Homework #2

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1. Which of these transactions would produce $10,000 of revenue in December? (check all

that apply)

Correct Response 

The two revenue recognition criteria are earned and realized. Both criteria are

satisတ†ed in December.

Correct Response 

The two revenue recognition criteria are earned and realized. Both criteria are

satisတ†ed in December.

Correct Response 

The two revenue recognition criteria are earned and realized. Both criteria are

satisတ†ed in December.

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BOC Realty leases space to a tenant for December and January. The tenant pre-

paid the $20,000 rent for the two months in November.

BOC Bank is owed $10,000 of interest on a loan for December and receives the

payment in January.

BOC Realty leases space to a tenant for December and sends a bill for the

$10,000 rent to be paid in January.

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.

Correct Response 

The two revenue recognition criteria are earned and realized. Both criteria are

satisတ†ed in December.

BOC Realty leases space to a tenant for December and the tenant pays the

$10,000 rent in cash in December.

2. Which of these transactions would produce $10,000 of expenses in December? (check all

that apply)

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.

Incorrect Response 

These are product costs, which will become expenses when the batteries are sold.

No batteries have been sold yet.

Incorrect Response 

These are product costs, which will become expenses when the batteries are sold.

No batteries have been sold yet.

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.

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BOC sells batteries costing $10,000 in December for $12,000 cash.

BOC signs a contract in December to buy $10,000 of copper.

BOC uses copper to make batteries at a total cost of $10,000 in December.

BOC sells batteries costing $8,000 in December for $10,000 cash.

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.

3. Which journal entry reတတects 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.

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.

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Dr.  Cash        2,000

   Cr.  Revenue       2,000

Dr.  Cash        2,000

   Cr.   Revenue                              1,000

   Cr.   Advances from Customers   1,000

Dr.  Cash     2,000

    Cr. Inventory   2,000

Dr.  Cash          2,000

   Cr.  Advances from Customers    2,000

Dr.  Revenue    2,000

    Cr.   Cash           2,000

4. Which journal entry(s) reတတects 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.

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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.  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 

Dr.   Cash   10,000

    Cr.  Inventory      8,000

    Cr.  Revenue       2,000

Dr.   Cash          10,000

    Cr.  Revenue         10,000

Dr.   Cash          10,000

    Cr.  Inventory         10,000

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?

Correct Response 

Under straight-line depreciation, the annual expense would be:

(30,000 - 5,000) / 5 = 5,000.

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points

$3,333

$5,000

$10,000

$7,000

$6,000

6. Which journal entry reတတects the adjusting entry needed on December 31?:

It is December 31, the end of the တ†scal year. During December, employees earned

$800,000 in salaries, but paychecks do not get issued until January 2.

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.

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No entry is needed.

Dr.  Salaries Payable      800,000

   Cr.   Cash                          800,000

Dr.  Salary Expense      800,000

   Cr.   Salaries Payable      800,000

Dr.  Cash     800,000

   Cr.   Salaries Payable      800,000

Dr.  Salary Expense      800,000

   Cr.   Cash                          800,000

7. Which journal entry reတတects 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 တ†scal

year. No other entries were recorded for this software during the year.

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points

No entry needed.

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.  Cash                                                    5,000

Dr.  Software Amortization Expense     5,000

     Cr.  Software                                                    5,000

Dr. Software Amortization Expense 5,000

Cr. PP&E 5,000

Dr.  Software Amortization Expense     5,000

     Cr.  Software Revenue                            5,000

8. Which journal entry reတတects 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 တ†scal year.

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.

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Dr.   Cash       5,000

   Cr.  Revenue               5,000

Dr.   Unearned Revenue       5,000

   Cr.  Inventory                                    5,000

Dr.   Advances from Customers   5,000

   Cr.  Revenue                                        5,000

Dr.   Unearned Revenue       5,000

   Cr.  Revenue                                    5,000

No entry needed.

9. Which item would not appear on the Income Statement?

Correct Response 

Dividends do not show up on the Income Statement!

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Pre-tax Income

Gross Proတ†t

SG&A Expense

Dividends

Operating Income

10. Which of the following are temporary accounts? (check all that apply)

Correct Response 

Retained Earnings (SE) and Dividends Payable (L) are permanent accounts

Correct Response 

Retained Earnings (SE) and Dividends Payable (L) are permanent accounts.

Correct Response 

Appears on the Income Statement and, thus, is a temporary account.

Correct Response 

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Retained Earnings

Dividends Payable

Sales Revenue

Cost of Goods Sold

Appears on the Income Statement and, thus, is a temporary account.

Correct Response 

Appears on the Income Statement and, thus, is a temporary account.

Income Tax Expense