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University of Gondar

College of Business and Economics


Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

1. Which of the following is not the unique characteristic of governmental and not for
organizations?
A. The profit motive is inherent in their operation or inception.
B. They are usually owned collectively by their constituents.
C. Their scope of operation includes governmental, proprietary and fiduciary.
D. They have generally adopted the concept and systems of fund accounting
Answer A
2. The operations of a public library receiving the majority of its support from consumption
taxes for that purpose should be accounted for in:
A. The General Fund C. An Enterprise Fund
B. A Special Revenue Fund D. An Internal Service Fund
Answer B
3. Which of the following is not the appropriate basis of accounting for a governmental
fund?
A. Accrual C. Modified accrual basis
B. Cash basis D. All of the above
Answer B
4. The monthly remittance to an insurance company of the lump sum of hospital surgical
insurance premiums collected as a payroll deduction from employees should be recorded
in:
A. The Agency Fund
B. Special Revenue Fund
C. An Enterprise Fund
D. An Internal Service Fund
Answer A
5. If budgetary fund balance is debited in the process of recording a budget in the General
Fund, it can be assumed that:
A. Est. revenues and Est. other financing sources exceeded appropriations and Est.
other Financing Uses.

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University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

B. Est. revenues and other financing sources exceeded actual revenues and other
financing sources.
C. Appropriations and Est. other financing uses exceeded Est. revenues and other
financing sources.
D. Revenues and other financing sources exceeded Est. revenues and Est. other
financing sources
Answer C
6. A non-cash-generating asset is impaired when :
A. Recoverable service amount of the asset exceeds the carrying amount of the asset.
B. Carrying amount of the asset exceeds recoverable service amount of the asset.
C. Value in use of the asset exceeds fair value less cost to sell.
D. Fair value less cost to sell exceeds Value in use of the asset.
Answer B
7. YZ Government unit purchased equipment using funds from General Fund, which of the
following account increased by entry to record in General Fund?
A. Expenditures
B. Cash
C. Equipment
D. All of the above
Answer A
8. Which of the following are not the objectives of international public sector accounting
standard board (IPSASB)?
A. Serving the public interest by setting high-quality public sector accounting
standards.
B. Facilitating the adoption and implementation public sector accounting standards.
C. Ugly the quality and consistency of practice throughout the world.
D. Strengthening the transparency and accountability of public sector financial
reporting and financial management.
E. All of the above.

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University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

Answer C
9. A not-for-profit organization performs all of the following activities except
A. Charging a fee for services provided
B. Paying dividends to shareholders
C. Purchasing long-lived (capital) assets
D. Paying overtime to employees
Answer B
10. Which of the following is not a reason that governmental accounting is different from
business accounting?
A. Different users of financial reports
B. Expected long-life of governments
C. Capital assets are used by governments
D. Revenues that are unique to governments
Answer C
11. The operation of a municipal swimming pool receiving the majority of its support from
charges to users should be accounted for in:
A. The General Fund C. An Internal Service Fund
B. Special Revenue Fund D. An Enterprise Fund
Answer D
12. In 1984, the City of Moorland built an office building at a cost of $50million. The
building was expected to provide service for 40 years. In 2003,after 19 years of use, fire
caused severe structural problems. Due to safety reasons, the office building is closed,
and structural repairs costing $35.5million are to be made to restore the office building to
an occupiable condition. The replacement cost of a new office building is $100 million.
The asset is depreciated based on straight-line method. What will be the recoverable
service amount of the office building (non-cash generating asset)?
A. $17,000,000 C. $25,000,000
B. $16,000,000 D. $18,000,000
Answer A

Page 3 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

13. Based on question no.12 how much the impairment loss of the office building (non-cash
generating asset)?
A. 10,250,000 C. 17,000,000
B. 9,250,000 D. 12,500,00
Answer B
14. The selection of a measurement basis for assets and liabilities contributes to meeting the
objectives of financial reporting in the public sector by providing information that
enables users to assess :
A. The cost of services provided in the period in historical or current terms
B. Operational capacity
C. Financial capacity
D. All of the above
E. None of the above
Answer D
15. Which one of the following are sources of finances for a debt service fund?
A. Special Taxes D. Bond Premium
B. Investments E. All of the above
C. Refinancing
Answer E
16. The board of Commissioners of the City of Addis Ababa adopted budget for the current
year ending Jan 31, 2021, indicated estimated revenue of Br.5 million and appropriation
of Br.4.7 million. When the budget is formally integrated into the accounting records,
what is the required journal entry?

A. Estimated revenues......................5,000,000
Appropriations..................................4, 7 00,000
Budgetary Fund Balance.......................300,000
B. Appropriations.................................5,000,000
Estimated revenues............................4, 700,000

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University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

Budgetary Fund Balance.......................300,000


C. Revenues Receivable...............5 ,000,000
Estimated Expenditures.........................4, 700,000
General Fund Balance...............................3,000,000
D. None of the above
Answer A
17. Which of the following items are reported in the other financing sources section of the
Capital Projects Fund statement of revenues, expenditures and changes in fund balance?
A. Interest from temporary investments.
B. Inter-governmental grants.
C. Proceeds of the issue of long-term debt.
D. All of the above
E. None of the above
Answer C
18. Which of the following is not the primary users of general-purpose financial report?
A. Service receiver
B. Budget controller
C. Resource provider
D. All of the above
Answer B
19. When supplies ordered by a governmental unit are received at an actual price which is
less than the estimated price on the purchase order, the encumbrance account is:
A. Credited for the estimated price on the purchase order.
B. Credited for the actual invoice price
C. Debited for the estimated price on the purchase order.
D. Debited for the actual invoice price.
E. None of the above.
Answer C

Page 5 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

20. Which of the following are not the fundamental qualitative characteristics of general-
purpose financial reports (GPFRs)?
A. Understandability
B. Faithful representation
C. Relevance
D. All of the above
Answer A
21. Which of the following accounts would not typically be reported on the operating
statement of an Internal Service Fund?
A. Salaries and wages expense
B. Supplies expense
C. Capital outlay expense
D. Maintenance expense
Answer C
22. Which of the following is a characteristic of a Special Revenue Fund that differentiates it
from a General Fund?
A. A Special Revenue Fund is required to be budgeted on a multi-year basis.
B. A Special Revenue Fund is established only if a revenue source is committed to
expenditure for a specific purpose other than debt service and capital outlay.
C. A governmental entity may only have one Special Revenue Fund.
D. A Special Revenue Fund uses the total economic resources measurement focus
Answer B
23. Which of the following activities is performed by governments but not by not-for-profit
organizations?
A. Providing services to constituents
B. Receiving grants
C. Preparing budgets
D. Issuing federal tax-free debt
Answer D

Page 6 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

24. The amount of net cash flows arising from operating activities is a key indicator of the
extent to which the operations of the entity are funded and includes:
A. Cash receipts or payments in relation to litigation settlements
B. Cash payments to acquire property, plant and equipment
C. Cash repayments of amounts borrowed
D. Cash payments by a lessee for the reduction of the outstanding liability relating to a
finance lease
E. All of the above
Answer A
25. Which of the following are the characteristics of a term bond?
A. Term bonds may not exceed 15 years.
B. Principal and interest on the entire principal are paid throughout the life of the issue.
C. No interest is paid during the life of the issue.
D. Principal is paid at the end of the bond issue term.
Answer D
1. In a business combination how should the long-term debt of the acquired company generally
be recognized on acquisition date?
A. Amortization C. Fair value less costs to sell
B. Carrying amount D. Fair value
Answer; D
2. A has acquired a subsidiary on 1 January 2014. The fair value of the net assets of the
subsidiary acquired were $16000. An acquired 60 percent of the shares of the subsidiary
$11000. The non-controlling interest was fair valued at $8000. Goodwill based on the full
goodwill method is
A. $3,000 C. $5000
B. $1400 D. $8000
Answer; A
3. For external reporting, the individual financial statements of the home office and the branch
are combined

Page 7 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

A. by using complex consolidation procedures


B. by recognizing the home office's own assets, liabilities, income and expenses plus its
share in the branch's assets, liabilities , income and expenses
C. by adding together similar items of assets, liabilities, income and expenses and
eliminating reciprocal accounts.
D. by adding together similar items of assets, liabilities, income and expenses
Answer; C
4. A business combination may legally structure as a merger, a consolidation, an investment in
stock, or a direct acquisition of assets which of the following describes a business
combination that is legally structure as a merger?
 
A. The surviving company is one of the combining companies. 
B. The surviving company is neither of the two combining companies
C. An investor-investee relationship is established.
D. A parent- subsidiary relationship is established.
Answer; A
5. Transactions between a home office and its branch are accounted for in reciprocal accounts.
The reciprocal account maintained in the branch books is called
A. Investment in branch C. Advances from home office
B. Home office D. Any of these
Answer; B
6. Select the correct statement with regards to intergroup balances and transactions during
consolidation:
A. Intergroup balances and transactions must be eliminated
B. Intergroup balances and transactions must be eliminated to the extent of non-controlling
interest
C. Intergroup balances and transactions must be eliminated in proportion to the percentage
of effective ownership
D. Intergroup balances and transactions do not have to be eliminated

Page 8 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

Answer; A
7. The acquirer shall measure the identifiable assets acquired and the liabilities assumed at
their:
A. Acquisition-date historical cost
B. Reporting-date net book value
C. Acquisition-date fair values
D. Reporting-date present value
Answer; C
8. In a business combination accounted for under acquisition method, fair value of the net
identifiable assets acquired exceeded the consideration transferred. How should the excess
fair value be reported?
A. As negative goodwill recognized in profit or loss in the period the business combination
occurred
B. As an extraordinary gain
C. As a reduction of the values assigned to noncurrent asset and an extraordinary gain for
any allocated portion
D. As a positive goodwill
Answer; D
9. The criterion used when determining the acquisition date for a business combination is the
date:
A. On which the consideration was paid by the acquirer
B. On which the consideration was received by the acquiree
C. On which specific assets are delivered to the acquirer
D. All of the above
Answer; A
10. The depreciation expense on equipment being used by the branch but carried in the books of
the home office is recorded in the branch's books as
A. Debit to Investment in Branch and Credit to Accumulated Depreciation
B. Debit to Depreciation Expense and credit to Home Office account

Page 9 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

C. Debit to Depreciation Expense and credit to Investment in Branch


D. Not recorded
Answer; B
11. An investment entity should have the following typical characteristics. Except
A. It has more than one investment
B. It has investors that are not related parties of the entity
C. It has only one investor
D. It has ownership interests in the form of equity or similar interests.
Answer; C
12. What entities shall apply IFRS 11?
A. Entities that have contractual arrangement between them
B. The contractual arrangement gives all parties or a group of party’s control of the
arrangement
C. Decision about relevant activities requires unanimous consent of the parties sharing
control
D. All of the above
Answer; D
13. According to IFRS 10, the basis for consolidation is …
A. Regulatory requirements C. Control
B. Size of share capital of the investee D. Number of employees
Answer; C
14. AA Company had common stock of $350,000 and retained earnings of $490,000. CC Co.
had common stock of $700,000 and retained earnings of $980,000. On January1, 2020,
CCissues34, 000 shares of common stock with a $12 par value and a $35 fair value for all of
AA Company's outstanding common stock. Assume that CCcompany paid birr 20,000 and
30,000 for finder and to register the common stock in SEC respectively. This combination
was accounted for using the acquisition method. Immediately after the combination, what
was the amount of total consolidated net assets?
A. $2,520,000. B. $1,190,000.

Page 10 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

C. $1,680,000. D. $2,870,000.
Answer; B
15. Based on the above question how much would be the consolidated balance of retained
earning
A. $490,000 C. $1,450,000
B. $1,470,000 D. $460,000
Answer; D
16. “The future economic benefits arising from assets that are not capable of being individually
identified and separately recognized”, is the definition of:
A. Revenue C. Income
B. Goodwill D. Net assets
Answer; B
17. If a parent loses control of a subsidiary, the parent should
A. Derecognizes the assets and liabilities of the former subsidiary from the consolidated
statement of financial position.
B. Derecognizes the gain or loss associated with the loss of control attributable to the former
controlling interest
C. recognizes any investment retained in the former subsidiary
D. A & B
E. A & C
Answer; E
18. An arrangement which givethe parties that have joint control of the arrangement and rights
to the net assets of the arrangement is called
A. Joint venture C. Joint arrangement
B. Joint operation D. Jointly controlled asset
Answer; A

Page 11 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

19. JK Limited acquired the net assets of BEST Limited for $120 000. The fair value of the net
assets acquired was: Property $70 000, Equipment $25 000, Inventory $10 000. The
journal entry to record the business combination is:

A. Net assets acquired $120 000


Consideration paid $120 000
B. Net assets acquired $105 000
Goodwill $15 000
Consideration paid $120 000
C. Property $70 000
Equipment $25 000
Inventory $10 000
Goodwill $15 000
Consideration paid $120 000
D. Property $70 000
Equipment $25 000
Inventory $10 000
Consideration paid $105 000
Answer; C
20. In a business combination, the direct costs of registering and issuing equity securities are:
A. Added to the parent/investor company’s investment account
B. Treated as direct reduction in the equity
C. Deducted from income in the period of combination
D. None of the above
Answer; B
21. In business combination if one company acquires the voting shares of another company in
stock acquisition. Which one of the following is incorrect about stock acquisitions?

Page 12 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

A. One of the combining companies is liquidated


B. The two companies continue to operate as separate, but related, legal entities.
C. Parent– subsidiary relationship
D. Acquiring company accounts for its ownership interest in the other company as an
investment
Answer; A
22. When branch A sends goods to branch B in the books of branch A debit is given to
A. Head office account
B. Branch B account
C. Both home office account and branch account
D. No entry
Answer; A
23. Which of the following is incorrect about sales agency
A. It has not an autonomous operation
B. Demonstrate sample merchandise, take orders, and arrange for delivery.
C. The orders typically are filled by the home office
D. A sales agency have an inventory sells to customers on account.
Answer; D
24. A parent company present non-controlling interests in the consolidated statement of
financial position
A. Within equity section combined with controlling interest
B. Within equity separately from the equity of the owners of the parent.
C. Within asset section combined with controlling interest
D. Within asset section separately from parent assets
Answer; B
25. The home office incurs various operating expenses of Br. 133,000 during the year. What are
the necessary journal entries on the book home office?
A. Debit operating expense and credit account payable by 133,000
B. Debit operating expense and credit home office by 133,000

Page 13 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

C. Credit home office and Debit operating expense by 133,000


D. Debit operating expense and credit cash by 133,000
Answer; A

26. Which one is correct difference between accounting profit and taxable profit?
A. Accounting profit is after tax but taxable income is before tax.
B. Taxable income is used to compute current tax whereas accounting profit is used to
compute deferred tax.
C. Both Accounting profit and taxable income are accounting measurement.
D. Taxable income is computed from accounting profit by adjustment of taxable and
nontaxable component.
Answer D
27. Which term on IAS 41 is referred as the management of the biological transformation of
biological assets?
A. Harvesting C. Agricultural activity
B. Agricultural produce D. Biological asset
Answer C
28. On indirect method of preparing statement of cash flow which one is False?
A. Eliminate non cash component
B. Add increase on trade receivable
C. Eliminate investing or financing activity component
D. Deduct decrease on trade payable
Answer B
29. On IFRS 17 which one is represented as present value of the future cash outflows less the
present value of the future cash inflows?
A. Insurance risk C. Contractual services margin
B. Insurance contract D. Fulfilment of cash flow
Answer D
30. Which one is the principal revenue-producing activities?

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University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

A. Operating activity C. Investment activity


B. Financing activity D. All
Answer A
31. IAS 41 does not apply to except?
A. Land related to agricultural activity
B. Intangible assets related to agricultural activity
C. Bearer plant
D. Biological asset
Answer D
32. On fair value determination of biological asset active market has Except?
A. Heterogeneous product
B. Current price is knowledge to public
C. Independent market participant
D. Willing and able participant
Answer A
33. Installment A/R carrying amount - $400; revenues recognized on sale and Tax base = $0.
Which one is true with tax rate of tax rate of 10%?
A. Temporary difference is 0.
B. Taxable temporary difference is $40.
C. Deferred tax liability will $40.
D. Deductible temporary difference is $400
Answer D
34. If ABC Company has total current tax expenses of $10,000 to be recognized in 2012.
During 2011 deferred tax liability has credit balance 20,000 and on 2012 deferred tax
liability has credit balance of $25,000. How much total tax expenses of ABC Company?
A. 10,000 C. $15,000
B. $20,000 D. $5,000
Answer C

Page 15 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

35. XYZ Company acquired PPE with $100,000 on January 1 2012. On 2014 this PPE has
carrying amount of $90,000 and fair value of 110,000. Tax base is 80,000. If property tax
rate and income tax rate is 10% and 25% respectively, which one is true?
A. Taxable temporary difference is $10,000
B. Deductible temporary differences are $20,000
C. Taxable temporary difference is $30,000
D. Deferred tax is 3,000
Answer C
36. When will be biological asset to be recognized?
A. When business has got control and has reliable measurement
B. After sale
C. After harvest
D. A and B
Answer A
37. Which activity is the acquisition and disposal of long-term assets on statement of cash flow?
A. Investing C. Operating
B. Financing D. All
Answer A
38. Assume on 2012 net income for ABC Company were 100,000. During the year trade
payable has been increase by 5,000, trade receivable decrease by 10,000 and depreciation
expenses were 2,000. How much is net cash inflow (out flow) from operating activity?
A. 100,000 C. 113,000
B. 115,000 D. 118,000
Answer C
39. Which term is referred as the detachment of produce from a biological asset on IAS 41?
A. Harvesting C. Agricultural activity
B. Agricultural produce D. Biological asset
Answer A
40. “Acquisition of a 4100, 3%, 90-day government treasury bill on cash” is

Page 16 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

A. Cash inflow from financing activity


B. Cash outflow from financing activity
C. Cash inflow from investing activity
D. Cash out flow from investing activity
Answer D
41. On initial recognition, an entity shall measure a group of insurance contracts at the total of
A. Contractual service margin and fulfillment of cash flow
B. Premium and estimated cash flow
C. Adjustment for time value of money and premium
D. Adjustment for non-financial risk and financial risk.
Answer A
42. Which one is incremental cost directly attributable to the disposal of an asset, excluding
finance costs and income taxes?
A. Carrying amount
B. Fair value
C. Cost to sale
D. All
Answer C
43. “Conversion of convertible debt into common shares” is
A. Financing activity
B. Operating activity
C. Investing activity
D. Non cash activity
Answer D
44. On which fair value measurement approach use only market related information?
A. Market approach
B. Cost approach
C. Income approach
D. All

Page 17 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

Answer A

45. A company grant a total of 100 share to employee on January 2005. This option will vest on
at the end of four-year period. The company has determined that each option has fair value
at the date of grand is $20. If all 100 shares re vest, which one is correct journal entry on
2005?
A. Share option expenses-------2000
Cash------------------------------------2000
B. Share option expense---------2,000
Equity---------------------------------2,000
C. Share option expense----------500
Equity-------------------------------------500
D. Share option expenses-------500
Cash------------------------------------500
Answer B
46. The date on which insurances contract parties agreed termed as
A. Grant date
B. Measurement date
C. Vest date
D. Taxable date
Answer A
47. In which transaction entity receive goods and services by incurring liability to be paid in
cash?
A. Equity settled share-based payment
B. Cash settled share-based payment
C. Alternatives payment
D. All of the above
Answer B
48. An entity shall apply IFRS 17 to

Page 18 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

A. Insurance contracts
B. reinsurance contracts
C. Reinsurance contracts it holds
D. All of the above
Answer D
49. Consumable biological asset has historical cost of 100,000 with estimated useful life of 5
year at estimated salvage value of 20,000 ETB. How much is annual depreciation using
straight line method?
A. 80,000
B. 100,000
C. Non depreciable
D. 16,000
Answer C

50. At initial recognition and each reporting date biological asset can be measured at________?

A. Fair value
B. Cost if fair value cannot be reliably measured
C. Fair vale lest cost to sale
D. B and C
Answer D
51. Which of the following is/are true about the auditing standards to conduct audits of financial
statements?
A. Auditors audit financial statements fairly in all material respects and with applicable
financial accounting frameworks
B. Auditors issue an opinion on financial statements based on accumulated audit
evidences

Page 19 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

C. Auditors accumulate audit evidences to reach conclusions on financial statements


farnesses’ and internal control effectiveness
D. All of the above
E. None of the above
Answer: D
52. All are true about the management’s responsibilities for financial statements and internal
controls. Except
A. Adopting accounting policies, maintaining adequate internal control, and making fair
representations in financial statements
B. Understanding and testing of the internal control to present faire financial statements
C. Submitted reports to the Security and Exchange Commission’s on financial
statements
D. Includes the statements on the annual reports in relation with Certified Public
Accountants’ firm
E. None of the above
Answer: B

53. Which of the following is/are belongs to the auditors’ responsibilities?


A. Material misstatements
B. Reasonable Assurance
C. Discover errors against fraud on the financial statement reports
D. Professional Scepticism
E. All of the above
Answer: E
54. When auditors conduct an audit, the critical operation is analytical procedure throughout an
audit. Which one of the following is/are the primary purpose/s/ of the planning phases of
analytical procedure?
55. Indicate possible misstatement

Page 20 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

56. Assess going concern


57. Understand the client’s business and industry
58. Reduce detailed test
59. “A” and “C”
60. None of the above
Answer: E

55. The CPA auditors are odd to the audittee Company’s internal controls. Due to that they
perform the processes of understanding the internal control, out of them which of the
following is/are describes the process of understanding an internal control?
61. Obtain and accessed the auditee Company internal controls structure from narrative
statement, flowchart or internal control questionnaires
62. Auditors assess the risk and developed control risk matrix to state the company’s
planned detection risks and substantive tests
63. Tests of control procedures performed on inquire documentation, observation and re-
performance.
64. Set different reports and reasonable assurance for internal control in line with the
material weaknesses in internal control
65. All of the above
66. None of the above
Answer: E
56. All are true about the conditions for standard unqualified audit report. Except
A. Includes all financial statements
B. Financial statements comply with audit standards
C. Complies with the three standards of field work
D. Substantial doubt about going concern
E. No circumstances require an explanatory paragraph or report modification
Answer: D

Page 21 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

57. One is the type of audit reports that arises when auditors have the knowledge and adequate
investigation on the absence of conformity with the audit standards produced auditor’s report
is_____________.
A. Standard Unqualified report
B. Disclaimer report
C. Adverse report
D. Unqualified audit report with explanatory paragraph report
E. Qualified report
Answer: C
58. As we know that the levels of materiality affects the auditors’ opinion on the report what they
produced reports. Which of the following is/are true about the relationship of materiality on
the types of opinion that reported by auditors on audit report?
A. Unqualified opinion produced if the levels of materiality unlikely affects the
decisions
B. Disclaimer opinion produced if the materiality level likely affects the decisions
C. Qualified opinion produced if the materiality level likely affects the decisions
D. Adverse opinion produced if the materiality level likely and significantly affects the
decisions
E. All except “B”
F. None of the above
Answer: E
59. Which of the following is/are the focuses of materiality decisions?
A. Dollar amount compared with a C. Nature of the item
base D. All of the above
B. Measurability
Answer: D

Page 22 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

60. One is the type of audit evidence that the auditor’s gathered an evidence in an auditing
standards, that is, appropriate in Generally accepted auditing standards but not applicable in
an International accounting standard of board.
A. Physical examination E. Reperformance
B. Documentation F. Observation
C. Conformation
D. Analytical procedures
Answer: C

61. Audit evidence should be persuasive and their determinants are;


A. Appropriateness D. Sample size
B. Audit procedures E. “A” and “C”
C. Sufficiency
Answer: E
62. One is the type of audit evidence that developed through the comparisons and relationships
of account balances; and understanding the client’s industry and business.
A. Physical examination D. Analytical procedures
B. Documentation E. Inquires of clients
C. Conformation F. Recalculation
Answer: D
63. In the developed audit matrix; the type of audit evidences with the criteria to appropriateness
of evidences; the auditor’s knowledge becomes low due to his/her interference levels in
evidence accumulations. Which a type of audit evidences is/are belongs to
_______________.
A. Inquires of clients D. Conformations
B. Documentations E. Analytical procedures
C. Observation F. All except “C”
Answer: F
64. Which of the following is/are document/s/ categorized as current files of an audit documents?

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University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

A. Audit program
B. Articles of incorporation and bylaws
C. Working trial balance
D. Reconciliation of amounts
E. Analytical procedures results from previous audit
F. “A” and “C” are correct
Answer: F

65. ______________ is defined as processes, implemented by management, that are designed to


provide reasonable assurance for reliable financial, operational information, safeguarding of
assets, operational efficiency; and integrity and ethical values.
A. Management responsibility D. External auditor
B. Control E. Internal auditor
C. Internal control
Answer: C
66. What are the management objectives in designing an effective internal control system?
A. Reliability of financial reporting
B. Efficiency and effectiveness of operations
C. Compliance with laws and regulations
D. All of the above
E. None of the above
Answer: D
67. Management’s designs and implementation of internal controls focused concepts are:
A. Inherent limitations
B. Performs tests of controls
C. Reasonable assurance
D. “A” and “C”
E. None of the above
Answer: D

Page 24 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

68. Which of the following is/are the components of internal controls?


A. Control environment D. Control activities
B. Risk assessment E. Information and communication
C. Monitoring F. All of the above
Answer: F

69. Control environment is;


A. Integrity and ethical values
B. Commitment to competence
C. Board of directors participation
D. All of the above
E. None of the above
Answer: D

70. Which of the following is not one of the five elements of an assurance engagement? 
A Subject matter 
B. Suitable criteria 
C Assurance file 
D Written report
Answer: C
71. Which of the following is NOT a benefit of an audit? 
A Increased credibility of the financial statements 
B Deficiencies in controls may be identified during testing 
C Fraud may be detected during the audit 
D Sampling is used 
Answer: D

Page 25 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

72. In most jurisdictions, the auditors of a public interest entity will be appointed 
by which party?
A Directors B Audit committee C Government D Shareholders
Answer: D
73. Which of the following statements is true?
A. The shareholders will be the directors of most companies
B. The directors are the stewards of the company responsible for 
looking after the company on behalf of the owners
C. Directors will always have a vested interest in the company doing well because they own 
shares in the company they work for
D. The auditors may also be business partners of the directors
Answer: B
74. The audit manager for the audit of Bob Ltd has been asked to attend a social event where the 
Directors of Bob will outline rights issues to current shareholders. If the audit manager attend
s the event which ethical threat would be created?
A Familiarity
B Advocacy
C Self review
D Self-interest
Answer: B
75. Which of the following does not need to be performed prior to accepting a new client?
A Money laundering checks 
B Consideration of ethical issues 
C Obtain professional clearance from the outgoing auditor
D Signing the engagement letter
Answer: D
76. Which of the following is not a purpose of planning the audit? 
A To enable the audit to be performed efficiently and effectively 
B To enable the appropriate audit team to be assigned

Page 26 of 69
University of Gondar
College of Business and Economics
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Model Exit Exam For Accounting and Finance students

C To ensure the audit is as profitable as possible
D To ensure that the appropriate opinion will issued when the audit is complete
Answer: C
77. Which matters will not be included in the audit strategy? 
A Risk assessment and materiality 
B Communications with the client
C Specific audit procedures to respond to the risks assessed
D The need for professional skepticism
Answer: C
78.Due to flooding Somerset Ltd has lost all of its accounting records for the entire year and bac
k ps are not available. Which audit opinion is most likely to be issued?
A Unmodified
B Qualified (except for)
C Adverse
D Disclaimer
Answer: D
79.Which of the following opinions is appropriate where the effects of a misstatement would cha
nge a profit to a loss?
A Adverse
B Disclaimer
C Qualified (except for)
D Unmodified
Answer: A
80. The sales and collection cycle applies to businesses that transfer good to customer
A. True B. False
Answer: A
81. When designing audit procedures tracing of source documents to the customers subsidiary
ledger and subsequently to the general ledger is done to satisfy what assertion
A. Valuation B. Cutoff C. Completeness D. Classification

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University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

Answer: C
82. When sales invoices are automatically calculated and posted by computer the auditor may be
able to reduce substantive test of transaction for which if any assertion
A. Accuracy B. Existence C. Completeness D. None of the above
Answer: A
83. You are performing an audit of XYZ Company. In evaluation the account payable balance
you are concerned with the completeness assertion. Which of the following audit procedures best
satisfies your concern?
A. Send confirmation to only suppliers with large balance.
B. Send confirmation to suppliers with large, active, zero balance account and a
representative sample of all other
C. Send confirmation to suppliers chosen from sample stratified by the dollar balance
D. Send confirmations to all suppliers
Answer: B
84. Suppliers statement and suppliers invoices are both relatively reliable evidence because they
A. Come directly to the auditor without being in clients possession
B. originate from a third party
C. validate the effectiveness of the control system
D. are compared to and reconciled with sale invoices
Answer: B
85. In determining that the account payable cutoff is correct it is important that the cutoff test be
matched with the
A. confirmation payables. B. tests of long term liabilities
C. observation of inventory D. cash count
Answer: B
86. __________ is a balance related audit objective that is not applicable to liabilities.
A. existence B. accuracy C. detail tie in D. realizable value
Answer: D

Page 28 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

87. A key internal control in the acquisition and payment cycle is someone matching the key
information contained on the purchase requisition, purchase order, the receiving report and the
vendors invoice to the payment voucher.
A. True B. False
Answer: A
88. once the auditor concludes that internal control are operating effectively in the acquisition
and payment cycle, the verification of account payable should require little audit effort.
A True B. False
Answer: A
89. A key internal control over the acquisition cycle is to ensure that the company requires
recording transactions as soon as possible after the good and services have been received. This
satisfies the transaction related audit objective of
A. accuracy B. completeness C. cutoff D. occurrence
Answer: B
90. The overall objective in the audit of the acquisition and payment cycle is
A. to ensure the reliability of the affected accounts
B. to ensure the accuracy of the affected accounts
C. to evaluate whether the affected accounts are fairly presented in accordance with
accounting standards
D. to evaluate whether fraudulent payment were made
Answer: C
91. Which of the following account is not part of the acquisition and payment cycle
A. prepaid expenses B. accounts payable
C. sales returns and allowances D. property, plant and equipment
Answer: C
92. An auditor can improve the efficiency and effectiveness of an audit of fixed assets by
performing which of the following tests separately?
A. verification of current year acquisitions B. verification of current year disposals
C. verification of depreciation expenses D. All of the above

Page 29 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

Answer: D
93. Disposal of fixed asset that are handled improperly can affect
A. statement of cash flow B. balance sheet
C. income statement D. All of the financial statements
Answer: D
94. To begin an audit of current year acquisitions the auditor should request the client provide
them with
A. the property master file B. General Ledger
C. repair and maintenance D. Vendor invoices
Answer: A
95. the most difficult type of misstatement to detect fraud id based on
A. Related party purchases B. Related party sales
C. The re statement of sales D. Omission of a sales transaction from being recorded
Answer: D
96. When a transaction has not been recorded in the book of account either wholly or partially
such errors are called as_____
A. Error of commission B. Error of omission
C. Compensating error D. Error of principle
Answer: B
97. The account receivable balance related audit object net realizable value is not affected by
assessed control risk for sales
A. True B. False
Answer: A
98. When the auditor decides to select less than 100% of the population for testing the auditor is
said to use
A. Audit sampling B. Representative sampling
C. Poor judgment D. Estimation sampling
Answer: A
100. One of the causes of non-sampling risk is

Page 30 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

A. Inadequate sampling size B. Choosing the wrong sampling size


C. Ineffective audit procedures D. Exceptions being found in the sample
Answer: C
101. Auditors should control sample risk by
A. Testing the entire population
B. Selecting the appropriate method of selecting a sample
C. Adjusting the sample size
D. B and C
Answer: D
102. Documentation on sample methods tests performed and conclusions are required for
A. statistical sampling B. non statistical sampling
C. default sampling D. A and B
Answer: D
103. The sample size should be increased if
A. the sample error is low B. the initial sample was not representative of the population
C. the tolerable exception rate is low D. the sample risk is low
Answer: D
104. There are three phases in both statistical and non-statistical sampling the first phase is to
A. Evaluate the results B. Plan the sample
C. Generate random numbers for sample D. select the sample
Answer: B
105. Sampling risk results from the auditor’s failure to recognize exceptions transaction data
A. True B. False
Answer: B
106. Which of the following is not true?
A. Variable costing method considers the variable overhead costs as a product cost.
B. In the absorption method all variable costs are assigned to a product and fixed overhead
costs are expensed in the period incurred
C. Under variable costing, fixed overhead cost should included in the value of inventory

Page 31 of 69
University of Gondar
College of Business and Economics
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Model Exit Exam For Accounting and Finance students

D. All
Answer: B
107. Which of the following is not correct about the advantage of absorption costing?
A. It is Relevant for Financial reporting and Tax Reporting purpose
B. It gives full cost information about a product cost
C. It is More useful for CVP analysis
D. None
Answer: C
108. If the unit selling price is $ 400, the unit variable cost is $ 350, and the total monthly
fixed cost is $400,000, then the contribution margin ratio is:
A. 25% C. 15%
B. 12.5% D. 35%
Answer: B
Use the following data to answer from question no. 7 - 9
Suppose ABC Company produces and sells two type of products; called Product X and product
Y. The company’s annual fixed cost is estimated at $ 352,800.The following data pertains to
the two products:
Product X Product Y
Budgeted Units 2,000 3,000
Selling price per unit Br. 44 Br. 55
Variable cost per unit Br. 38 Br. 45

109. The breakeven sales in Birr for each product


A. Birr 739,200 for Product X and Birr 1,386,000 for product Y
B. Birr 916,000 for Product X and Birr 1,216,000 for product Y
C. Birr 600,000 for Product X and Birr 1,256,000 for product Y
D. None
Answer: A

Page 32 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

110. If the Company wants to attain a profit of Br. 191,520 after tax, how much revenue
should be generated by the company from each product? (Assume 40% tax rate )
A. Birr 1,244, 000 from product X and Birr 2,840,000 from product Y
B. Birr 1,468, 000 from product X and Birr 2,120,000 from product Y
C. Birr 1,408, 000 from product X and Birr 2,640,000 from product Y
D. None
Answer: C
111. Which of the following is true about budget?
A. A budget generally includes both financial and nonfinancial aspects of the plan.
B. Budget is a financial or quantitative statement prepared prior to a specified
accounting period
C. How the budget is administrated can affect the effectiveness and efficiency in
achieving the organization’s goals
D. All
Answer: D
112. Which of the following is a quantitative and non financial information
A. Employee morale
B. Reduction in new product-development time
C. Cost of direct materials
D. A and B
E. All
Answer: B

113. Which of the following statement is correct about relevant cost?


A. Expected future costs are relevant
B. Any avoidable cost is relevant for decision making
C. Depreciation expense on old equipment is relevant
D. B and C are correct
Answer: B

Page 33 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

114. If ABC Manufacturing Company produces product X at 75% Learning Curve and if 45
labour hr is required to produce the first unit, then what will be the cumulative average time
per unit in producing 3rd units (Assume Cumulative Average-Time Learning Model).
A. 75.62 hr C. 28.52 hr
B. 45.67 hr D. 72.56 hr
Answer: C
115. Please refer question number 5, and then what will be the cumulative total labor hr to
produce 3rd units
A. 85.56 hr C. 137.01 hr
B. 226.86 hr D. None
Answer: A

116. Which of the following is correct?


A. Static budget variance is the difference between actual result and static budget
B. Opportunity Cost is the potential benefit that is given up (lost) when one
alternative is selected over another.
C. Avoidable costs are relevant for decision making.
D. All are correct.
Answer: D
117. The deference between static budget and flexible budget is
A. Sales volume variance
B. Flexible budget variance
C. Static budget variance
D. None
Answer: A

118. Which of the following statement is correct about relevant cost?


A. Expected future costs are relevant
B. Any cost that is avoidable is relevant for decision making

Page 34 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

C. Depreciation expense on old equipment is irrelevant


D. B and C are correct
E. All are correct
Answer: D

119. Which of the following is true?


A. In a flexible budget, when an activity declines the variable cost per unit also
declines.
B. Depreciation on new equipment is relevant.
C. Sunk costs are relevant for decision making
D. None
Answer: B

120. ______is a cost that already been incurred and that cannot be changed by any decision
made now or
in the future.
A. Sunk Cost C. Differential cost
B. Opportunity cost D. None
Answer: A

121. If the Revenue amount in the flexible budget is $ 100,000 and its flexible budget
variance is $ 30,000 U, then the actual Revenue result would be;
A. $ 130,000 C. $ 60,000
B. $ 70,000 D. None
Answer: B

Page 35 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

Use the following data to answer from question

Direct material Direct labor


Budgeted units of input per output 20kg. 40hr
Budgeted price per unit of input $8 $10
Actual units of input per output 24kg. 50hr
Actual price per unit of input $6 $16 .
Actual output 500 units .

122. The price variance for direct material and Direct Labor :
A. $48 U and 15 F respectively
B. $48 F and 15 U respectively
C. $24,000 F and $150,000 U respectively
D. $24,000 U and $150,000 F respectively
Answer: C
123. The efficiency variance for direct material is:
A. $16,000 U and $50,000 F respectively
B. $16,000 F and $50,000 F respectively
C. $16,000 U and $50,000 U respectively
D. $16,000 F and $50,000 U respectively
Answer: C
124. The flexible budget variance for direct material is:
A. $16,000F C. $8,000U
B. $8,000 F D. $40,000 F
Answer: B

Page 36 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

Use the following data to answer question


Direct Material A Direct
Material
Budgeted quantities per output 20pounds 30
pounds
Budgeted price $60 $100
Actual quantities used per output 14pounds
26pounds
Actual prices $62 $98
.
Actual units of production 2,000
units .
125. Mix variance for Direct Material A is:
A. $ 84,000 F C. $ 240,000 F
B. $ 84,000 U D. $ 240,000 U
Answer: A
126. Yield variance for Direct Material A is:
A. $ 480,000F C. $ 288,000 U
B. $ 480,000 U D. $ 288,000 F
Answer: D
127. The total material efficiency variance for material A

A. $ 372,000 F C. $ 204,000 F
B. $ 372,000 U D. $ 204,000 U
Answer: A

Page 37 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

128. Which of the following includes both traced direct costs and allocated indirect costs?
A. Cost tracing C. Cost allocation
B. Cost pool D. Cost assignment
Answer:D
129. ________ are the acquisition costs of all materials that eventually become part of the cost
object and can be traced to the cost object.
A. Direct material costs
B. Manufacturing overhead costs
C. Indirect material costs
D. Direct labor costs
Answer:A

133. ________ links an indirect cost to a cost object.


A. Cost assignment
B. Cost pool
C. Cost allocation base
D. Cost tracing
Answer:C
134. ________ is a grouping of individual indirect cost items.
A. Cost assignment D. Cost object
B. Cost allocation base
C. Cost pool
Answer:C

135. Cost tracing is


A. a function of cost allocation
B. the assignment of direct costs to the chosen cost object
C. the process of tracking both direct and indirect costs associated with a cost object
D. the process of determining the actual cost of the cost object

Page 38 of 69
University of Gondar
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Answer:B
136. Total manufacturing costs equal:
A. Direct materials + prime costs
B. Direct materials + conversion costs
C. Direct labor costs + prime costs
D. Direct labor costs + conversion costs
Answer:B
137. Which of the following cost apportionment base would be the most appropriate for
depreciation for factory equipment?
A. Direct labor hour C. Capital value
B. Number of employees D. Technical estimates
Answer:C
138. is the allotment of overhead costs incurred for a particular department or cost center to that
specific cost center?
A. Allocation C. Departmentalization
B. Apportionment D. Re-apportionment
Answer:A

139. is a level at which normal issues are stopped and materials are issued for important jobs
only?
A. Maximum level C. Minimum level
B. Danger level D. Reorder level
Answer:B
140. Which of the following statement is true about absorption?
A. It is process of charging overhead costs to cost units.
B. It is process of charging overhead costs to cost centers.
C. It is process of charging overhead costs to cost centers and cost units.

Page 39 of 69
University of Gondar
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D. It is the allotment of overheads to different departments.


Answer:A
141. is the process of allocating and apportioning the overhead costs on suitable basis to
different departments?
A. Secondary distribution C. Allocation
B. Primary distribution D. Classification
Answer:B
142. All of the following items are relevant in determining FIFO unit cost EXCEPT
A. Cost of beginning inventory
B. Units completed during the period
C. Equivalent unit production in ending inventory
D. Equivalent unit production in beginning inventory
Answer:A
143. In a job-order costing system, the journal entry to record depreciation on factory equipment
would be recorded by a:
A. Debit to manufacturing overhead, credit to work-in-process
B. Debit to manufacturing overhead, credit to depreciation expense
C. Debit to depreciation expense, credit to accumulated depreciation
D. Debit to manufacturing overhead, credit to accumulated depreciation
Answer:D
144. Which of the following account is credited when manufacturing overhead is applied to a
job in process?
A. Work in process inventory C. Cost of goods sold
B. Manufacturing overhead D. Direct material
Answer:B
145. A job cost sheet usually contains a record of each of the following EXCEPT:
A. The cost of direct materials charged to a particular job.
B. The overhead costs actually incurred on a particular job.

Page 40 of 69
University of Gondar
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C. The cost of direct labor charged to a particular job.


D. The overhead cost applied to a particular job.
Answer:D
146. If overhead was over applied,
A. Actual overhead costs exceed applied overhead
B. Actual overhead costs exceed budgeted overhead
C. Applied overhead exceeds actual overhead costs.
D. Budgeted overhead exceeds actual overhead costs.
Answer:C
147. Which of the following costing system is used for the costing of similar units of products in
mass production?
A. Inventory-costing C. Weighted-average costing
B. Job-costing D. Process-costing
Answer:D

148. When materials that will become part of a finished product are removed from the
storeroom and placed in production, the
A. Work in process inventory account is debited.
B. Manufacturing overhead account is debited.
C. Raw materials inventory account is debited.
D. Work in process inventory account is credited.
Answer:A
149. Which of the following is not a characteristic of a process costing system?
A. Costs are accumulated by process.
B. Goods are relatively homogeneous.
C. Profit or loss is determined for each process.
D. There is a work-in-process account for each process.
E. None

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University of Gondar
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Answer:C

150. is an amount of spoilage that is natural in a specific production process?


A. Normal spoilage C. Abnormal spoilage
B. Net spoilage D. Gross spoilage
Answer:A
151. Assume XYZ com have total sale of 1,000,000 birr, from which 50% are credit sale, in
addition the company have sale discount of 50,000 and sales return of 60, 000 its ending
account receivable balance was 100,000. How much time does XYZ Company accounts
receivable get converted into cash?
A. 8.9 times C. 3.9 times
B. 10 times D. 5.7 times
Answer C
152. _______ is a function of financial management that deals with whether the firm should use
equity or debt funds in order to finance its asset?
A. Investment decision
B. Financing decision
C. Dividend decision
D. Risk return trade off
Answer B
153. In order to achieve the overall goal of wealth maximization financial management needs to
perform the following specific objectives; except
A. Determining how large the business firm should be and how fast should it grow.
B. Determining the best percentage composition of the firm's assets
C. Determining the best percentage composition of the firm's combined liabilities and
equity
D. All of the above
E. None
Answer E

Page 42 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

154. ______ measure the amount of net sale generated for each average dollars of total asset
invested
A. Inventory turnover ratio C. Account receivable ratio
B. Total asset turnover ratio D. Fixed asset turnover ratio
Answer B
155. XYZ Beverage Company net profit margin for the year 2002 is 8% and its total assets
turnover is 1.5 times. The debt ratio for the same year is 50%. What will be the return on
investment of XYZ for the year 2002?
A. 24% C. 40%
B. 12% D. 16%
Answer B
156. Assume that the net selling price of a preferred stock is birr 100 with an annual stated
dividend of birr 5. If the cost of preferred share is 10% then what would be the required
flotation cost per share if the corporate tax rate is 30%
A. 15 C. 50
B. 150 D. It cannot be determined
Answer C
157. ___________ are Projects which compete with each other in such a way that the
acceptance of one will exclude/reject/ the other one.
A. Independent
B. Mutually inclusive
C. Contingent
D. Mutually exclusive
Answer D
158. Which of the following is not true about cost of capital
A. It is a minimum rate of return to cover the cost of generating fund to finance
investment
B. It can be used as a guideline for measuring the profitability of different investment
C. It is the opportunity cost of fund

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D. Securities with lower cost of capital have high value


Answer D
159. Which one is wrong about ratio analysis interpretations?
A. Larger the current ratio indicates the less difficulty that the firm faces in paying its
current obligation on the right time, other things constant.
B. A higher debt ratio means that the firm must pay a high interest rate on its
borrowings and in some future time, the firm will not be borrow at all.
C. A higher debt-equity ratio implies that a higher portion of long term financing come
from equity sources.
D. A high inventory turnover is an index of good inventory management and a low
inventory turnover indicates an inefficient inventory management.
Answer B
160. Which of the following is correct?
A. If NPV of the project is>0, its PI will equal to 0
B. If IRR of the project is 0%, its NPV, using a discount rate, K,>0 will be 0
C. If PI of a project is<1, its NPV should be 0
D. If IRR of a project is>the discount rate, K, its PI will be <1
Answer B
161. A capital investment is one that
A. Has prospect of long term benefits
B. Has prospect of short term benefits
C. It is only undertaken by large corporation
D. Applies only to investment in fixed asset
Answer A
162. When an asset is sold over its original cost there exist------------
A. “Recapture of deprecation” and is taxed at the corporate capital gains rate
B. “Capital gain” and is taxed at corporate capital gain tax
C. Capital gain” and is taxed at a rate equal to the firms ordinary tax rate
D. Recapture of depreciation” and is taxed at the firm’s ordinary tax rate

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E. B and D
Answer E
163. Assume that XY Company paid a dividend of Birr 5 per share on common stock for the
year ending on December 2000. A constant growth of dividend 10% per share has been
forecast for an indefinite future. Investors required rate of return is 15%. What will be the
value of common stock as of December 2000?
A. 100 C. 33.33
B. 50 D. 110
Answer D
164. Assume the same question above what will be the value of the common stock as of
December 2006
A. 161.05 C. 194.87
B. 177.16 D. 100
Answer C
165. A profitability index of 0.85 for a project means that:
A. The present value of benefit is 85%greater than the project cost
B. The project NPV is greater than zero
C. The project return 85 cent for each birr invested
D. The payback period is less than one year
Answer C
166. In computing the cost of individual components of a firms financing, the corporate tax rate
is important to which of the following components cos formula
A. Debt C. Common share
B. Preferred share D. Retained earning
Answer A
167. What is the present value of a $1,000 ordinary annuity that earns 8% annually for an
infinite number of periods?
A. 80 C. 1000
B. 800 D. 12,500

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Answer D
168. _________ is a type of investment proposal to add capacity to its existing product lines or
to expand existing operations.
A. Diversification C. Expansion
B. Replacements D. Research and Development
Answer C
169. Consider the following project
Project NPV
A -1000
B -800
C -1200
Which project would be accepted by NPV method?
A. Project C C. We should accept all project
B. Project B D. We should reject all projects
Answer D
170. A firm borrow at an interest rate of 11% and the federal marginal tax rate is 40%, calculate
the after tax cost of debt?
A. 6.6% C. 11%
B. 7% D. 9.9%
Answer A
171. Which method provide correct ranking of mutually exclusive projects
A. NPV C. PBP
B. IRR D. PI
Answer A
172. In 2 years you are to receive $10,000. If the interest rate were to suddenly decrease, the
present value of that future amount to you would
A. Fall C. Remain unchanged
B. Rise
Answer B
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University of Gondar
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173. A company has current asset of birr 250,000, current liability 100,000, long term bond of
100,000 and stock holder equity of 150,000. What will be the debt ratio?
A. 80% D. 57.14%
B. 40% E. None
C. 70%
Answer D
174. From where did short term financial planning begin?
A. Cash sale C. Cash purchase
B. Credit sale D. Sale forecast
Answer D
175. You have just graduated and have decided to purchase a brand new sports car to enjoy your
new found freedom. Your local credit union will provide financing for 60 months at a 9
percent annual rate, compounded monthly. You will give 15 percent of the $26,000
purchase price in cash to the dealer. The credit union will be used to finance the remaining
85 percent of the purchase price with the first payment due 1 month from today. What will
be your monthly payment?
A. 539.71 C. 433.33
B. 458.76 D. 368.33
Answer B
176. In accounting for a long-term construction contract using the percentage-of-completion
method, the progress billings on contracts account is a
A. Contra current asset account.
B. Contra noncurrent asset account.
C. Noncurrent liability account.
D. Revenue account.
ANSWER B
177. Under percentage of completion method in revenue recognition for construction contracts;
revenue and net income is recognized:
A. At the inception of the contract when contract price is determined

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B. At each stage when the construction is partly completed based on estimated


percentage completion
C. At the end when the contract is completed and constructed facility is transferred to
owner.
D. At the final stage when substantial parts of the constructed facility is completed.
Answer B
178. The calculation of the income recognized in the third year of a five-year construction
contract accounted for using the percentage-of-completion method includes the ratio of
A. Total costs incurred to date to total estimated costs.
B. Total costs incurred to date to total billings to date.
C. Cost incurred in year three to total estimated costs.
D. Costs incurred in year three to total billings to date.
Answer A
179. Under IFRS the lease is considered a finance lease if the following criteria is met, except
A. The lease transfers ownership to the lessee by the end of the lease term or the
lease contains a bargain purchase option, and it is reasonably certain that the
option will be exercised.
B. The lease term is for the major part of the economic life of the asset (title may or
may not pass to the lessee).
C. The present value of the minimum lease payments at the inception of the lease is
at least equal to substantially all of the fair value of the leased asset (75% of the
economic life or 90% of the fair value of the leased asset.
D. The leased assets are of a specialized nature such that only the lessee can use
them without modifications.
Answer C
180. If an entity leased both land and buildings simultaneously at the same date, under IFRS the
leased assets treated:
A. The land and building is treated separate component

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B. The minimum lease payments would be allocated between the land and the buildings
elements in proportion to the relative fair values.
C. If one of the two elements of the lease are expected to pass to the lessee at the end of
the leaseterm, then the entire lease is classified as a finance lease
D. A and b is correct
E. All are correct
Answer D
181. Glade Co. leases computer equipment to customers under direct-financing leases. The
equipment has no residual value at the end of the lease and the leases do not contain
bargain purchase options. Glade wishes to earn 8% interest on a five-year lease of
equipment with a fair value of $323,400. The present value of an annuity due of $1 at 8%
for five years is 4.312. What is the total amount of interest revenue that Glade will earn
over the life of the lease?
A. $ 51,600 C. $129,360
B. $ 75,000 D. $139,450
Answer A
182. Under IFRS what is the interest rate used by lessees to capitalize a finance lease when the
implicit rate cannot be determined?
A. The prime rate.
B. The lessor’s published rate.
C. The lessee’s average borrowing rate.
D. The lessee’s incremental borrowing rate.
Answer D
183. Allocating the transaction price to separate performance obligation is:
A. Based their relative fair values
B. Best measure of fair value is what the company could sell the good or service for on a
standalone basis.
C. Best estimate of what the good or service might sell for as a standalone unit.

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D. Best estimate of what the good or service might sell as aggregate to other
performance obligations.
Answer A
184. Which of the following is not true regarding lease accounting under IFRS?
A. Lease payments under operating leases are recognized on a straight-line basis over
the life of the lease.
B. Leases are classified as either operating or finance leases by both the lessee and the
lesser.
C. For a finance lease, the asset is removed from the lessor’s balance sheet.
D. IFRS uses the same thresholds as US GAAP to determine if a lease is an operating
lease or a finance lease.
Answer D
185. Rice Corporation prepares its financial statements in accordance with IFRS. Rice must
report amounts paid for interest on a note payable on the statement of cash flows
A. In operating activities.
B. In financing activities.
C. Either in operating activities or financing activities.
D. Either in investing activities or financing activities.
Answer C
186. Frog Corporation prepares its financial statements in accordance with IFRS. Frog acquired
equipment by issuing 5,000 shares of its common stock. How should this transaction be
reported on the statement of cash flows?
A. As an outflow of cash from investing activities and an inflow of cash from financing
activities.
B. As an inflow of cash from financing activities and an outflow of cash from operating
activities.
C. At the bottom of the statement of cash flows as a significant noncash transaction.
D. In the notes to the financial statements as a significant noncash transaction.
Answer D

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University of Gondar
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187. In 2010, a tornado completely destroyed a building belonging to Cyber inc. The building
cost $100,000 and had accumulated depreciation of $48,000 at the time of the loss. Cyber
received a cash settlement from the insurance company and reported an extra ordinary loss
of $21,000. In Cyber’s 2010 cash flow statement, the net change reported in the cash flows
from investing activities section should be
A. $10,000 increase. C. $31,000 increase.
B. $21,000 decrease. D. $52,000 decrease.
Answer c
188. Changes in the fair value of securities are reported in the income statement for:
A. Marketable equity securities.
B. Available-for-sale securities.
C. Trading securities.
D. Held-to-maturity securities.
Answer c
189. Which category includes only debt securities?
A. held-to-maturity securities
B. available-for-sale securities
C. trading securities
D. equity method security
Answer A
G. Which of the following statements is NOT true?
A. Trading securities can be classified as current or noncurrent depending on Management's
intent.
B. Held-to-maturity securities can be classified as current.
C. Available-for-sale securities can be classified as noncurrent.
D. Available-for-sale securities can be classified as current
Answer B
190. Omar Company reports its income from its investment in KatWok Company under the
equity method. Omar recognized income of $150,000 from its investment in KatWok

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during the current year. No dividends were declared or paid by KatWok during the year.
Omar would show the $150,000 in its statement of cash flows for the current year prepared
under the indirect method as:
A. Cash from investing activities.
B. A reduction of the investment account.
C. A deduction from net income in the Operating Activities section.
D. An adjustment in the Investing Activities section.
Answer D
191. Unrecognized holding gains and losses are included in an investor's earnings for:
A) Trading Securities: Yes; Securities Available-For-Sale: No
B) Trading Securities: Yes; Securities Available-For-Sale: Yes
C) Trading Securities: No; Securities Available-For-Sale: Yes
D) Trading Securities: No; Securities Available-For-Sale: No
Answer B
192. Investment securities are reported on a balance sheet at fair value for:
A) Trading Securities: Yes; Securities Available-For-Sale: No
B) Trading Securities: Yes; Securities Available-For-Sale: Yes
C) Trading Securities: No; Securities Available-For-Sale: Yes
D) Trading Securities: No; Securities Available-For-Sale: No
Answer B
193. Fair value is used as the basis for valuation of a firm's investment securities when:
A) Management’s intention is to dispose of the securities within one year.
B) The market value is less than cost for each equity security in the portfolio.
C) The investment security is not classified as held-to-maturity.
D) The investment security is classified as held-to-maturity.
Answer C
194. From the following which statement shows permanent difference between accounting
profit and taxable profit
A. Item is included in accounting profit but never in taxable profit

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B. Item is included in accounting profit before it is included in taxable profit


C. Item is included in taxable profit before it is included in accounting profit
D. All of the above are correct answers
Answer A
195. A company purchased a piece of equipment for $100,000 several years ago. The current
balance of accumulated depreciation is $36,000, thus the carrying value is $64,000. For tax
purposes, accelerated capital allowances of $52,000 have been claimed and, therefore, the
remaining balance that can be claimed for tax purposes in the future is $48,000. What is the
amount of a taxable temporary difference?
A. 16,000 C. $12,000
B. $28,000 D. $48,000
Answer A
196. Deferred tax assets are created when there are;
A. loss carry forwards or deductible temporary differences
B. More income from prepaid subscription sales on your tax return than on your income
statement.
C. The amount of depreciation expense deducted on your tax return will be larger than on
your income statement.
D. The amount of depreciation expense deducted on your tax return will be equal to your
income statement.
Answer A
197. IFRS simply states that all deferred tax balances should be disclosed on the balance sheet
as.
A. Current items
B. Non currents items
C. Income statement items as gain or loss
D. None
Answer B

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198. Revenue is recognized from the sale of goods if all of the following criteria aremet,
except
A. The significant risks and rewards of ownership of the goods are transferred to the
buyer,
B. The entity does not retain either a continuing managerial involvement or control
over the goods,
C. The amount of revenue may or may not be measured reliably,
D. It is probable that economic benefits will flow to the entity from the transaction,
E. The costs incurred can be measured reliably
Answer C

199. If the outcome of rendering services cannot be estimated reliably, IFRS® requires the
useof which revenue recognition method?
A. Percentage-of-completion method.
B. Completed contract method.
C. Cost recovery method.
D. Installment method.
Answer C
200. What is meant by comparability when discussing financial accounting information?
A. Information has predictive or confirmatory value.
B. Information is reasonably free from error.
C. Information that is measured and reported in a similar fashion across companies.
D. Information is timely.
Answer C
201. Which of the following is an appropriate reconciling item to the balance per bank in a
bank reconciliation?
A. Bank service charge. C. Bank interest.
B. Deposit in transit. D. Chargeback for NSF check
AnswerB:

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University of Gondar
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202. Which of the following items should be included in accounts receivable reported on the
balance sheet?
A. Notes receivable. D. Advances to related parties
B. Interest receivable. and officers.
C. Allowance for doubtful
accounts.
Answer C
203. How is days to collect accounts receivable determined?
A. 365 days divided by accounts receivable turnover.
B. Net sales divided by 365.
C. Net sales divided by average net trade receivables.
D. Accounts receivable turnover divided by 365 days.
Answer :A

204. What is a possible reason for accounts receivable turnover to increase from one year to
the next year
A. Decreased credit sales during a recession.
B. Write-off uncollectible receivables.
C. Granting credit to customers with lower credit quality.
D. Improved collection process.
Answer D
205. Which of the following is a product cost as it relates to inventory?
A. Selling costs. C. Raw materials.
B. Interest costs. D. Abnormal spoilage
Answer C
206. Which method of inventory pricing best approximates specific identification of the actual
flow of costs and units in most manufacturing situations?
a. Average cost c. Last-in, first-out
b. First-in, first-out d. Base stock

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Answer B
207. Net realizable value is
A. Acquisition cost plus costs to complete and sell.
B. Selling price.
C. Selling price plus costs to complete and sell.
D. Selling price less costs to complete and sell.
Answer D
208. Robust Inc. has the following information related to an item in its ending inventory.
Product 66 has a cost of $3,250, a replacement cost of $3,100, a net realizable value of
$3,200, and a normal profit margin of $200. What is the final lower-of-cost-or-market
inventory value for product 66?
A. $3,200. C. $3,250.
B. $3,100. D. $3,100.
Answer A
209. Malone Corporation uses the perpetual inventory method. On March 1, it purchased
$50,000 of inventory, terms 2/10, n/30. On March 3, Malone returned goods that cost
$5,000. On March 9, Malone paid the supplier. On March 9, Malone should credit
A. Purchase discounts for $1,000.
B. Inventory for $1,000.
C. Purchase discounts for $900.
D. Inventory for $900
Answer D
210. Goods in transit which are shipped f.o.b. destination should be
A. Included in the inventory of the seller.
B. Included in the inventory of the buyer.
C. Included in the inventory of the shipping company.
D. None of these.
Answer A
211. the cost of land does not include

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A. Costs of grading, filling, draining, and C. Costs of improvements with limited lives.
clearing. D. Special assessments
B. Costs of removing old buildings.
Answer C

Use the following information to answer questions 13- 17.

211. Arlington Company is constructing a building. Construction began on January 1 and was
completed on December 31. Expenditures were $4,000,000 on March 1, $3,300,000 on
June 1, and $5,000,000 on December 31. Arlington Company borrowed $2,000,000 on
January 1 on a 5year, 12% note to help finance construction of the building. In addition,
the company had outstanding all year a 10%, 3-year, $4,000,000 note payable and an 11%,
4-year, $7,500,000 note payable.

212. What are the weighted-average accumulated expenditures?


A. $7,300,000 C. $12,300,000
B. $5,258,333 D. $6,150,000
Answer B
213. What is the weighted-average interest rate used for interest capitalization purposes?
A. 11% C. 10.5%
B. 10.85% D. 10.65%
Answer D
214. What is the avoidable interest for Arlington Company?
A. $240,000 C. $273,802
B. $773,013 D. $587,012
Answer D
215. What is the actual interest for Arlington Company?
A. $1,465,000 C. $1,225,000
B. $1,485,000 D. $587,012

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Answer A
216. What amount of interest should be charged to expense?
A. $637,987 C. $877,987
B. $1,225 D. $691,987
Answer C
217. Use the following information for questions `18 and 19. Glen Inc. and Armstrong Co.
have an exchange with no commercial substance. The asset given up by Glen Inc. has a
book value of $48,000 and a fair value of $60,000. The asset given up by Armstrong Co.
has a book value of $80,000 and a fair value of $76,000. Boot of $16,000 is received by
Armstrong Co.
218. What amount should Glen Inc. record for the asset received?
A. $60,000
B. $64,000
C. $76,000
D. $80,000
Answer: B
219. What amount should Armstrong Co. record for the asset received?
A. $60,000 C. $76,000
B. $64,000 D. $80,000
Answer: A
220. On January 1, 2012, Graham Company purchased a new machine for $2,800,000. The
new machine has an estimated useful life of nine years and the salvage value was
estimated to be $100,000. Depreciation was computed on the sum-of-the-years'-digits
method. What amount should be shown in Graham's balance sheet at December 31, 2013,
net of accumulated depreciation, for this machine?
A. $2,260,000 C. $1,742,221
B. $1,780,000 D. $1,659,000
Answer: B

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University of Gondar
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221. On January 1, 2006, Forbes Company purchased equipment at a cost of $100,000. The
equipment was estimated to have a salvage value of $10,000 and it is being depreciated
over eight years under the sum-of-the-years'-digits method. What should be the charge for
depreciation of this equipment for the year ended December 31, 2013?
A. $2,500 C. $5,000
B. $2,778 D. $11,250
Answer: A
222. On September 19, 2012, McCoy Co. purchased machinery for $285,000. Salvage value
was estimated to be $15,000. The machinery will be depreciated over eight years using the
sum-of-the-years'-digits method. If depreciation is computed on the basis of the nearest
full month, McCoy should record depreciation expense for 2013 on this machinery of
A. $61,354. C. $58,125.
B. $58,267. D. $52,500.
Answer: C
223. Construction of a qualifying asset is started on April 1 and finished on December 1. The
fraction used to multiply an expenditure made on April 1 to find weighted-average
accumulated expenditures is
A. 8/8. C. 9/12.
B. 8/12. D. 11/12.
Answer: A
224. Which of the following intangible assets could not be sold by a business to raise needed
cash for a capital project?
A. Patent. C. Goodwill.
B. Copyright. D. Brand Name.
Answer: C
225. Which of the following does not describe intangible assets?
A. They lack physical existence.
B. They are financial instruments.
C. They provide long-term benefits.

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D. They are classified as long-term assets.


Answer: B
226. The basic nature of a project is a/an _____ one.

A. permanent C. Static
B. temporary Both (A) and (B)
Answer A
227. A program is usually a group of

A. Plans C. related project


B. people and work D. unrelated project
Answer C
228. . Which from the following statement(s) is/are NOT true?
A. Projects have defined objectives
B. Programs have a larger scope than projects
C. The projects and programs in a portfolio must be directly related D. all
Answer C
229 . Which of the following is not project management goal?
A. Keeping overall costs within budget
B. Delivering the software to the customer at the agreed time
C. Maintaining a happy and well-functioning development team
D. Avoiding customer complaints
Answer D
230. The process each manager follows during the life of a project is known as
A. Project Management C. Project Management Life Cycle
B. Manager life cycle D. All of the mentioned
Answer C
231. What are the 5 major processes of project management?
A. Closing, Executing, Planning, Monitoring and Controlling, Initiating

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B. Starting, Closing, Managing, Planning, Executing


C. Initiating, Finishing, Monitoring and Controlling, Executing, Planning
D. Starting, Finishing, Executing, Managing, Closing
Answer D
232. Why is it important to understand your Stakeholders?
A. They may work in a different department or company
B. They may have different technical backgrounds
C. They may not care about the project
D. They can be a positive or negative influence on the project
Answer D
233. How does a project differ from an ongoing work effort?
A. It is unique
B. It involves more than one person
C. It has a project manager
D. It is not a repetitive process that follows an organization’s existing procedures
Answer A

234. Which of the following is/are not project objective parameters?


A. Cost C. Quality
B. Time D. Quantity
Answer D
235. Feasibility and prefeasibility studies are part of
A. Project preparation stage
B. Project implementation stage
C. Project identification stage
D. Project evaluation stage
Answer A
236.The way the necessary inputs for the project are conceived to be supplied is examined
at………..aspect of appraisal

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A. Economical C. financial
B. commercial D. managerial
answer B
237. . Which of the following is not component of Implementation Phase?
A. Tendering negotiation and contractual
B. Detailed engineering design
C. Construction, erection and commissioning
D. Demand and market analysis
Answer D
238. Which one are non-discounting project financial evaluation criteria
A. NPV C. CBRA
B. PBP D. IRR
Answer B
239. Which one wrong about the benefit of project management
A. Goals clarity and measurement
B. Resource coordination
C. Risks will be identified and managed
D. minimizing the possibilities of time saving
Answer D

240………. is a function of Time /Schedule, Cost/Budget, Natural environment.


A. Project scope management
B. Project time management
C. Project procurement management
D. Project cost management
Answer A

241…………type of organization is flexible with a more relaxed workflow approach and focuses
on a project's natural progression.

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A. Organic C. Matrix
B. Functional D. Line and staff
Answer A
242……………….involves Guiding, overseeing and leading people Motivating, leadership, and
decision making.
A. Project planning C. Project directing
B. Project organization D. Project analyzing
Answer C

243……………..Happens throughout the project life cycle and provides information to guide
corrective action.
A. Formative evaluation C. Informative evaluation
B. Summative evaluation D. A and B
answerr A

244……..is used where the project term regards the time estimates for task completion as being
very sound.
A. PERT C. Bar chart
B. CPM D. histogram
answer B
245……Indicates only precedence relationships and does not require any time or effort
A. activities C. dummy activity
B. path D. critical path
Answer C
246. Which of the following is wrong about CPM
A. Uses net work C. Uses 3 value of activity time
B. Uses one value of activity time D. Minimizing cost is very important
Answer C
247. Which of the following is not project cash flow statement component?

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A. Financing C. Investing
B. Operating D. None
Answer D
248. Which of the following is source of project financing?
A. Leasing C. Issuance of Common stock
B. Issuance of bond D. All
answer D

249. Which of the following is not an activity performed under project preparation?
A. Market and demand analysis C. Purchase of raw materials
B. Raw materials and supply study D. Financial analysis
Answer: C
250.The most commonly used project organization is……………………….
A. Matrix C. Functional
B. Organic D. Project oriented
Answer:C
251. Cost flow is in the reverse order in which costs were incurred when using
A. Weighted average C. First-in, first-out
B. Last-in, first-out D. Average cost
Answer: B
252. Which of the following methods is appropriate for a business whose inventory consists of
a relatively small number of unique, high-cost items?
A. FIFO C. Average
B. LIFO D. Specific identification
Answer: D
253. In periods of rising prices, LIFO will produce:
A. Lower net income than FIFO.
B. Higher net income than FIFO.
C. The same net income as FIFO.
D. Higher net income than average cost.
Answer: A
254. The process of winding up the affairs of a partnership is referred to as:
A. Realization C. Dissolution
B. Liquidation D. Deficiency
Answer: B

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255. A monthly payment paid to an employee for assuming a particular office responsibility is
A. House allowance C. Hardship allowance
B. Position allowance D. Fuel allowance
Answer: B
256. When a partnership is formed, assets contributed by the partners should be recorded on the
partnership books at their:
A.
B. Book values. D. Cost.
C. Fair values. E. Appraised values

Answer: B
257. An advantage of the partnership form of business organization is
A. Unlimited liability C. Ease of formation
B. Mutual agency D. Limited life

Answer: C
258. A gain or loss on realization is divided among partners according to their
A. Income sharing ratio C. Drawing balances
B. Capital balances D. Contribution of assets
Answer: A
259. NBC Company reports net income of $60,000. If partners N, B, and C have an income ratio
of 50%, 30%, and 20%, respectively, C’s share of the net income is:
A. $30,000. C. $12,000.
B. $18,000. D. $15,000
Answer: C
260. Earnings by employees includes the following except
A. Basic salary C. Pension contribution
B. Allowances D. Overtime
Answer: C
261. A fixed asset with a cost of $30,000 and accumulated depreciation of $28,500 is sold for
$3,500. What is the amount of the gain or loss on disposal of the fixed asset?
A. $2,000 loss
B. $2,000 gain
C. $1,500 loss
D. $3,500 gain
Answer: B
262. A fixed asset's estimated value at the time it is to be retired from service is called______
A. Book value C. Residual value
B. Carrying value D. Market value
Answer: C
263. _______is the cost of the asset less its salvage value
A. Depreciable cost B. Residual Value

Page 65 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

C. Book value D. Useful life


Answer: A
264. The purchase price of asset that will be used for more than 12 months should be regarded
as:
A. a revenue expenditure
B. a capital expenditure
C. a long term expenses
D. a miscellaneous expense
Answer: B
265. The process of winding up the affairs of a partnership is referred to as:
A. Realization C. Dissolution
B. Liquidation D. Deficiency
Answer: B
266. Which of the following is a disadvantage of a partnership when compared to a corporation?
A. The partnership is more likely to have a net loss.
B. The partnership is easier to organize.
C. The partnership is less expensive to organize.
D. The partnership has limited life.
Answer D
267. When a partnership is formed, assets contributed by the partners should be recorded on
the partnership books at their:
A. book values on the partners' books prior to their being contributed to the partnership
B. fair market value at the time of the contribution
C. original costs to the partner contributing them
D. assessed values for property purposes
Answer B
268. R and S share income and losses in a 2:1 ratio after allowing for salaries to R of $48,000
and $60,000 to S. Net income for the partnership is $96,000. Income should be divided as
follows:
A. R, $48,000; S, $48,000
B. R, $56,000; S, $40,000
C. R, $64,000; S, $32,000
D. R, $40,000; S, $56,000
Answer D
269. X and Y have original investments of $50,000 and $100,000 respectively in a partnership.
The articles of partnership include the following provisions regarding the division of net
income: interest on original investment at 15%, salary allowances of $22,000 and $20,000
respectively, and the remainder equally. How much of the net income of $90,000 is allocated
to X?
A. 30,250 C. $45,000
B. $47,750 D. $42,250

Page 66 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

Answer D
270. P and R are partners who share income in the ratio of 3:2. Their capital balances are
$90,000 and $130,000 respectively. Income Summary has a credit balance of $40,000.
What is P’s capital balance after closing Income Summary to Capital?
A. $70,000 C. $110,000
B. $114,000 D. $74,000

Answer B
271. One of the main disadvantages of the corporate form is the

A. professional management C. charter


B. double taxation of dividends D. corporation must issue stock
Answer B
272. The state charter allows a corporation to issue only a certain number of shares of each
class of stock. This amount of stock is called
A. treasury stock C. outstanding stock
B. issued stock D. authorized stock
Answer D
273. The charter of a corporation provides for the issuance of 100,000 shares of common
stock. Assume that 40,000 shares were originally issued and 10,000 were subsequently
reacquired. What is the number of shares outstanding?
A. 10,000 C. 30,000
B. 40,000 D. 50,000
Answer C
274. The excess of issue price over par of common stock is termed a(n)
A. discount C. deficit
B. income D. premium
Answer D
275. If Everly Company issues 1,000 shares of $5 par value common stock for $75,000, the
account
A. Common Stock will be credited for $75,000.
B. Paid-in Capital in excess of Par Value will be credited for $5,000.
C. Paid-in Capital in excess of Par Value will be credited for $70,000.
D. Cash will be debited for $70,000.
Answer C

Page 67 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

276. The following lots of a particular commodity were available for sale during the year:
Beginning inventory 10 units at $60

First purchase 25 units at $65

Second purchase 30 units at $68

Third purchase 15 units at $75

The firm uses the periodic system and there are 25 units of the commodity on hand at the end of
the year. What is the amount of the inventory at the end of the year using the FIFO method?

A. $1,685 C. $1,805
B. $1,575 D. $3,585
Answer C
277. BW Company sells blankets for $60 each.  The following was taken from the inventory
records during May.  The company had no beginning inventory on May 1.
Date Product Z Units Cost

May 3 Purchase 5 $20

May 10 Sale 3  

May 17 Purchase 10 $24

May 20 Sale 6  

May 23 Sale 3  

May 30 Purchase 10 $30

Assuming that the company uses the perpetual inventory system, determine the ending
inventory for the month of May using the LIFO inventory cost method.

A. 324 C. $320
B. $372 D. $364
Answer D
278. If an employee worked on public holiday for 4 hours, and his basic salary is Br. 8,000,
the employee is expected to do 8 hours per day, what is the gross earning of the employee?
A. Br. 8,200 C. Br. 8,400
B. Br. 8,300 D. Br. 8,500

Page 68 of 69
University of Gondar
College of Business and Economics
Department of Accounting and Finance
Model Exit Exam For Accounting and Finance students

Answer D

Page 69 of 69

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