Addis Ababa University School of Commerce Department of Accounting and Finance

Principles of Accounting II, Assignment II

Submission Date, September 2/2021
 Attempt Each of the following Exercises and Submit the answers on the date mentioned
1. Ogden Furniture purchased land, paying $70,000 cash plus a $300,000 note payable. In addition,
Ogden paid delinquent property tax of $2,500, title insurance costing $2,000, and $8,000 to level the
land and remove an unwanted building. The company then constructed an office building at a cost of
$700,000. It also paid $55,000 for a fence around the property, $18,000 for a sign near the entrance,
and $10,000 for special lighting of the grounds.

Instructions
a. Determine the cost of the land, land improvements, and building.
b. Which of these assets will Ogden depreciate?

2. Safety Trucking Company uses the units-of-production (UOP) depreciation method because UOP
best measures wear and tear on the trucks. Consider these facts about one Mack truck in the
company’s fleet. When acquired in 2010, the rig cost $450,000 and was expected to remain in service
for 10 years or 1,000,000 miles. Estimated residual value was $150,000. The truck was driven 82,000
miles in 2010, 122,000 miles in 2011, and 162,000 miles in 2012. After 45,000 miles in 2013, the
company traded in the Mack truck for a less expensive Freightliner. Safety also paid cash of
$22,000. Fair value of the Mack truck was equal to its net book value on the date of the trade.
Instructions
Determine Safety’s cost of the new truck. Journal entries are not required.

3. Consider the following transactions conducted by Jarso Company:

a. On April 1/2009, Jarso Company received a Br.5,000 5-year 8% note of ABC Co.with interest
payments made annually on April 1 and principal due at maturity (Jarso loaned the money).
Record the journal entries on 1/4/09, 31/12/09, and 1/4/10 assuming the monthly convention
both in the books of the borrower and lender.

b. On October17/09 Jarso received a Br.100,000 90 day 5% note of ABC Co.(Jarso loaned the
money). Interest and principle is due at maturity. Assuming the 360 day convention, record
journal entries October 17, year end, and maturity in the book of both entities.

c. On December 3/09, Jarso Company received a Br.10, 000 60-day 6% note as a settlement of an
open account from a charge customer. Record the journal entries on the date of receipt of the
note, year end, and maturity assuming the 365 day convention and the note is not dishonored on
maturity.

4. In 2009, Fetan Company had service revenue of Br.1.2 million birr, half of which were on credit. At
year end its A/R totaled Br.120,000 and its allowance for doubtful accounts had a Br.1,500 credit
balance. Record the necessary journal entry December 31/2009 if:

a) Fetan use the percentage of credit sales method of calculating bad debts and historically
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1.5% of credit sales have been uncollectible.

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 b) Fetan uses the percentage of A/R method and estimates 6% of A/R are uncollectible.

c) On March 5/10, it is determined that Jama Company will be unable to pay their A/R
balance of Br.1,500. Record the necessary journal entry.

5. Ethiopia Hagere enterprise, a government owned business, pays its employees salaries according to
the Ethiopian calendar Month. The following data relate to the month of Tikimt 2013 E. C.

S.No Employee Name Basic Salary

A01 Tehoma Bayissa Br. 7,040
W01 Wbit Desalegn 9,920
M01 Martha Getachew 4,320
Z01 Zeleke Abebe 1,440

Additional information

 All workers are expected to work 40 hours per week and during Tikimt there are 4 weeks. The
workers have done as they have been expected.
 Wbit Desalegn has worked 12 hours of overtime during Meskerem: 4 hours during on rest
days and the other 8 hours after 10 p.m. but before 6 am
 Martha Getachew has also worked 8 hours of overtime: 4 hours during weekly rest days and 4
hours up to 10 p.m.
 Teshoma and Wubit received a monthly position allowance of br.500 and br 200 respectively
which are both taxable
 Tehoma Bayissa agreed to have a monthly deduction of br.300 for credit association.
 All workers are permant except Zeleke Abebe.

Instructions :
1. Compute the total deductions and net pay for each employee.
2. Compute (calculate) the total:
a) Withholding Taxes
b) Payroll Taxes
c) Record the payment of salary as of Tikimt 30, 2002.

6. Marnie, Stacie, and Samantha are partners in Woodware Company. Their capital balances as of July
31, 2011, are as follows:

Each partner has agreed to admit Connie to the partnership.

Instructions
i. Prepare the entries in journal form to record Connie’s admission to or Marnie’s withdrawal from
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the partnership under each of the following conditions:

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a. Connie pays Marnie $12,500 for 20 percent of Marnie’s interest in the partnership.
 b. Connie invests $20,000 cash in the partnership and receives an interest equal to her investment.
c. Connie invests $30,000 cash in the partnership for a 20 percent interest in the business. A bonus
is to be recorded for the original partners on the basis of their capital balances.
d. Connie invests $30,000 cash in the partnership for a 40 percent interest in the business. The
original partners give Connie a bonus according to the ratio of their capital balances on July 31,
2011.
e. Marnie withdraws from the partnership, taking $52,500. The excess of withdrawn assets over
Marnie’s partnership interest is distributed according to the balances of the Capital accounts.
f. Marnie withdraws by selling her interest directly to Connie for $60,000.
ii. When a new partner enters a partnership, why would the new partner pay a bonus to the old
partners, or why would the old partners pay a bonus to the new partner?

7. After the accounts are closed on April 3, prior to liquidating the partnership, the capital accounts of
Almaz, Daniel, and Seifu are, Br. 20,000; Br.30,000; and Br. 10,000 respectively. Cash and non cash
assets total Br. 2,000 and Br. 61,000 respectively. Amounts owed to creditors total Br. 30,000. The
partners share income and losses in the ratio of 2:1:1. Between April 3 and April 25, the noncash
assets are sold for Br.21,000 and the partner with the capital deficiency pays deficiency to the
partnership, and the liabilities are paid.

Instructions
Prepare a statement of partnership liquidation, including
a. The sales of asset and division of loss,
b. The receipt of the deficiency(from the appropriate partner) and
c. The payment of liability

8. Ethio Birhan Company, with an authorization of 10,000 preferred stocks and 50,000 shares of
common stocks, completed several transactions involving its capital stocks on January 1, the first day
of operation. The trial balance at the close of the day follows:
Cash………………………………………………. 130,000
Common Stock Subscription Receivable………… 260,000
Land……………………………………………… 60,000
Buildings…………………………………………. 240,000
Preferred $5 stock, $50 par………………………. 250,000
Paid in capital in excess of par __Pref.Stock…….. 50,000
Common Stock, $ 20 par…………………………. 100,000
Paid in capital in excess of par __Comm. Stock… 90,000
Common Stock Subscribed………………………. ------- 200,000
690,000 690,000

All shares within each class of stock were sold or subscribed at the same price, the preferred stocks was
issued in exchange for the land and buildings, and no cash was received on the unissued common stock
subscribed.
Instructions
a. Present the three compound entries to record the transactions summarized in the trial
balance
b. Prepare the stockholders’ equity section of the balance sheet as of January 1.
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9. The following selected accounts appear in the ledger of Gore Corporation on January 1, the beginning
of 2009:
Common stock subscriptions receivable……………………………. Br. 120,000
Common Stocks Br.10 par (100,000 shares authorized
60,000 shares issued)…………………………………………… 600,000
Common stocks subscribed (20,000 shares)………………………… 200,000
Paid-in-capital in excess of par- Common Stock…………………… 400,000
Preferred 10 %, stock, Br.100 par( 30,000 shares authorized,
20,000 shares issued)……………………………………………… 2,000,000
Paid-in-capital in excess of par- Preferred Stock……………………. 200,000
Retained Earnings…………………………………………………….. 350,000
During the year, the corporation completed a number of transactions affecting the stockholders’ equity.
They are summarized as follows:

a. Received balance due on common stock subscribed and issued the certificates
b. Purchased 10,000 shares of treasury common stock for Br.20 each
c. Issued 5,000 shares of preferred stocks at Br. 105 per share
d. Sold 4,000 shares of treasury stocks at Br. 23 per share
e. Received subscription to 10,000 shares of common stock at Br. 20 collecting 30% of the
subscription price as down payment
f. Sold 3,000 shares of treasury stocks at Br.15 per share

Instructions:
1. Record each of the transaction completed in the year identifying each by its letter
2. Prepare the stockholders’ equity section of the corporation’s balance sheet on December 31
2009 assuming the net income for the year and dividend declared are Br.250,000 and Br.
100,000 respectively

10.
TERRIFIC COMFORT SPECIALISTS, INC.
Stockholders’ Equity
June 30, 2017
Paid-in Capital:
Preferred stock, 5%, ? par, 650,000 shares authorized, 280,000 shares issued $ 1,400,000
Common stock, par value $1 per share, 5,000,000 shares authorized,
1,350,000 shares issued and outstanding 1,350,000
Paid in capital in excess of par—common 2,400,000
Total paid-in capital 5,150,000
Retained earnings 12,300,000
Total stockholders’ equity $ 17,450,000

Instructions
1. Identify the different issues of stock that Terrific has outstanding.
2. What is the par value per share of Terrific’s preferred stock?
3. Make two summary journal entries to record issuance of all the Terrific stock for cash.
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4. No preferred dividends are in arrears. Journalize the declaration of a $600,000 dividend at June 30,
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2017. Use separate Dividends payable accounts for preferred and common. An explanation is not
required.
11. Summerborn Manufacturing, Co., completed the following transactions during 2017:

Instructions
Record the transactions in Summerborn’s general journal.

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