Model Exit Exam 6
Model Exit Exam 6
Model Exit Exam 6
MEKANISA CAMPUS
FACULTY OF BUSINESS
DEPARTMENT OF ACCOUNTING AND FINANCE
Fundamentals of Accounting I 8
Fundamentals of Accounting II 8
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PART I: FINANCIAL ACCOUNTING AND REPORTING
Instruction: This part contains 42 MCQ and you are required to choose the best answer from the
given alternatives
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8. A form or statement that lists the titles and balances of ledger accounts at a given date is known
as:
A. balance sheet
B. income statement
C. trial balance
D. statement of retained earnings
9. The receipt of cash from customers to whom the goods have already been sold on credit would
be recorded by a:
A. debit to cash account & credit to accounts payable account
B. debit to cash account & credit to accounts receivable account
C. debit to accounts payable account & credit to cash account
D. debit to accounts receivable account and credit to cash account
10. The trial balance in which total debits equal total credits provides a proof that:
A. the ledger is in balance
B. the transactions have been correctly analyzed and recorded in proper accounts
C. the correct debit and credit balances have been computed for each account
D. no transaction has been completely omitted during the posting process
11. Which of the following is used to compute the net income for a specific period?
A. Balance sheet
B. Statement of retained earnings
C. Income statement
D. Cash account
12. Which of the following is helpful in determining the financial position of the business at a
specific date?
A. statement of cash flows
B. statement of retained earnings
C. asset accounts of the business
D. balance sheet
13. A statement that shows the changes in the amount of retained earnings during a specific period
is known as:
A. statement of financial position
B. statement of retained earnings
C. statement of retained assets
D. statement of retained liabilities
14. The amount of retained earnings at the end of a period is equal to:
A. Retained earnings at the beginning of the period + Dividends declared – Net income
B. Net income + Dividends declared – Retained earnings at the beginning of the period
C. Retained earnings at the beginning of the period + Net income – Dividends declared
D. Retained earnings at the beginning of the period + Net income – Operating expenses
15. Which one of the following is not a fixed asset?
A. Machinery
B. Plant
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C. Equipment
D. Inventory
19. Which if the following accounts is not closed to income summary account at the end of the
accounting period?
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A. Accumulated depreciation
B. Wages expenses
C. Depreciation expenses
D. Advertising expenses
20. The steps of the operating cycle for a retailer usually take place in which order?
a. Purchases of merchandise →Sale of merchandise on account →Collection of the receivables
b. Sale of merchandise on account →Purchases of merchandise →Collection of the receivables
c. Collection of the receivables →Purchases of merchandise →Sale of merchandise on Account
21. Purchases of merchandise →Collection of the receivables →Sale of merchandise on Account The
Rebecca Company purchased equipment for $60,000 cash. What is the effect on total assets?
a. No net effect
b. Cannot be determined from this limited information.
c. Increase
d. Decrease
23. X-company issued a 4 years term bond with a par value of 400,000, which pays 8%
interest payable semi-annually to yield 10% effective rate. The proceeds of this bond is
A. Unrelated with par value C. Less than the par value
B. The same as the par value D. Greater than the par value
24. Portion of bonds, mortgage notes, and other long-term indebtedness that matures within
the next fiscal year is represented as:
A. Account payable C. Note payable
B. Current maturity of long-term D. Refinancing
debt
25. . Abebe Company issues Br. 2,500,000, 6%, 5-year bonds dated January 1, 2017. The
bonds pay interest semiannually on July 1 and January 1. The bonds are issued to yield 6
%. What is the proceed from the bond issue?
A. Br. 2,150,000 C. Br. 2,608,600
B. Br. 2,500,000 D. Br. 1,860,235
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C. 154,296 D. 158,493
28. Calculate the interest expense for the end of the first year?
A. 19,947 C. 15,849
B. 19,629 D. 14,525
29. Calculate the balance of lease liability at the end of year one?
A. 124,342 C. 162,358
B. 132,285 D. 192,365
30. Which of the following is nota characteristic of the balance sheet?
A. It is prepared for the time period.
B. The balance sheet provides information useful in assessing liquidity
C. The balance sheet reports the change in financial position
D. The major classifications of the balance sheet are assets, liabilities, and owners'
equity
31. Which one of the following statement is false regarding bank reconciliation?
A. Deduct understatement of error during cash receipt.
B. Deduct Overstatement of error during cash receipt.
C. Deduct outstanding cheque.
D. Add Overstatement of error during cash payment.
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A. Revaluation surplus C. Promotion expense
B. Realized gain on sale of building D. Office salaries expense
36. Cash receipts from issuance of equity securities, bonds, and notes are referred to as:
A. Cash inflow from investment activities
B. Cash inflow from financing activities
C. Cash out flow from financing activities
D. Cash inflow from operating
37. Which one of the following is ODD? The liability arises from
A. Contract C. Past experience
B. Law. D. Court decision
38. What is the accounting method that should be applied, If the business model is
held to collect and sale and cash flow character is other than Solely principal and interest?
A. Amortized cost
B. Fair value through OCI
C. Fair value through PL
D. Fair value through OCI or PL
39. When applying the equity method, an investor should report dividends from the investee as:
A. Dividend revenue
B. As other comprehensive income item
C. A reduction in the investment account
D. An increase in the investment account
40. Which of the following is not a current liability?
A. Property tax payable
B. Accounts Payable
C. Income tax payable
D. Bond payable
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PART II: COST AND MANAGERIAL ACCOUNTING
41. In a job-order costing system, the application of manufacturing overhead would be recorded as
a debit to:
A. Raw Materials inventory
B. Work in Process inventory
C. Cost of Goods Sold
D. Manufacturing overhead
42. Spoilagethat is an inherent result of theparticularproduction process and arises under efficient
operatingconditions is referred to as:
A. Ordinaryspoilage C. Abnormal spoilage
B. Normal spoilage D. Noneof theseanswers is correct
43. Classifyinga cost aseither direct or indirect depends upon:
A. Thebehavior of the costin response to volume changes
B. Whetherthe cost is expensedin theperiod in which itis incurred
C. Whetherthe costcan beeasilyidentified with the cost object
D. Whether an expenditureis avoidableor not in the future
44. WhenabakerytransfersgoodsfromtheBakingDepartmenttotheDecoratingDepartment, the
accountingentryis
A. Work in Process— BakingDepartment XXX
Work in Process— DecoratingDepartment XXX
B. Work in Process— DecoratingDepartment XXX
Accounts Payable XXX
C. Work in Process— DecoratingDepartment XXX
Work in Process— BakingDepartment XXX
D. Work in Process— BakingDepartment XXX
Accounts Payable XXX
45. Which of the following measures the difference between what is paid for a given quantity of
materials and what should have been paid according the standard that has been set is?
A. Price Variance
B. Material quantity Variance
C. Material price variance
D. Material price variance
46. In process costing system, the sum of beginning work in process cost and total manufacturing
cost started during the current period is known as?
A. Total cost to account
B. cost per equivalent unit
C. Work done in the current period
D. Total manufacturing cost
47. A joint cost allocation technique which uses the relative weight, volume or other measure is
called?
A. Sales value at split-off point
B. Net Realizable Value method
C. Physical Measure method
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D. Gross Marin- Net Realizable Value method
A. Profitability ratios
B. Liquidity ratios
C. Debt management ratios
D. Asset management ratios
51. Which one of the following is true regarding the cost of capital of a firm?
A. It is the firm’s required rate of return.
B. It is the minimum rate of return expected by its investors.
C. It is a maximum rate of return to cover the cost of generating funds for
investments.
D. It is the minimum rate of return required by suppliers of the firm's capital.
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52. Capital budgeting decisions require special attention because of the following
reasons, except:
A. They affect the risk of the firm.
B. They are reversible without substantial loss.
C. They influence the firm's growth in the long run.
D. They involve commitment of large amount of funds.
53. A portfolio comprises two securities and the expected return on them is 12% and
16% respectively. Determine return of portfolio if first security constitutes 40% of
total portfolio.
A. 14.4%
B. 12.4%
C. 13.4%
D. 15.4%
54. Your bank account pays a 6% stated annual interest rate (or APR). The interest is
compounded quarterly. Which of the following statements is CORRECT?
A. The quarterly interest rate is 1.5% and the effective annual interest rate is 3%.
B. The quarterly interest rate is 6% and the effective annual interest rate is greater
than 6%.
C. The quarterly interest rate is 1.5% and the effective annual interest rate is greater
than 6%.
D. The quarterly interest rate is 3% and the effective annual interest rate is 6%.
55. Which of the following leverage is defined as the extent to which a firm’s operations
involve fixed operating costs.
A. Financial Leverage
B. Operating leverage
C. Combined leverage
D. Capital structure leverage
56. Which one of the following is not correct about working capital and working capital
management?
A. Working capital refers to the portion of firm’s capital that can be immediately put to
work to generate the benefits of capital investment.
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B. Working capital involves both long –term and short- term source of finance of the firm.
C. Working capital management is used to manage the relationship between a firm's
short-term assets and its short-term liabilities
D. Working capital management improving efficiency in the areas of receivables,
inventories, and payables of the company
57. Suppose the term of sales of ABC Company is 3/15, n/45 and annual credit sales of
the company are birr 400,000, then what is the credit period and cash discount of
the company respectively?
A. 45 days and 150,000-birr
B. 45 days and 12,000 birrs
C. 15 days and 60,000-birr
D. 15 days and 12,000 birrs
58. The Recorded for cash dividend payment procedure is January 20, 2022, and then
EX-dividend date for cash dividend payment procedure is:
A. January 20, 2022
B. January 22, 2022
C. January 18, 2022
D. February 20, 2023
59. Which one of the following is not correct about financial forecasting of the business?
A. Financial forecasting is a force of financial managers to develop financial
statements beforehand.
B. It is a planning process which involves forecasting of sales, assets, and
financial requirements.
C. The first procedure of the financial forecasting is determining the assets
required to meet the sales targets.
D. It is a pre requirement for the investment, financing, as well as dividend policy
decisions of a firm.
60. Assume asset and liability of the company is record as following at the time of
preparing financial forecasting during the year.
Current asset------------birr490, 000 Long-term assets--------birr610, 000
Current liability ------birr510, 000 Long –term debt -------birr 290,000
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Then, what is additional funds needed (AFN) of the company to generate external
source to meet its forecast?
A. Birr 240,000
B. Birr 200,000
C. Birr 300,000
D. Birr 800,000
61. Which capital structure theory or approach believes that the value of a firm is
affected by the change of debt component in the capital structure?
A. Net operating income approach
B. Traditional approach
C. Net income approach
D. Modigliani–Miller (MM) approach
62. Which of the following refer/s the role of financial system in economy of one
country?
A. Connect savers and borrowers
B. Facilitate capital formation
C. Transfers funds from savers (investors) to borrowers
D. All of the above.
63. Why secondary financial markets are important?
A. Helps in pricing the new issues.
B. Lower liquidity risk
C. Provides liquidity to investors who acquire securities in the primary market.
D. All of the above.
64. Which one of the following is false concerning secondary financial market?
A. Market where outstanding securities are sold and funds go to issuer.
B. Market where outstanding securities are bought and sold by investors.
C. The issuer does not receive any funds in a secondary market transaction.
D. Secondary markets facilitate the trading of existing securities
65. Which one of the following is incorrect about interest rates?
A. They influence the allocation of capital.
B. Direct influence on nearly all other financial instruments.
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C. They impact the economy and decision making.
D. Direct influence on the valuation of debt securities.
66. To protect the public and the economy from financial panics, which type of regulation
that the government does not implement?
A. Deposit insurance
B. Limits on rivalry
C. Restrictions on interest rates
D. Restrictions on entry.
67. Which of the following a type of financial intermediaries that is not categorized as
depository institutions?
A. Commercial Banks
B. Money Market Mutual Funds
C. Micro finance Institution
D. Credit Unions
68. Which statement is true?
A. Bond price and interest rate are positively related
B. Market interest rate falls below coupon rate, a fixed rate bond sells at
discount.
C. The price of the bond approaches its par value as it approaches maturity.
D. The more distant a bond’s maturity, the lower the size of the price change
associated with an interest rate change.
69. Which one of the following is not the characteristic of equity instruments?
A. Future cash-flows are uncertain.
B. Maturity is definite.
C. Involves risk
D. Variable liquidity.
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PART IV: AUDITING AND ASSURANCE
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B. Partial audit.
C. Cost audit.
D. Interim audit.
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C. None-resident tax payers are required to pay to the extent of Ethiopian source of
income
D. A loss incurred in one schedule can be compensated from the profit of another
schedule
85. Which one of the following deals with government revenue, and expenditure along
with their principles and management.
A. Private Finance C. Public Finance
B. Public Revenues D. All of the above
86. Which of the followings refer to the spending on capital assets and have a lasting
impact on the economy and help to provide a more efficient and productive economy.
A. Revenue Expenditures C. Capital Expenditures
B. Public Revenues D. Tax Revenue
87. Which one is the most correct description of the activities performed from
assessment of taxes to their enforcement?
A. Cannons of taxation C. Tax Cycle
B. Tax Planning D. Tax Administration
88. Which of the following represents the total outstanding debt (bonds and other
securities) of a country's central/Federal government.
A. Private Debt C. Financial Administration
B. Public Debt D. Economic Stabilization
89. XYZ Company purchased office equipment Birr 847,500 Value Added Tax (VAT)
inclusive. The employment income tax is Birr 35,000 per annum during the year 2012
E.C. The company earned Birr 790,000 including VAT by providing service. Business
income/profit tax is Birr 95,000. How much the Direct tax liability for the tax year 2012.
A. Br. 150,000 C.Br. 130,000
B. Br. 120,000
D,Br. 140,000
90. The reported income statement by a business for financial reporting purposes shows
Br. 500,000 basic salary and includes 25% of employer’s provident fund
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contribution. How much tax-deductible provident fund expense must the business
report for the tax year?
A. Br. 75,000 C. Br. 15,000
B. Br. 60,000 D. Br. 125,000
Accounting for Public Sector and Civil Society
91. What type of account is used to earmark fund balance needed to liquidate
contingent obligations of goods ordered but not received?
A. Reserve for encumbrance
B. Appropriations
C. Vouchers payable
D. Reserve for goods and services
92. Operating transfers from the general fund to a Special revenue fund to provide
partial financing of its operations would be reported by the Special revenue fund as
a (an):
A. Revenue C. Other financing sources
B. Current liability D. Fund balance addition
93. Proceeds received by a general governmental fund from issuing Debt
instruments like Note would be recorded by the governmental activities as?
A. Revenue
B. Appropriation
C. Liability
D. All of the above
94. For the budgetary year ending December 31, 2021. The City of Hawassa General
Fund expects the following inflow of resources:
Property taxes, licenses, and fines $40,000,000
Proceeds of debt issue 3,000,000
Inter fund transfer from enterprise fund 1,000,000
In the budgetary entry, what amount should The City record for estimated revenues?
A. $44,000,000 C. $40,000,000
B. $43,000,000 D. $41,000,000
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95. The Encumbrance control account of governmental unit is:
A. Debited when the goods are received; credited when the payment is made
B. Debited when the goods are ordered; credited when goods are received
C. Debited when a purchase order is approved; credited when the budget is
recorded
D. Debited when the goods are received; credited when it is closed
96. When the Town of Battu General Fund adopted its budget for the year ending
Sene 30, 2014, Br. 540,000 was recorded in estimated revenues. Actual revenues
for the year amounted to Br. 600,000. In closing the budgetary accounts Sene 30,
2014?
A. Revenues should be debited for Br. 540,000
B. Estimated Revenues should be credited for Br. 600,000
C. Estimated Revenues should be debited for Br. 540,000
D. Estimated Revenues should be credited for Br. 540,000
97. Which one of the following funds should account for the payment of interest and
principal on loans secured by the governmental funds
A. Debt Service Fund
B. General Fund
C. Capital Projects Fund
D. Enterprise Fund
98. A city‘s General Fund budget for the forthcoming fiscal year shows estimated
revenues in excess of appropriations. The initial effect of recording this will result in
an increase in:
A. Taxes receivable C. Reserve for encumbrances
B. Fund balance D. Encumbrances
99. Which of the following refers to an actual cost rather than an estimate?
A. Expenditure C. Budget
B. Appropriations D. Encumbrance
100. A certain government passed its budget for the fiscal year July 1, 2007. Estimated
Revenues amounted to Br. 12,000,000; Appropriations amounted to Br. 11,300,000;
Estimated Other Financial Sources amounted to Br. 600,000; and Estimated Other
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Financing Uses amounted to Br. 700, 000. In the budgetary entry, budgetary balance
would be:
A. Debited for Br.600,000
B. Debited for Br.800,000
C. Credited for Br.600,000
D. Credited for Br.800,000
ADMAS UNIVERSITY
OLYMPIA CAMPUS
DEPARTMENT OF ACCOUNTING AND FINANCE
ANSWER KEY FOR MODEL EXAM I
1 C 11 C 21 A 31 A 41 B 51 C 61 C 71 D 81 B 91 A
2 A 12 D 22 C 32 A 42 B 52 B 62 D 72 D 82 B 92 C
3 B 13 B 23 C 33 B 43 C 53 A 63 D 73 B 83 A 93 C
4 D 14 C 24 B 34 D 44 C 54 C 64 A 74 B 84 D 94 C
5 B 15 D 25 B 35 A 45 A 55 B 65 B 75 B 85 C 95 B
6 B 16 C 26 B 36 B 46 A 56 B 66 B 76 A 86 C 96 B
7 A 17 C 27 D 37 C 47 C 57 B 67 B 77 A 87 D 97 A
8 C 18 C 28 A 38 C 48 C 58 C 68 C 78 C 88 B 98 B
9 B 19 A 29 A 39 C 49 B 59 C 69 B 79 A 89 C 99 A
10 A 20 A 30 A 40 D 50 B 60 C 70 A 80 A 90 A 100 D
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