RIFT VALLEY UNIVERSITY

Department of Accounting and Finance

Assignment t for the Course Fundamentals of Accounting II
(Please Refer Chapter 1 and chapter 2)
1. ABC Boutiques has identified the following items for possible inclusion in its December 31,
2020 year-end inventory.
a. Merchandise ABC shipped to a customer FOB shipping point was picked up by the freight
company on December 26, 2020, but had still not arrived at its destination as of December
31, 2020.
b. ABC has segregated Br 6,570 of merchandise ordered by one of its customers for
shipment on January 3, 2021.
c. ABC has sent Br 78,000 of merchandise to various retailers on a consignment basis.
d. ABC has Br 18,750 of merchandise on hand, which was sold to customers earlier in the
year, but which has been returned by customers to ABC for various warranty repairs.
e. On December 31, 2020, ABC received Br 17,050 of merchandise that had been returned
by customers because the wrong merchandise had been shipped. The replacement order is
to be shipped on January 3, 2021.
f. On December 21, 2020, ABC ordered Br 21,000 of merchandise, FOB shipping. The
merchandise was shipped from the supplier on December 28, 2020, but had not been
received by December 31, 2020.
g. On December 27, 2005, ABC ordered Br 15,750 of merchandise. The merchandise was
shipped under FOB destination on December30, 2020, but had not been received by
December 31, 2020.
Instruction: Indicate which items should be included (I) and which should be excluded (E)
from the inventory.

2. Commercial bank of Ethiopia (CBE) is considering giving Tsehay Company a loan.

Before doing so, management decides that further discussions with Tsehay Company’s

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 accountant may be desirable. One area of particular concern is the inventory account, which
has a year-end balance of Br 297,000. Discussions with the accountant reveal the following.
i. Tsehay Company sold goods costing Br 38,000 to Biftu Company, FOB shipping
point, on December 28. The goods are not expected to arrive at Biftu Company
until January 12. The goods were not included in the physical inventory because
they were not in the warehouse.
ii. The physical count of the inventory did not include goods costing Br 91,000 that were
shipped to Tsehay Company FOB destination on December 27 and were still in
transit at year-end.
iii. Tsehay Company received goods costing Br 25,000 on January 2. The goods were
shipped FOB shipping point on December 26 by Kiya Company. The goods were
not included in the physical count.
iv. Tsehay Company sold goods costing Br 35,000 to Sunshine Company. FOB
destination, on December 30. The goods were received by Sunshine Company on
January 8. They were not included in Sunshine company physical inventory.
v. Tsehay Company received goods costing Br 44,000 on January 2 that were shipped
FOB shipping point on December 29. The shipment was a rush order that was
supposed to arrive December 31. This purchase was included in the ending inventory
of Br 297,000.
Instructions: Determine the correct amount of Tsehay Company’s inventory on December
31.

3. XYZ Company is a merchandizing business which uses a periodic inventory system.

Beginning inventories and purchases for the month of September are given as follows.
During the same month, 121 units were sold.
Date Explanation Units Unit Cost Total Cost
Sept. 1 Inventory 23 Br 970 Br 22,310
Sept. 12 Purchases 45 Br 1,020 Br 45,900
Sept. 19 Purchases 20 Br 1,040 Br 20,800
Sept. 26 Purchases 44 Br 1,050 Br 46,200
Totals 132 Br 135,210

Instructions: Compute the ending inventory at September 30 and cost of goods sold
using the FIFO and average-cost methods. Prove the amount allocated to cost of goods
sold under each method.

4. ABC Company reported cost of goods sold as follows.

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 2016 2017
Beginning inventory Br 20,000 Br 30,000
Cost of goods purchased Br 150,000 Br 175,000
Cost of goods available Br 170,000 Br 205,000
for sale
Ending inventory Br 30,000 Br 35,000
Cost of goods sold Br 140,000 Br 170,000
ABC Company made two errors: (1) 2016 ending inventory was
overstated Br 2,000, and (2) 2017 ending inventory was understated Br
6,000.
Instructions: Compute the correct cost of goods sold for each year.

5. XYZ Company is a merchandizing business which uses a perpetual inventory system.

Beginning inventories and purchases for the month of September are given as follows.
Date Explanation Units Unit Cost Total Cost
Sept. 1 Inventory 23 Br 970 Br 22,310
Sept. 12 Purchases 45 Br 1,020 Br 45,900
Sept. 19 Purchases 20 Br 1,040 Br 20,800
Sept. 26 Purchases 44 Br 1,050 Br 46,200
Totals 132 Br 135,210

Additional data regardingXYZ Company sales are provided below.

Date Explanation Units Unit Price Total Revenue

Sept. 5 Sale 12 Br 1,990 Br 23,880
Sept. 16 Sale 50 Br 2,030 Br 101,500
Sept. 29 Sale 59 Br 2,090 Br 123,310
Totals 121 Br 248,690
Instructions
a. Compute ending inventory at September 30 using FIFO and moving-average cost.
b. Compare ending inventory using a perpetual inventory system to ending inventory
using a periodic inventory system.
6. Zemen Company, Ltd. reported the following information for November and December
2017.
November December
Cost of goods purchased Br 5,000,000 Br 6,000,000
Inventory, beginning-of-month Br 1,000,000 Br 1,200,000
Inventory, end-of-month Br 1,200,000 ?
Sales revenue Br 7,500,000 Br 10,000,000
Zemen Company’s ending inventory at December 31 was destroyed in a fire.
Instructions

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 a. Compute the gross profit rate for November.
b. Using the gross profit rate for November, determine the estimated
cost of inventory lost in the fire.

7. Selam Boutiques uses the retail inventory method for its two
departments, Women’s Shoes and Men’s Shoes. The following
information for each department is obtained.

Item Women’s Shoes Men’s Shoes

Beginning inventory at cost Br 36,500 Br 45,000
Cost of goods purchased at Br 150,000 Br 136,300
cost
Net sales Br 178,000 Br 185,000
Beginning inventory at Br 46,000 Br 60,000
retail
Cost of goods purchased at Br 187,000 Br 185,000
retail
Instructions: Compute the estimated cost of the ending inventory for each department
under the retail inventory method.

8. Guzo Bus Lines uses the units-of-activity method in depreciating its buses. One bus was
purchased on January 1, 2017, at a cost of Br 145,000. Over its 4-year useful life, the bus is
expected to be driven 100,000 miles. Residual value is expected to be Br 15,000.
Instructions
a. Compute the depreciable cost per unit.
b. Prepare a depreciation schedule assuming actual mileage was 2017, 27,000; 2018,
32,000; 2019, 24,000; and 2020, 17,000.
9. Sheger Company purchased a new machine on October 1, 2017, at a cost of Br 96,000.
The company estimated that the machine will have a residual value of Br 12,000. The
machine is expected to be used for 10,000 working hours during its 5-year life.
Instructions

Compute the depreciation expense under the following methods for the year indicated.
a. Straight-line for 2017.
b. Units-of-activity for 2017, assuming machine usage was 1,700 hours.
c. Declining-balance using double the straight-line rate for 2017 and 2018.

10. Star Company owns equipment that cost Br 50,000 when purchased on January 1,

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 2014. It has been depreciated using the straight-line method based on an estimated
residual value of Br 8,000 and an estimated useful life of 5 years.
Instructions

Prepare Star Company’s journal entries to record the sale of the equipment in these
four independent situations.
a. Sold for Br 28,000 on January 1, 2017
b. Sold for Br 28,000 on May 1, 2017
c. Sold for Br 11,000 on January 1, 2017
d. Sold for Br 11,000 on October 1, 2017

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