CDEE WORKSHEET #3

1. TEAM Company switched recently to the retail inventory method to estimate the cost of
ending inventory. To test this method, the company took a physical inventory one month after its
complementation.
At cost At retail
Jan. 1, Beginning inventory Br. 472,132 Br. 622,800
Purchases 750,000 1,008,400
Purchase returns and allowance (25,200) (34,800)
Freight-in 8,350
Sales 1,060,000
Sales returns and allowances (28,000)
Jan. 31 Physical inventory 508,200
Required:
A. Compute the retail cost ratio based on the above information
B. Compute the estimated ending inventory at retail and at cost
C. Compute the estimated value of inventory sold at retail and at cost
D. Calculate the estimated amount of inventory shortage at cost and at retail
2. The records of the unlimited provided the following information for the year ended
December 31:
At cost At retail
Jan. 1 beginning inventory Br. 160,460 Br. 264,900
Purchases 1,200,540 1,936,100
Purchases returns 27,600 44,100
Sales _ 1,670,200
Sales returns _ 16,600
Transportation in 23,000 _
Required: Calculate the estimated cost of ending inventory
A. By retail method
B. By gross profit method if the gross profit rate is 35%

3. TB Construction Company acquired a new crane for Birr 360,500 at the beginning of year 1.
The crane has an estimated residual value of Birr 35,000 and an estimated useful life of five
years. The crane is expected to last 10,000 operating hours. It was used 1800 hours in year 1,
2000 hours in year 2 and 2500 hours in year 3. Based on the information given above:
I) Compute the annual depreciation and the carrying value for the crane for each of the
first three years under each of the following methods:
a) Straight line method,
b) Units of production method,
c) Double-declining-balance method, and
d) Sum-of-the-years-digits method.

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II) Prepare the adjusting entry that would be made each year to record the depreciation
calculated under the straight line method.

4. Assume that the business exchange a machine with a cost of Br. 11,000 and accumulated
depreciation of Br. 9000 for a newer more modern machine on the following terms:
Cost of new machine ………………..………Birr 12000.
Trade-in Allowance for old machine…………… (1500)
Cash payment required (Boot)……………..Birr 10500.
Required: Prepare journal entry required to record the exchange of assets.

5. Helena and Myron agreed to form a partnership. Helena contributed Br. 200,000 in cash, and
Myron contributed assets with a fair market value of Br. 400,000. The partnership, in its initial
year, reported net income of Br. 120,000. Required: Prepare the journal entry to distribute the
first year’s income to the partners under each of the following condition.
 Helena and Myron failed to include stated ratio in the partnership agreement.
 Helena and Myron agreed to share income and losses in 3:2 ratios.
 Helena and Myron agreed to share income and losses in the ratio of their
original investments.
 Helena and Myron agreed to share income and losses by allowing 10 percent interest on
their original investments and sharing any remainder equally.
 Helen and Myron agreed to share NI/NL by allowing 10% interest on their
capital investment, $40,000 salary allowance each & the remainder equally.

6. Andrew, Ezra, and Wiley has equity in a partnership of Birr 80,000, Birr 80,000, and
Birr 120,000, respectively, and they share income and losses in a ratio of 20%, 20%, and 60%.
The partners have agreed to admit Bagboy to the partnership.
Instruction: prepare journal entries to record the admission of Bagboy to the partnership
under the following conditions:
a) Bagboy invests Birr 50,000 for 20% interest in the partnership, and a bonus is
recorded for the original partners.
b) Bagboy invests Birr 60,000 for a 40% interest in the partnership, and a bonus is
recorded for Bagboy.
7. The partnership of Ransom, Sultan, and Tassel is liquidated on September 1,2002.
The income and loss sharing ratio of the partners is: Ransom 40%, Sultan 35%, and
Tassel 25%. After discontinuing the ordinary business operations of their partnership and
closing the accounts, the following summary of a trial balance is prepared:
R, S and T
Trial Balance
September 1, 2002
Debit Credit
Cash 10,000
Other assets 90.000
Liabilities 10,000
R. Capital 30,000
S. Capital 30,000
T. Capital 30,000
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Total 100,000 100,000
Based on the information on the trial balance, accounting for liquidation of R, S, and T
partnership will be illustrated using different selling prices for the non cash assets.
Prepare statement of partnership liquidation and necessary journal entries for the following
independent cases:
Case1: Noncash assets are sold for Br 95,000
Case 2: Noncash assets are sold for Br 70,000
Case 3: Noncash assets are sold for Br 10,200, Loss on Realization with Deficiency in one
Partner Capital
8. Finfinne Company pays the salary of its employees according to the Ethiopian Calendar
month. The forth-coming data relates to the month of Tahisas, 2005.
Basic Salary
Name of Basic Monthly OT Duration of OT Per hour
S/No. Employee Salary Allowance Hours Work
Worked
1 Dereje Bati 4600 800 8 Up to 10 pm ?
2 Tadesse Darge 640 --- 10 10 pm to 5 am ?
3 Kalkidan Debebe 2100 --- 8 Weekly Rest Days ?
4 Aster Lemma 9600 550 --- ---- ?
5 Kalab Woldu 16000 450 12 Public Holiday ?

Note that management of the agency usually expects a worker to work 40 hours in a week and
during Tahisas 2005, all workers have done as they have been expected. Besides, all workers of
this agency are permanent employees except Tadesse Darge; the monthly allowance of Kalab
Woldu is not taxable; Kalkidan Debebe agreed to have a monthly Br. 200 be deducted and paid
to the Credit Association of the Agency as a monthly saving.
INSTRUCTIONS:
Based on the information given above:
1. Prepare a payroll register (or sheet) for the agency for the month of Tahisas,2005.
2. Record the payment of salary as of Tahisas 30 ,2005 using CK. No 41 as a source document.
3. Record the payroll taxes expense for the month of Tahisas,2005.
4. Record the payment of the claim of the Credit Association of the agency that arose from Tahisas
payroll assuming that the payment was made on Tir 1, 2005.
5. Assuming that the withholding and payroll taxes for the month of Tahisas,2005 have been paid
on Tir 20, 2005 via CK. No. 50, recorded the required journal entry.
9. Assume that on December 31, 1995 by mutual agreement Lidia, Abebe and Kebede want to liquidate
their business. As of this day, income statement was prepared and distributed to each partner and finally
the following balance sheet has been reported.

Style Clothing
Balance Sheet
Dec31,1995
Assets Liabilities & Owner’s Equity
Cash Br150,000 Liabilities
Accounts Receivable 20,000 Account Payable 10,000
Less Allow for Bad Debts 5000 15,000 Notes Payable 13,000
Merchandise Inventory 50,000 Total Liabilities 23,000
Owner’s Equity
Lidia,Capital 60,000

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 Abebe, Capital 70,00
Kebede,capital 62,000
TotalOwner’sEquity 192,000
Total Assets Br215,000 Total lia. & Owner’s Equity 215,000

Prepare statement of liquidation and pass the necessary journal entry for liquidation as per the following
assumption. Their income and loss sharing is equal.

a) All non cash assets (account receivable and inventory) have been sold for Br 80,000 cash
b) All non cash assets (account receivable and inventory) have been sold for Br56,000 cash
10. Journalize the following transactions related to stock issuance about “A” corporation.
A. Received a charter authorizing the issuance of 300,000 shares of $1 par value common
stock
B. ABC printers printed up the stock certificates at a cost of $800. Payment on the account
is due by April 15, 2008.
C. Issued for cash 60,000 shares of common stock at $2.50 per share.
D. Issued 1,000 shares of $10 par value, 8% preferred stock for $50,000.
E. Issued 1,000 shares of common stock to attorney in exchange for legal services received
in organizing the company. The fair value of the services was $2,500.
F. Received subscriptions from ten investors for 2,000 shares each of common stock
at $2.50 per share. Each investor made a down payment of $1 per share and promised to
pay the balance by March 31, 2008.
G. Purchased some used store fixtures and display tracks at ABB’s liquidation
Emporium. The store equipment had a cost to the previous owner of $29,000 and had a
current fair market of $15,000. The owner agreed to accept 6,000 shares of
common stock as payment for the equipment.
H. A stockholder sold 500 of the shares he purchased on March 2, 2008, to a friend
for $2.90 per share.
I. Issued 320 share of common stock in settlement of the A/P with ABC printers.
J. Received payment in full from eight common stock subscribers and issued the shares to
them. The remaining two subscribers said they would pay the balance due by
April 6, 2008.

11. Moonlight Company issued 10,000 shares of Br. 20 par value common stock at Br. 32 per
share. Later, the company reacquired 3,000 shares at Br. 25 cash each.
Required: Prepare the necessary journal entries to record:
I. issuance of the 10,000 shares
II. Reacquisition of the 3,000 shares
III. Resale of 1,200 shares of treasury stock at Br. 28 per share
IV. Resale of the remaining 1,800 shares of treasury stock at Br. 21 per share