Assignments፡ Principle of Accounting II (20 points)

Inventories
Exercise 1: assume that the ending inventory for period 1 under states by birr10, 000 and no
other error was made. The gross profit, net income, assets and owners equity would be
understated for period 1 by birr 10,000 and over stated net income of the coming period.
Additional information:
period1 period2
Sales 90,000 85,000
Inventory beg 25,000 30,000
Ending inventory 30,000 28,000
Other assets ending 80,000 92,000
Liability ending 25,000 17,000
Owner’s equity beginning 60,000 ending103, 000
Purchase 70,000 65,000
 Required Compute financial statements of period1and period2 by using the correct Br.
30,000 and incorrect Br. 28,000 ending inventory for period one.
Exercise 2: Xyz Company had 200 calculators on hand on January 1, year 3, and costing birr 18
each. Purchases and sales of calculators during January were
Date purchase sales
January 12 150 units @birr 28 each
14 100 units @ birr 20 each
29 100 units @ birr 22 each
30 100 units @ birr 32
According to the physical count 150 calculators were on hand on January31, year 3
Required:
Determine the cost of inventory and cost of goods sold
1. Using FIFO method under periodic inventory system?
2. Average cost method under periodic inventory system?
3. Using FIFO method under perpetual inventory system?
4. Average cost method under perpetual inventory system?
Exercise 3: assume that damaged merchandise that had a cost of birr 2000 can be sold only birr
1600 and direct selling expenses are expenses are estimated at birr 270.
Required: determine the Net realizable value?
Exercise 4: Selam super market lost most of its inventory in a fire in December just before the
yearend physical inventory was taken. Selam handles two principal commodity line, commodity
X and commodity Y and uses retail inventory and gross profit method for estimating inventory
costs for commodity X and commodity Y, respectively. Presented below is information related to
commodity X and Y for current physical period.
Commodity X Commodity Y
Cost Retail
Beginning inventory ……..$ 18,000 $ 30,000 Beginning inventory $15,000
Purchases (gross)…………. 180,000 260,000 Purchases…………….150,000
Purchase return ……………. 10,000 15,000 Purchase discount………5,000
Sales (gross) 180,000 Sales (gross)…….. 120,000
Sales discount 5,000 Sales return…………. 10,000
Freight in ………………….. 4,500
The accountant of Selam report that no detail or perpetual inventory records of any kind were
maintained to estimate the inventory lost. The only pertaining information you are able to obtain
are facts from the general ledger given above and assume that merchandise (from X ) costing
$40,500 were left undamaged by the fire and (from Y ) costing birr 27, 500 were also left

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undamaged by the fire, Selam’s past record show that the gross profit percentage for
commodity Y was 25% of its sales.
REQUIRED:
1. Compute the cost of inventory destroyed by fire for commodity X of Selam
super Market?
2. Determine cost of merchandise sold for commodity X?
3. Compute the cost of inventory destroyed by fire for commodity Y of Selam
super market?
4. If the gross profit percentage for commodity Y was 25% of costs. Then,
compute the cost of merchandise sold for commodity Y?
Plant assets
Exercise 1: A plant asset is purchased for Br 13,000. It is expected to have a residual value of Br
1,000 at the end of its estimated useful life of 4 years.
Required:
1. Compute the periodic deprecation under straight line methods of deprecation, if the
accounting period consists of 1 year, 6 months, 3 months or 1 month?
2. Record depreciation expense for each accounting period?
3. Prepare the annual deprecation schedule for the accounting period
Exercise 2: A plant asset is purchased for Br 13,000. It is expected to have a residual value of Br
1,000 at the end of its estimated useful life of 4 years.
Required:
1. Compute the periodic deprecation under double declining methods of deprecation,
2. Record depreciation expense for each accounting period
3. Prepare the annual deprecation schedule for the accounting period
Exercise 3: A baking machine has acquired for Br 65,000 expected to have a residual value of
Br 5,000 after backing 600,000 breads.
Required: Determine periodic depreciation expense;
1. If 60,000 breads are baked during the first year
2. If 10,000 breads are baked during the second year
3. Record the depreciation expense
Exercise 4: assume that a company sells Equipment costing Birr 45,000 with accumulated
depreciation of Birr 14,000 for Birr35, 000.
Required:
1. Record the journal entry at the time of sale of the equipment?
2. assuming the above example if the company sells the equipment for Birr 28,000,
3. assume again in the above example if the company sells the equipment for Birr31, 000
Exercise 5: On January 4, 2000 ABC Company acquired a machine for Br 84,000 and has a
zero salvage value after an economic life of 10 years and is depreciated by straight line method.
Required:
1. Determine the annual depreciation
2. What is the accumulated depreciation and book value on December 31, 2009
3. Present the entries if it discarded;
a) on December 31,2009
b) On January 16,2009
c) On January 15, 2009
Exercise 6: A plant asset acquired for Br 440,000 on June 30, 2008 has an estimated service life
of 5 years and residual value of Br 80,000 after depreciated under sum of the year’s digit
method.
Required: Pass the necessary journal entries, if the plant asset sold on December 31, 2010 for;
1. Br 211,000
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 2. Br 188,000
3. Br 150,000
Exercise 7: An old machine and additional cash of Br 48,000 to be exchanged by anew similar
machine that has fair market value of Br 55,000. The old machine had acquisition cost of Br
50,000 and accumulated depreciation of Br 40,000.
Required:
1. Determine the amount of trade in allowance, boot given and gain/ loss
2. Record the exchange transaction if boot given was;
a. Br 48,000
b. Br 45,000
c. Br 42,000
Exercise 8: A plant asset priced at 12,000 is acquired by trading in with a similar asset that has
acquisition cost of Br 43,000 and accumulated depreciation of Br 41,000.
Required: Record the exchange transaction for each the following situations;
1. The trade in allowance is Br 3,000 and Br 9000 cash is paid
2. Trade in allowance is Br 2,000 and Br 10,000 cash is paid
3. Trade in allowance of Br 1,500 and Br 10,500 cash is paid
Exercise 1: what is the total amount deducted as income tax for an employee who earns basic
monthly salary of Birr 2,500, a monthly allowance of Br 200 which is taxable, and over time
earning is Br 300.
Exercise 2: What is the total amount deducted as income tax for an employee who earns a basic
monthly salary of Br. 1800, a monthly non taxable allowance of Br. 300, and an overtime
earning of Br. 400?
Exercise 3: What is the employee and employer share of pension contribution for the
governmental organization permanent employee whose regular monthly salary of Br 3,000.
Exercise 4: Assume an employee's regular hourly pay is Br. 16, with a time and a half for every
hour worked in excess of 48 during a week. The total hours worked during current month is 200
hours and allowance (transportation) is Br 300. According to the company policy transportation
allowance in excess of Br 200 is subject to employment income tax.
Required: Compute the amount of the employee's:
1. Regular monthly salary;
2. Employment income tax,
3. Total deductions, assuming the employee is permanent civil servant.
4. Net pay for the current month
Exercise 5: Beza is a governmental agency recently organized to rehabilitate street children. It
has five employees whose salaries are paid according to the Ethiopian calendar month. The
following data relates to the month of September, 2004;
Name Basic salary Monthly allowance over time hours worked

1. Senayit Bahru 7,500 100 10 / Normal hours

2. Leila Jemal 10,470 - 8 / Late hours

3. Kirose wolde 1,280 - 6 / Rest days

4. Gemechu chala 4,500 50 -

5. Abdu kedir 2,100 50 10/ Public holidays

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Additional information;
1. Employees are expected to work 40 hours in a week and all employees work as they
have been expected
2. Except Gemechu chala, all are permanent employees
3. The monthly allowance of Abdu Kedir is not taxable
4. Kirose Wolde agreed to have a monthly Br 200 be deducted and paid to the Credit
association of the agency as a monthly saving
Required:
A. Determine gross earning, total deduction and net pay of all employees
B. Prepare payroll register for the month of September
C. Pass the necessary journal entries to record payment of net pay to employees in
cash, recognition of payroll tax expense and payment with payroll and income tax
to the respective authority
Partnership
Exercise 1: On March 1, 2012 X and Y form a partnership to operate a fitness center.
Y’s Contributions
1. Cash Br 5,000
2. Computer cost Br 18,000 ( Market value Br 100,000)
X’s Contributions
1. Cash Br10, 000; Inventory Br 21,000 and Accounts payable Br 85,000 (The current
market values of inventory is Br 20,000)
2. Accounts receivable Br 30,000, Allowance for doubtful accounts of Br 5,000 (They
agreed that allowance for uncollectible has to be valued at Br 3,000)
3. Sport equipment cost Br 800,000; Accumulated depreciation Br 200,000 ( market value
Br 450,000)
Required: Prepare the journal entry to record X’s and Y’s initial investments.
Exercise 2: Mr. X and his friend Mr. Y agreed to form partnership which would provide law
consultancy services. Mr. X contributed Br 40,000 in cash and Mr. Y contributed equipment
which has current market value of Br 20,000. The partnership after its first year operation
reported net income of Br 12,000
Required: Determine the amount of net income distributed to each partner and present the
journal entry to distribute the first year’s income to the partners under each of the following
condition;
1. The partner failed to include stated ratio in the partnership agreement
2. The partner agreed to share income in the ratio of 3:1 to Mr. X and Mr. Y respectively
but failed to include stated ratio regarding loss
3. The partner agreed to share income or loss in the ratio of their capital balance at the
beginning of the period
4. The partner agreed to share income or loss in the ratio of 5: 3 to Mr. X and Mr. Y
respectively
5. Determine the amount of net loss shared to each partner and present the journal entry to
share the first year’s loss under each of the above conditions if the Mr. X and Mr. Y
incur net loss of Br 36,000 after their first year operation
Exercise 3: On January 24, 2011 Mr. X and Mr. Y form a partnership after contributing a capital
of Br 12,000 and Br 18,000 respectively. And net income of the year is Br 10,000.
Required: Determine the amount of profit to be allocated to each partner and present the
necessary entries under each of the following situations;
1. The partners agreed on annual salary allowance of Br 8,000 for Mr. X and Br 1,400 for
Mr. Y and the remainder equally.

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 2. The partners agreed on interest on beginning capital balances of 15% with the remainder
on a ratio of 8:2 for Mr. X and Mr. Y respectively.
3. The partners agreed on salary allowances of Br 1,400 to Mr. X and 1,000 to Mr. Y,
interest allowances of 10% on capital balances at the beginning of the year, and the
remainder equally.
4. The partners agreed on salary allowances of Br 8,400 to Mr. X and 2,000 to Mr. Y,
interest allowances of 10% on capital balances at the beginning of the year, and the
remainder equally
Exercise 4: Mr. A and Mr. B are partners with capital balances of Br 25,000 and Br 75,000,
respectively. They share profits and losses in a ratio 3:7. The balance of the merchandise
inventory account of the partnership is Br 14,000. On July 3 Mr. C entered in to the partnership
through investing furniture which has a balance of Br 40,000 and receive ownership right equal
to its current replacement cost
Required: Journalize the partnership’s receipt of furniture from Mr. C and determine each
partner’s capital in the new partnership under the following assumptions;
1. The market cost of inventory and furniture is Br 18,000 and 40,000 respectively
2. The market cost of inventory and furniture is Br 13,000 and 40,000 respectively
3. The market cost of inventory and furniture is Br 14,000 and 42,000 respectively
4. The market cost of inventory and furniture is Br 18,000 and 38,000 respectively
Exercise 5: The following capital balances exist in the RST partnership: Mr. R Br 50,000, Mr. S
Br 30,000, and Mr. T Br 20,000. The partners share income in the ratio of 3: 2: 1 respectively.
Required: What would be the entries required, if Mr. T retires from the partnership and receives
the following cash payment from the firm;
1. Br 20,000
2. Br 25,000
3. Br 18,000
Exercise 6: On December 31, by mutual agreement Mr. A, Mr. B and Mr. C want to liquidate
their business. They share income or loss in the ratio of 3:2:1. After discontinuing the ordinary
business operations and closing the accounts, the balance sheet accounts show the following
balances;
Assets Balances Liabilities Balances
Cash 15,000 Account payable 10,000
Account receivables 34,000 Notes payable 8,000
Allowance for uncollectible (2,000) Interest payable 2,000
Supplies 3,000
Machine 45,000
Accumulated dp (machine) (5,000)
Owners’ equity Balances
Mr. A capital 34,000
Mr. B capital 16,000
Mr. C capital 20,000
Required: Pass the necessary journal entries and prepare statement of liquidation;
A. If the non cash assets sold for a total of;
1. Br 87,000
2. Br 75,000
3. Br 72,000
B. If the non cash assets sold for a total of Br 24,000 and;
1. If the deficient partner repay the capital deficiency

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2. If the deficient partner cannot repay the capital deficiency and the partners
share as their income and loss sharing ratio