Self – Test Questions

1 For each user of accounting information, identify if the user would use financial accounting or
managerial accounting
a. investor e. controller
b. banker f. stockholder
c. ERCA g. human resources director
d. manager of the business h. creditor

2 Suppose you are starting a businessin Addis Ababa, Ethiopia, Wholly Shirts, to imprint logos on T-
shirts. In organizing the business and setting up its accounting records, you take your information to
a CPA to prepare financial statements for the bank. Name the organization that governs the majority
of the guidelines that the CPA will use to prepare financial statements for Wholly Shirts. What are
those guidelines called?

3 You would like to start a cellular telephone equipment service business in Addis Ababa, Ethiopia.
You are considering organizing the business as a sole proprietorship. Identify the advantages and
disadvantages of owning a sole proprietorship.

4 Michael is the proprietor of a property management company, Apartment Exchange, near the
campus of Abebe College in Addis Ababa. The business has cash of Br 8,000 and furniture that cost Br
9,000 and has a market value of Br 13,000. The business debts include accounts payable of Br 6,000.
Michael’s personal home is valued at Br 400,000, and his personal bank account has a balance of Br
1,200. Consider the accounting principles and assumptions discussed in the Conceptual framework of
financial reporting issued by IASB & IAS/IFRS, and identify the principle or assumption that best
matches the situation:

a. Michael’s personal assets are not recorded on the Apartment Exchange’s balance sheet.
b. The Apartment Exchange records furniture at its cost of Br 9,000, not its market value of Br
13,000.
c. The Apartment Exchange reports its financial statements in Ethiopian Birr.
d. Michael expects the Apartment Exchange to remain in operation for the foreseeable future.

Acfn 631: Financial and Managerial Accounting – Self – Test Questions # 4 – November 2018 1
5 Preparing financial statements

1. Net Income Br 115,700

Presented here are the accounts of Hometown Addis Company for the year ended June 30, 2018.
Land Br 13,000 Common Stock Br 28,000
Notes Payable 33,000 Accounts Payable 14,000
Property Tax Expense 2,800 Accounts Receivable 800
Dividends 36,000 Advertising Expense 17,000
Rent Expense 14,000 Building 170,400
Salaries Expense 67,000 Cash 2,800
Salaries Payable 1,300 Equipment 17,000
Service Revenue 225,000 Insurance Expense 1,700
Office Supplies 8,000 Interest Expense 6,800
Retained Earnings, June. 30, 2017 56,000

Requirements
1. Prepare Hometown Addis Company’s income statement.
2. Prepare the statement of retained earnings.
3. Prepare the balance sheet.

6 Journalizing adjusting entries and analyzing their effect on the income statement

The following data at July 31, 2018, are given for Addis Business Company:
a. Depreciation, Br 600.
b. Prepaid rent expires, Br 200.
c. Interest expense accrued, Br 700.
d. Employee salaries owed for Monday through Thursday of a five-day workweek; weekly payroll,
Br 8,000.
e. Unearned revenue earned, Br 1,000.
f. Office supplies used, Br 150.

Requirements
1. Journalize the adjusting entries needed on July 31, 2018.
2. Suppose the adjustments made in Requirement 1 were not made. Compute the overall
overstatement or understatement of net income as a result of the omission of these adjustments.

Acfn 631: Financial and Managerial Accounting – Self – Test Questions # 4 – November 2018 2
7 Addis Media, Inc. in their annual report for the year ending June 30, 2018, state that the plant
assets reported on its balance sheet includes the following:

The following are the rates of depreciation as per Councial of Ministers Regulation 410/2017,
Art 39:

Depreciable Asset Straight-line Rate

Computer, Software, and Data storage Equipment 20%

Greenhouse 10%

Structural improvement on Immovable Property 5%

other than a Greenhouse

Any other depreciable asset 15%

Mining and petroleum development operations 25%

Depreciation is computed using the straight-line method.

Requirements
1. Suppose Addis Media, Inc. purchases a new structure for Br 100,000 on February 1, 2017.
The residual value of the structure is Br 4,000 and the useful life is as per Art 39 of
Regulation 410/2017. How would Addis Media record the depreciation expense on June 30 in
the first year of use? What about the second year of use?
2. What would be the book value of the structure at the end of the first year? What would be the
book value of the structure at the end of the second year?
3. What would be the impact on Addis Media, Inc. financial statements if they failed to record
the adjusting entry related to the structure?

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