. Which item would not appear on the Income Statement? Pre-tax Income Gross Proတt SG&A Expense Dividends Correct Response
Dividends do not show up on the Income Statement!
Operating Income
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10. Which of the following are temporary accounts? (check all that apply) Retained Earnings Correct Response
Retained Earnings (SE) and Dividends Payable (L) are permanent accounts
Dividends Payable Correct Response
Retained Earnings (SE) and Dividends Payable (L) are permanent accounts.
Sales Revenue Correct Response
Appears on the Income Statement and, thus, is a temporary account.
Cost of Goods Sold Correct Response
Appears on the Income Statement and, thus, is a temporary account.
Income Tax Expense Correct Response
Appears on the Income Statement and, thus, is a temporary account.
