Part one: true or false 1.                 The identity of the recipient of a liability is not a requirement for the recognition of a liability.
2.                 Stock dividends declared but not yet issued are not reported as current liabilities.
3.                 Liabilities are recorded for obligations where payments are expected as part of a company’s normal operations, even if payments are not legally required.
4.                 Obligations related to product warranties and premium offers are examples of loss contingencies, which are usually accrued.
5.                 Trade accounts payable arise from the purchase of inventory, supplies, or services on an open charge-account basis.
Part two: multiple choices
6.                 Which of the following is not an essential characteristic of a liability? 
A.  A liability embodies a present obligation to be settled by a probable future transfer or use of assets.
B. The obligated company has little or no discretion to avoid the future sacrifice. 
C. The obligation is legally enforceable.
D. The transaction or event obligating the company has already happened.
 7. Trade accounts payable:
A. Should be, theoretically recorded at net of any cash discount. 
B. Are liabilities that must be estimated and accrued.
C. does not include purchases on an open charge basis. 
D. is normally long-term liabilities.
Part three; workout
8        What would be the journal entry to record the depreciation expense of a Machine that costs Birr 3000, with no salvage value and has an estimated economic life of 10 years if the straight-line method is applied? Assuming that the Machine was placed in service after two months had been elapsed in 2007 and depreciation expense is recorded on December 31 of each year.
 
9. Assume that in 2011 a product sells for $150 per unit. The product is sold with a one-year warranty and is estimated to have warranty expenses of 5% per unit. In 2011, we sold 20,000 units, and had $80,000 worth of warranty expense. In 2012, we had warranty expenses of $75,000. The journal entries for these transactions would be: record
A, sales transaction
B, Recognition of Warranty Expenses (2011)
C, Warranty costs for 2011
D, Warranty costs for 2012
10.  On July 1, 2011, Bitternut issued a four-year note at a face amount of $40,000. Proceeds of the note were $36,000. No interest was stated.
A.  Prepare journal entries to record the issuance of the note on July 1, and interest expense (using the straight-line method) at December 31, 2011.
11. Assume that ABC Company acquired land with Mineral deposit for Birr 500,000. The Mineral deposit is estimated to have 1,000,000 tons of Ore and is estimated to have a residual value of Birr 100,000 after mining is completed. Suppose the company extracted 90,000 and 80,000 tons of ore during Year 1 and Year 2 respectively.
Instruction:
a)     Determine the depletion rate.
b)     Determine the depletion expense of Year 1 and 2.
c)     Journalize the adjusting entry on December 31 of each year to recognize depletion expense.
d)     Determine the balance of accumulated depletion and book value of the mineral deposit on December 31, year 2.
12. To illustrate it assume that on October 1, 2007, an enterprise acquired a patent with a remaining legal life of 10 years and an estimated useful life of eight years incurring legal and other costs of Birr 48, 000. Record the entry showing the acquisition of the patent and the amortization expense for the year ending Dec.31, 2007.
Required
1.      The journal entry to record the acquisition of the patent and the amortization expense for the year ending Dec.
2.      Record amortization expense for 2007?