Problem 1. Typically, Anna who has a high-end clothing and jewelry retail shop in a large U.S. city, requires 50% deposit on all custom clothing and jewelry. Once the order is taken, it typically takes Anna 60 days to purchase the raw materials, and craft the final project. The remaining 50% of the selling price is collected when the customer picks up the piece, always at the store. On November 15th, Anna received an order from a bride for her dress along with three dresses for her attendants. The order totaled $50,000 and 50% was paid on November 15. The promised date of delivery was January 5th of the following year.

1. Using the BSE format, enter the receipt of cash on November 15. How did this affect income for the month of November?
2. On January 6th the customer picks up the dresses for her wedding and pays the final 50% of the $50,000. How should Anna record this event in the BSE?

Problem 2. Hector is a graphic designer who had his own firm working out of his apartment for the past 18 months. He decided to obtain his own office space in a renovating area of Santa Monica, California, and signed a lease for 12 months. Monthly rental was $2,500 and he had to pay first and last months rent when he moved in to the rented space. Hector measures his income on a monthly basis.

1. Using the BSE format, record the payment at the beginning of the month for the first and last months rent amounts.
2. At the end of the first month, record any necessary adjusting entry.

Problem 3. When Hector moved into his newly leased space, he purchased office furniture and hung art, all of which cost him $5,000. He estimated the furniture and art would have a 5-year useful life before he would want to replace with new furniture and art. He was struggling because although the useful lives were 5 years, his lease was only for 1 year: over what time period should he depreciate his office furniture?

1. Discuss the options you see for Hector to depreciate his assets. Will these options impact his monthly income and operating cash flows? Over what period would you depreciate the assets?
2. Using the BSE format, record the depreciation expense for the first month Hector is using the assets.