QUEENS’ COLLEGE

FACULTY OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

MOCK EXAM FOR ACCOUNTING AND FINANCE

JUNE, 2024
ADDIS ABABA, ETHIOPIA
Choice the correct answer from the given alternatives and fill the answer on separate answer sheet
1. The accounting process does not include:
a. Interpreting b. Reporting c. Purchasing d. Observing
ANSWER: C
2. The financial statement or statements that pertain to a stated period of time is (are) the:
a. balance sheet c. balance sheet and journals
b. income statement d. balance sheet and income statement
ANSWER: B
3. External users of financial accounting information include:
a. Lenders c. prospective owners
b. Customers d. all of the above
ANSWER: D
4. Expenses can be found in the:
a. Statement of owner’s equity c. income statement
b. balance sheet d. all of the above
ANSWER: C
5. This account does not appear on the income statement:
a. accumulated depreciation c. depreciation expense
b. sales revenue d. marketing expense
ANSWER: A
6. A brand new company has a building costing $10,000, machinery costing $5,000, cash of $700, and a
bank loan of $7,850. What is the owner’s equity?
a. $7,850 b. $8,850 c. $15,700 d. $7,750
ANSWER: A
7. The investment in current assets is less under_________
A. Relaxed Policy C. Flexible policy
B. Restricted Policy D. Moderate Policy
ANSWER: B
8. From the motives of holding cash, the cash balance held in reserve for random and unforeseen
fluctuations in cash flows used to meet unpredictable obligations is
A. Transaction Motive C. Speculative Motive
B. Precautionary Motive D. All
ANSWER: B
9. A strategy that finances all fixed assets and a portion of permanent assets are financed from long-term
sources is _____________.
A. Matching Policy C. Aggressive Policy
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 B. Conservative Policy D. All
C. None
ANSWER: C
10. Which one of the following can be considered as Determinant of Dividend Policy?
A. Age of Company C. Stability of Dividends
D. Future Financial Requirements D. Magnitude and Trend of Earnings

ANSWER: C
11. Which ratio is best used for measuring how well management did in managing the funds provided by
shareholders?
a. Profit Margin b. Debt to Equity c. Return on Equity d. Inventory Turnover
ANSWER: C
12. If sales are $ 600,000 and assets are $ 400,000, then asset turnover is:
a. 67 b. 1.50 c. 2.00 d. 3.50
ANSWER: B
13. An extremely high current ratio implies:
a. Management is not investing idle assets productively.
b. Current assets have been depleted and the company is insolvent.
c. Total assets are earning a very low rate of return.
d. Current liabilities are higher than current assets.
ANSWER: A
14. If we have cash of $ 1,500, accounts receivables of $ 25,500 and current liabilities of $ 30,000, our
quick or acid test ratio would be:
a. 1.88 b. 1.33 c. 1.11 d. 0.90
ANSWER: D
15. The number of times we convert receivables into cash during the year is measured by:
a. Capital Turnover c. Accounts Receivable Turnover
b. Asset Turnover d. Return on Assets
ANSWER: C

16. If our cost of sales are $ 120,000 and our average inventory balance is $ 90,000, then our inventory
turnover rate is:
a. 50 B. 75 C. 1.00 C. 1.33
ANSWER: D
17. We can estimate our Operating Cycle by taking the sum of:
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 a. Receivable Turnover + Inventory Turnover
b. Days in Receivables + Days in Inventory
c. Asset Turnover + Return on Sales
d. Days in Sales + Days in Assets
ANSWER: B
18. If Operating Income (Earnings Before Interest Taxes) is $ 63,000 and Net Sales are $ 900,000, then
Operating Income to Sales is:
a. 18% b. 12% c. 7% d. 4%
ANSWER: C
19. If the price of the stock is $ 45.00 and the Earnings per Share is $ 9.00, then the P / E Ratio is:
a. 2 b. 5 c. 9 d. 15
ANSWER: B
20. Net Income for 1996 was $ 400,000 and Net Income for 1997 was $ 420,000. The percentage change
in Net Income is:
a. 1% b. 3% c. 5% d. 10%
ANSWER: C
21. In order for budgeting to really work, we must link the budgeting process with:
a. Financial Statements c. Strategic Planning
b. Accounting Transactions d. Operating Reports
ANSWER: C
22. The first forecast we will prepare for budgeting will be the:
a. Budgeted Income Statement c. Cash Budget
b. Sales Forecast d. Budgeted Balance Sheet
ANSWER: B
23. Which of the following detail budgets will help us prepare the Budgeted Income Statement?
a. Direct Labor Budget c. Budgeted Balance Sheet
b. Cash Budget d. Year End Balance Sheet
ANSWER: A

24. If accounts payable have historically been 20% of sales and we have estimated sales of $ 200,000,
than estimated accounts payable must be:
a. $ 10,000 b. $ 20,000 c. $ 30,000 d. $ 40,000
ANSWER: D
25. Which budget is prepared for determining how much external financing we will need to support
estimated sales?
a. Cash Budget c. Budgeted Balance Sheet
b. Budgeted Income Statement d. Sales Forecast
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ANSWER: C
26. A good place to start in preparing the Budgeted Balance Sheet is with the main link between the
Income Statement and the Balance Sheet. This link is:
a. Cash c. Current Assets
b. Retained Earnings d. Long Term Liabilities
ANSWER: B
27. One way to improve the budgeting process is to include qualitative techniques into forecasting. Which
of the following is an example of a qualitative technique?
a. 5 Year Trend Analysis c. Percent of Sales Method
b. Ratio Analysis d. Interviewing the President of the Company
ANSWER: D
28. Statistical methods can be used to improve the accuracy of forecasting. This approach is particularly
useful for forecasting sales since we are searching for the right fit based on several observations. One
popular approach to finding the right statistical fit is to use:
a. Exponential Smoothing c. Executive Polling
b. Regression Analysis d. Moving Average
ANSWER: B
29. Which of the following will contribute to making budgeting a non-value added activity; i.e. the cost of
budgeting exceeds the benefit?
a. The budgeting process is included within the strategic planning process.
b. Detail and Summary Budgets are prepared at the same time and are distributed to management
for approval.
c. Budgets throughout the organization are automated for enterprise-wide consolidation.
d. Line item detail in budgets is based on material thresholds.
ANSWER: B

30. Capital budgeting analysis consists of three distinct stages. The first stage is:
a. Discounted Cash Flows c. Decision Analysis
b. Simulation d. Net Present Value
ANSWER: C
31. The ability to postpone, delay, alter or abandon a project adds value to the project. This value is
referred to as:
a. Relevant cash flows c. Net Present Value
b. Attribute value d. Option Pricing
ANSWER: D
32. The time value of money is important for three reasons. These three reasons are:
a. Inflation, uncertainty, and opportunity costs.
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 b. Relevancy, stability, and consistency.
c. Project returns, costs, and timing.
d. Project options, positions, and variables.
ANSWER: A
33. Which of the following is relevant in determining the cash flows of a project?
a. Sunk costs c. Payback period
b. Depreciation d. Net Present Value
ANSWER: B
34. You are about to invest $ 15,000 into a project that will generate $ 5,500 of cash flows each year for
the next 3 years. If your cost of capital is 11%, then the present value of future cash flows is: (refer to
Exhibit 2 for present value tables)
a. $ 23,218 b. $ 13,442 c. $ 11,612 d. $ 10,808
ANSWER: B
35. Referring back to question 5, the Net Present Value of the project is:
a. $ 6,418 b. $ 8,218 c. $ (1,558) d. $ (4,192)
ANSWER: C
36. You are considering investing in a new cotton-bailing machine. The purchase price of new bailer is $
10,000. It will cost $ 750 to transport the bailer to your location. The old bailer will be sold for $
2,000 and your tax rate is 40%. The net investment for this project is:
a. $ 11,950 b. $ 10,750 c. $ 9,550 d. $ 8,950
ANSWER: C

37. In addition to using Net Present Value to evaluate a project, another good economic criteria that can
be used is:
a. Accounting Rate of Return c. Simple Payback
b. Modified Internal Rate of Return d. Return on Investment
ANSWER: B
38. One method for managing project risk is to use:
a. Sensitivity Analysis c. Discounted Payback
b. Net Investment d. Project Turnover
ANSWER: A
39. An additional risk usually associated with an international project is:
a. Project payback c. Installation Costs
b. Direct Labor Changes d. Foreign Exchange Rate Risk
ANSWER: D
40. When it comes to managing the disbursement cycle, the objective is to:
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 a. Shorten the disbursement cycle c. Equalize disbursements with receipts.
b. Lengthen the disbursement cycle d. Borrow for all disbursements.
ANSWER: B
41. The amount of cash that should be held is a function of four amounts: Transaction Amount (includes
compensating balances), Precautionary Amount, Speculative Amount, and Financial Amount. As a
general rule, the minimal amount of cash that should be held is:
a. Transaction Amount c. Transaction Amount + Precautionary Amount
b. Speculative Amount d. Speculative Amount + Financial Amount
ANSWER: C
42. Assume the following: Beginning Cash on Hand is $ 4,000, projected cash inflows are $ 28,000 and
projected cash outflows are $ 39,000. You want to have an ending cash balance of $ 2,000. What is
your total projected cash deficit?
a. $ 11,000 b. $ 4,000 c. $7,000 d. $9,000
ANSWER: D
43. Spontaneous financing or trade credit is simply a way of obtaining more cash by:
a. Establishing a Line of Credit c. Borrowing against your assets
b. Lengthening the Disbursement Cycle d. Selling your receivables
ANSWER: B

44. Two common ways of borrowing against accounts receivable are:

a. Factoring and Assignment
b. Trust Receipts and Blanket Liens
c. Leasing and Buy Backs
d. Warranties and Options
ANSWER: A
45. In order to arrange financing against your inventory, your inventory must be:
a. Slow moving c. Highly Marketable
b. Certified by the IRS d. Obsolete
ANSWER: C
46. Your company has two major customers, Ajax and Miller. Ajax owes you $ 10,000 and Miller owes
you $ 20,000 for the current month. Collection probabilities show that Ajax pays 70% of the time in
the current month and 30% of the time the following month. Collection probabilities show that Miller
pays 40% of the time in the current month and 60% of the time in the following month. Using
expected values, what is the total amount of cash receipts for the current month?
a. $10,000 b. $15,000 c. $7,000 d. $3,000
ANSWER: B
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47. One of the early warning signs of cash flow distress is:
a. High inventory turnover c. Late vendor payments
b. Early distribution of payroll checks d. Excessive cash balances
ANSWER: C
48. The cost a business must pay for the use of long-term funds is called the:
a. Indifference Point c. Prime Lending Rate
b. Cost of Capital d. Risk Free Rate of Return
ANSWER: B
49. One of the advantages of issuing debt over equity is that debt:
a. Has no maturity date c. Reduces risk.
b. Requires no fixed payments d. has a tax deduction for interest payments.
ANSWER: D
50. When a company uses increased fixed costs for production, this is an example of what type of
leverage?
a. Operating Leverage c. Financial Leverage
b. Variable Cost Leverage d. Money Market Leverage
ANSWER: A
51. According to the pecking order, which of the following sources of capital would managers use first?
a. Bonds (Debt) c. Common Stock
b. Preferred Stock d. Retained Earnings
ANSWER: D
52. Delphi Corporation has common stock with a listed beta coefficient of 1.40. U.S. Treasury Bonds are
paying 6.2% and the overall market rate according to Standard and Poor's is 13.5%. Using the Capital
Asset Pricing Model (CAPM), the cost of common stock is:
c. 10.22% b. 13.50% c. 16.44% d. 18.33%
ANSWER: C
53. Fleming Corporation has plans to raise $ 2 million in capital by issuing 50,000 shares of $ 20.00
common stock and by issuing $ 1 million in bonds @ 12% interest. Fleming's tax rate is 40%.
Fleming expects EBIT (Earnings before Interest Taxes) of $ 4.5 million and its current capital
structure consists only of common stock - 250,000 shares outstanding. What will EPS (Earnings per
Share) be after the financing plan?
a. $ 6.67 b. $ 7.97 c. $ 8.76 d. $ 9.00
ANSWER: C
54. A common method for assessing risk associated with financing plans is to calculate:
a. Beta Coefficient c. Marginal Cost of Capital
b. Breakeven EPS d. Coverage Ratios
ANSWER: D
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55. When a privately held company decides to "go public", it must go through a process known as:
a. Initial Public Offering c. Debt for Equity Swap
b. Stock Buyback Program d. Option Selling
ANSWER: A
56. When a company raises capital by selling directly to investors without a formal registration with the
SEC (Securities & Exchange Commission), this is called a:
a. Selected Capital Agreement c. Private Placement
b. Short-term Financing Arrangement d. Seasoned Filing of Securities
ANSWER: B
57. Etco Energy and Baltic Energy have decided to merge. Both companies provide similar products and
services. This type of merger is called a:
a. Diagonal Merger c. Horizontal Merger
b. Conglomerate d. Vertical Merger
ANSWER: C
58. Synergy values are the additional values that companies realize through a merger and acquisition.
Synergy values can take three forms. Generally speaking, the most significant and common form of
synergy is:
a. Higher Cost of Capital c. Higher Production Efficiencies
b. Lower Expenses and Cost d. Lower Cost of Capital
ANSWER B

59. Once a company completes the Pre-Acquisition Review, the next phase within the merger and
acquisition process is to:
a. Search and screen target companies
b. Integrate the two companies
c. Initiate Phase II Due Diligence
d. Execute a Merger & Acquisition Agreement
ANSWER A

60. Many mergers begin through a series of negotiations between the two companies. If the two
companies decide to seriously investigate the possibility of a merger, they will launch Phase II Due
Diligence and execute a:
a. Post-Merger Contract c. Merger & Acquisition Agreement
b. Formal Joint Conference d. Letter of Intent
ANSWER D
61. Either party in a merger and acquisition may be entitled to indemnification because of a significant
misrepresentation. Indemnification is usually not due until a certain threshold has been reached. This
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 threshold amount is often called the:
a. Reciprocal Amount c. Striking Price
b. Basket Amount d. Closing Rate
ANSWER B
62. On March 3, 1998, Miser Steel made a tender offer to acquire Reliance Steel. Miser's tender offer is
set to expire on March 23, 1998. On March 21, 1998, another company called Ohio Steel made a
tender offer to acquire Reliance Steel. Based on consideration of Ohio Steel's tender offer, the closing
date for Miser Steel's tender offer is:
a. March 21, 1998 c. March 25, 1998
b. March 23, 1998 d. March 31, 1998
ANSWER D
63. Due diligence requires the collection of a lot of information. Which of the following information types
would be least important for due diligence to work properly?
a. Employment Records of Target Company
b. Property Records of Competing Companies
c. Financial Records of Target Company
d. Property Records of Target Company
ANSWER B
64. Due diligence will attempt to restate financial statements in relation to what will take place after the
two companies merge. One area of particular concern as it relates to the Balance Sheet is:
a. Proper Valuation of Cash
b. Par Value Assigned to Stock
c. Selection of Depreciation Methods
d. Possible Understatement of Liabilities
ANSWER D
65. Due diligence is particularly important in the case of a reverse merger since it is necessary to "clean
the Shell Company." One important aspect of cleaning the Shell Company is to:
a. Confirm ownership of the Shell Company
b. Identify cultural and social issues
c. Plan for long-term integration
d. Evaluate human resource capital
ANSWER A
66. Assuming we are valuing a going concern, which of the following types of income streams would be
most appropriate for valuing the company?
a. Earnings Before Interest and Taxes
b. Free Cash Flows
c. Operating Income After Taxes
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 d. Price to Earnings Ratio
ANSWER B
67. The following estimates have been made for the year 2006:
Operating Income (EBIT) $ 6,000
Depreciation 500
Cash Taxes to be paid 950
Income from non-operating assets 60
No capital investments or changes to working capital are expected. Based on this information, the projected free
cash flows for 2006 are:
a. $ 5,610 b. $ 4,550 c. $ 4,490 d. $ 6,550
ANSWER A
68. Marshall Company is considering acquiring Lincoln Associates for $ 600,000. Lincoln has total
outstanding liabilities valued at $ 200,000. The total purchase price for Marshall to acquire Lincoln is:
a. $ 200,000 b. $ 400,000 c. $ 600,000 d. $ 800,000
ANSWER D
69. The Valuation Process will often analyze several value drivers in order to understand where value
comes from. Which of the following value drivers would be least important to the valuation?
a. Return on Invested Capital c. Cash Flow Return on Investment
b. Earnings per Share d. Economic Value Added
ANSWER B
70. You have been asked to calculate a terminal value for a valuation forecast. The normalized free cash
flow within the forecast is $ 11,400. A nominal growth rate of 3% will be applied along with a
weighted average cost of capital of 15%. Using the dividend growth model, the terminal value that
should be added to the forecast is:
a. $ 78,280 b. $ 86,200 c. $ 95,000 d. $ 97,850
ANSWER D
71. Information from a valuation model for Gemini Corporation is summarized below:
Total present value of forecasted free cash flows $ 150,000
Terminal value added 450,000
Total present value of non-operating assets 20,000
Total present value of outstanding debts 120,000
If Gemini has 20,000 shares of outstanding stock, the value per share of Gemini is:
a. $ 15.00 b. $ 25.00 c. $ 30.00 d. $ 35.00
ANSWER B
72. Once a merger has been finalized, one of the primary responsibilities of senior executive management
as it relates to post merger integration is to:
a. Facilitate functional integration
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 b. Develop personnel retention programs
c. Lead change through communication
d. Manage all of the integration projects
ANSWER C
73. One of the challenges within post-merger integration is to retain key (essential) personnel. Which of
the following might help retain key personnel?
a. Assign personnel to new locations
b. Invite personnel to management meetings
c. Offer personnel severance packages
d. Recruit personnel differently than normal
ANSWER B
74. Which of the following can be used as a poison pill for preventing a merger and acquisition?
a. Issuing special rights to shareholders
b. Offering golden parachutes to executives
c. Buying back all of the outstanding stock
d. Adopting a super-majority for mergers
ANSWER A
75. Which of the following represents a change to the corporate charter, designed to discourage a change
in management?
a. Offering greenmail to selected shareholders
b. Entering into a standstill agreement
c. Going private through a leveraged buyout
d. Staggering the terms of board members
ANSWER D
76. A company purchases a one-year insurance policy on June 1 for Birr 5,520. The adjusting entry on
December 31 is
a. debit Insurance Expense, Birr 2,760, and credit Prepaid Insurance, Birr 2,760
b. debit Prepaid Insurance, Birr 5,520, and credit Cash, Birr 5,5207
c. debit Insurance Expense, Birr 3,220, and credit Prepaid Insurance, Birr 3,220
d. debit Insurance Expense, Birr 2,300, and credit Prepaid Insurance, Birr 2,300
ANSWER C
77. An impairment loss is
a. The amount by which the carrying amount of an asset exceeds its market value.
b. The amount by which the recoverable amount of an asset exceeds it carrying Amount
c. The amount by which the carrying amount of an asset exceeds its recoverable amount.
d. The amount by which the recoverable amount of an asset exceeds its written down value.
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 ANSWER C
78. Assume Daliana Merchandizing purchased a merchandize of 3000 on 2/10, n/eom, FOB shipping on
December 2. Which one of the following transactions can be occur December 10:
a. Cash is credited by 2940
b. Account payable credited by 3000
c. Account receivable is debited by 3000
d. Cash is credited by 3000
ANSWER D
79. Which one of the following is true about net income of any business enterprise
a. Revenue minus cost of sale
b. Net sales minus cost of goods sold
c. Net sales minus operating expenses
d. Operating income minus tax obligation
ANSWER D
80. All of the following items are the features of interest-bearing notes except
a. It has an explicit interest rate
b. Face value is less than the maturity value
c. The principal amount will appear on the face of the note
d. Maturity value equals face value of the note
ANSWER D
81. On September 1, 2012ABC Company sold merchandizes for Birr 3,400 on account and accept 180
days note at the interest rate of 15%. Determine the maturity date of the note?
A. March 2 B. February 28 C. March 29 D. January 23
ANSWER B
82. If there is purchase of 1200, 1/5, n/30, FOB shipping on January 1 and the payment is done on
January 4, which one of the following is true for January 4 transaction
a. Purchase discount is debited by 12 C. Cash is credited by 1188
b. Cash is credited by 1200 D. Purchase discount is credited by 120
ANSWER C
83. According to the question above, which one of the following is true
a. Seller pays freight cost C. The credit ends with 5 days of credit
b. Buyer pays freight cost D. Potential credit is 120 birrs
ANSWER B
84. One of the following is not associated with internal control related with cash
a. Gender based work assignment C. Independent verification
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 b. Segregation of duties D. Documentation procedures
ANSWER A
85. An inventory transferred from last operating period to current period is known as
a. Beginning inventory C. Ending inventory
b. Cost of purchase D. Finished goods inventory
ANSWER A
86. Among the following alternatives, the one clearly states about the difference between plant asset and
inventory:
a. Being a qualifying asset C. Being bulky or small
b. Being a physical asset D. Being with different purpose
ANSWER D
87. Machinery was purchased at the beginning of year 2020 for ETB 65,000.00 The machinery has an
estimated useful life of 10 years and an estimated salvage value of ETB 8000. If double declining
balance depreciation method is used, the depreciation expense at the end of year 2023 would be;
a. ETB 13,000 B. ETB 10400 C. ETB 8320 D. ETB 6656
ANSWER D
88. Inventory may not include:
a. Items held for sale within a year
b. Products held for use within a year
c. Items under shipment process
d. Items held for operation or service
ANSWER D
89. Which of the following states the qualifying asset nature of inventory, except:
a. Ownership B. Control C. Popularity D. Benefit
ANSWER C
90. Which of the following transactions require a compound journal entry?
a. An owner invests personal cash in his/her business
b. Purchase of $ 100 of supplies; some cash and the rest on account
c. Purchase three kinds of supplies for cash
d. Received cash from customers as payment for services
ANSWER: B
91. What is the maximum life that the intangible asset patent value can be amortized?
a. The asset’s legal life b. The useful life c. 20 years d. 40 years
ANSWER: C
92. Among the following one is not always considered as a current liability

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 a. Account payable c. Salaries Payable
b. Notes Payable d. Dividend Payable
ANSWER: B
93. Which of the following depreciation method is stated as accelerated depreciation method?
a. Straight – line c. Unit – of – production
b. Double declining balance method d. A and B
ANSWER: B
94. Which one of the following is not considered as inventory while reporting?
a. Consigned goods c. Unsalable obsolete goods
b. Goods in transit d. Goods held for sale
ANSWER: C
95. Plant assets are long lived tangible assets that are of permanent nature. Which of the following
statement is correct about such assets?
a. They are held for sale in the normal operation of the business.
b. Such assets are expected to have a useful life of one year or less
c. Such assets are used or held to be used in the normal operation of the business
d. They all are depreciable assets.
ANSWER A
96. One of the following statements is wrong about disposal of plant asset by selling
a. No gain should be recognized on disposal of plant asset by selling
b. When selling price of the disposed asset is less than its book value, loss is recognized.
c. Gain is recognized when the selling price of the asset exceeds its book value.
d. None of the above
ANSWER: A
97. An equipment with cost of Br20,000 is discarded after fully depreciated and recorded as:
a. Cash ………………………………………….20,000
Equipment ……………………………….……… 20,000
b. Equipment …………………………….……20,000
A/payable ……………………………………. ….20,000
c. Accumulated depreciation ………………20,000
Equipment ………………………………………. 20,000
d. Disposal of asset ………………………….20,000
Equipment ………………………………………. 20,000
ANSWER: D
98. An understatement of inventory in one period results in all of the following except;
a. An overstatement of net income of next period

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 b. An overstatement of cost of Goods sold of the current period
c. An understatement of capital and asset of next period.
d. An understatement of beginning inventory for next year
ANSWER: C
99. Plant assets have two important features that distinguish them from other types of assets. What are
they?
a. They have long lives and have physical substance
b. They are used in operations and have a useful life of more than one accounting period
c. They are tangible and have a market value
d. They are used in operations and have physical substance
ANSWER: B
100. Which of the following should be charged to the Land account?
a. Fences and lighting systems
b. Cost of trees and shrubs for landscaping
c. Cost of a sprinkler system
d. Parking lot resurfacing
ANSWER: D

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