Part I.For each of the following questions, write "True" if the statement is correct or "False" if the statement is incorrect on the space provided.

____ 1.Held for investment purpose is not classified as plant assets.

____ 2. A building owned by a corporation is always classified as plant asset.

____ 3. Under the double-declining balance depreciation method, salvage value is

Considered only in computing the amount of depreciation for the final year of an

Asset's service life.

____ 4. Cost of testing a new asset should be added to the cost of new asset.

____ 5. Land improvement has a limited life.

____ 6. Whenever a fully depreciated machine is disposed, a gain or loss is recognized.

____ 7. Under the double declining balance method depreciation expense is same from year to year.

____ 8. At the end of each accounting period Biological Assets are reported with LCNRV.

____ 9. When the future revenue-producing ability of the inventory drops below its original cost thecompanies should reports their inventory value with LCNRV method.

____ 10. Treatment of purchase discount with gross method is Provides a better correct reporting of the cost of the asset and related liability than net method.

Part II. For each of the following multiple-choice questions, select the answer which you think bestfits to the question and write the letter of your choice in Block letter on the space provided.

____1. Specific identification:

A.Must be used under IFRS if the inventory items are not interchangeable.

B.Cannot be used under IFRS.

C.Must be used under IFRS if it would result in the most conservative netincome.

D.None of the above

____ 2. The inventory system that uses accounting records that continuously discloses the amount of inventory is:

A.Periodic

B.Perpetual

C.Physical

D.Retail

E.None of the above

____ 3. Which of the following payments is not included in the cost of land?

A.Removal of old building

B.Back property taxes paid

C.Legal fees

D.Cost of fencing and lighting with limited economic life

None of the above

____ 4. Which depreciation method gives the largest amount of expense in the early?

2years of using the asset and therefore is mostly best for income tax purpose?

A.Straight line

B.Accelerated

C.Units of production

D.All are equal

E.None of the above

____ 5. Capitalization period ends when?

A.Expenditures for the assets are being incurred

B.Activities for readying the asset for use or sale are in progress

C.Interest costs are being incurred

D.The asset is substantially complete and ready for use.

E.None of the above

____ 6. Companies value property, plant, and equipment in subsequent periods using?

A.Cost method

B.Revaluation method

Net realizable method

D. All except C

E. None of the above

____ 7. Actual interest costs' capitalizing considers which one of the following items?

A.Qualifying assets

B.Capitalization period

C.Amount to capitalize

D.All of the above

E.None of the above

Based on the following information answer question 8, 9, 10, and 11

During the current year construction, ABC Construction trades old equipment that

has a book value of original cost ETB 420,000 and with an accumulated depreciation

ETB 150,000 for new equipment from XYZ Manufacturing Co. The new equipment

Cost ETB 620,000 and it has an accumulated depreciation of ETB 125,000. The

Following information is also available.

ABC XYZ

Fair value of an equipment (ETB) 226,000 600,000

____ 8. Assuming the exchange is considered to have commercial substance, one of the

Following is an account recorded by XYZ Manufacturing Co.:

A.Debited loss on exchange by ETB 25,000

B.Credited equipment old by ETB 600,000

C.Credited gain on exchange by ETB 105,000

D.None

____ 9. Assuming the exchange is considered lacks commercial substance, one of the Following is an account recorded by XYZ Manufacturing Co.:

A.Debited cash by ETB 354,000

B.Debited loss on exchange by ETB 25,000

C.Credited equipment old by ETB 600,000

D.D.

____ 10. Assuming the exchange is considered to have commercial substance, one of the following is an account recorded by ABC Construction:

A.Debited loss on exchange by ETB 270,000

B.Credited equipment old by ETB 620,000

C.Credited gain on exchange by ETB 105,000

D.Debited loss on exchange by ETB 44,000

____ 11. Assuming the exchange is considered to have commercial substance, one of the

Following is an account recorded by ABC Construction:

A.Credited gain on exchange by ETB 226,000

B.Debited equipment new by ET B 600,000

C.Credited equipment old by ETB 620,000

D.None

____ 12. When a bond purchased at a discount, Bond Interest revenue will be:

A.Equal to the bond interest receipt.

B.Greater than the bond interest receipt.

C.Less than the bond interest receipt.

D.None of the above.

____ 13. Unrealized holding gains and losses for trading securities are:

A.Record unrealized gains and losses in other comprehensive income of equity section

B.Record unrealized gains and losses in net income

C.Record unrealized gains and losses in retained earnings statement

D.Not reported in the income statement nor the balance sheet

____ 14. When applying the fair value method, an investor should report dividends from the investee as:

A.Dividend revenue

B.As other comprehensive income item

C.A reduction in the investment account

D.An increase in the investment account

____ 15. Which of the following items is/are included in the ending inventory?

A.Goods purchases FOB destination that are in transit at the end of the period

B.Goods sold on instalment basis

C.Freight charges on goods purchased

D.Costs incurred to advertise goods held for resale

E.A and C

____ 16. If the gross profit based on cost is 20%, what would the gross profit rate, based on sales?

A. 1/6

B. 1/5

C.

D. 1/3

E. None

____ 17. The progress billing ledger account used in accounting for construction-type contractis a/an

A.Asset account

B.Liability account

C.Contra-asset account

D.Contra-liability account

____ 18. SAY Company exchanged land with a fair market value of Br. 150, 000 for Cline Company's Br. 226, 000, non-interest bearing, 4-year note. If the Br. 150, 000 amounts represents the present value of the note at an appropriate rate of interest, SAY Corporation should record the difference (Br. 76, 000) as:

A.Gain on the sale of Land

B.Premium on the sale of Land

C.Premium on notes receivable

D.Discount on notes receivables

E.None of the above.

____19. The controller of MIDROC Company is entitled to a bonus of 10% of net income after bonus and tax deduction. If net income before tax and bonus amounts to Br. 80, 000 and the tax rate is 40%, what amount of bonus can the controller expect to receive?

A.Br. 3, 000

B.Br. 4, 528

C.Br. 5, 106

D.Br. 8, 000

E.None

____ 20 . When applying the equity method, an investor should report dividends from the investee as:

A.Dividend revenue

B.As other comprehensive income item

C.A reduction in the investment account

D.An increase in the investment account

E.The answer is not given

Part III: Attempt the following exercise type questions. Show all your calculations and steps clearly.

Exercise I

The following information is taken from the inventory records of Sea merchandising

Company for the year ended December 31, 2019

Cost Retail

Beginning inventories .................................Br. 270, 000 Br. 360, 000

Purchases......................................................................600, 000 900, 000

Purchase returns and allowances.................................49, 600 80, 000

Additional mark-ups..............................................................- 70, 000

Mark-up cancellations ........................................................- 10, 000

Markdowns .......................................................................... - 40, 000

Markdown cancellations...................................................... - 20, 000

Sales ..................................................................................... - 650, 000

Sales & returns and allowances ........................................... 30, 000

Required:

1. Determine the estimated ending inventory using the retail convectional

Method.

2. Determine the estimated ending inventory using the retail cost method.

Exercise II.

Vein Company completes the construction of a building. The following independent items are the costs and other aspects relevant to the purchase of the lot and construction

Cash payment to contractor--------------------------------------------Br. 100, 000

Total sales tax on materials used in construction

in addition to payments made to contractor-------------------------------30, 000

Gross cost to raze old building on land------------------------------------20, 000

Cost of land (building site)--------------------------------------------------50, 000

Proceeds from old building salvage------------------------------------ -----5, 000

Power bill for electricity used in construction -----------------------------2, 000

Interest on purchase of materials---------------------------------------------1, 000

Capitalized interest on construction---------------------------------------- 3, 000

Required:

What is the final recorded value of the building and land? (Show all your works clearly)

Exercise III.

On January 1, 2019, ABC (investor) Company purchased Birr 1,000,000; 10%; 3 year

Term bonds from XYZ (investee) Company that pays interest semi-annually on July 1, and

January 1. The bonds were acquired to yield interest of 8%.The bonds were properly

Classified by ABC Co. as held to maturity. Accounting period of both Companies ends on

December 31.

Required: Record the acquisition/issuance on January 1, 2019, and the first three interests

Receipts/payments both in the investor and investee's books (including end year

Adjustment for interest). Identifying each recording by the dates of its occurrence for both

Companies and use the space below for your answer

Investor Company Investee