ADMAS UNIVERSITY

MEKANISA CAMPUS
FACULTY OF BUSINESS
DEPARTMENT OF ACCOUNTING AND FINANCE

MODEL EXIT EXAM VII CODE MK-007

 This Exam Booklet contains 100 MCQ under Five thematic areas, as the detail shown below
DISTRIBUTIONS OF QUESTIONS
NUMBER
THEMATIC AREAS COURSES INCLUDED OF
QUESTIONS
Fundamentals of Accounting I 8
Fundamentals of Accounting II 8
1. FINANCIAL
Intermediate Financial Accounting I 8
ACOUNTING AND
REPORTING Intermediate Financial Accounting II 7
Advanced Financial Accounting I 6
Advanced Financial Accounting II 6
SUB TOTAL 43
2. COST AND Cost & Management Accounting I 6
MANAGERIAL
Cost & Management Accounting II 6
ACCOUNTING
SUB TOTAL 12
Financial management I 6
3. FINANCE AND
Financial management I 6
INVESTMENT
Financial Institution and Market 7
SUB TOTAL 19
4. AUDITING AND Auditing Principles & Practices I 6
ASSURANCE
SERVICES Auditing Principles & Practices II 6
SUB TOTAL 12
5. PUBLIC FINANCE Public Finance and Taxation 6
AND PUBLIC SECTOR Accounting for public Sector & civil
8
ACCOUNTING societies
SUB TOTAL 14
GRAND TOTAL 100
Multiple Choice Items
Instruction: Read the questions and choose the right answer from the given choices and write the
letter of your choice on the separate answer sheet provided.

Part I: FINANCIAL ACOUNTING AND REPORTING

1. What is the maturity value of a 90-day, 12% note for $10,000?

A. $8,800 B. $10,000 C. $10,300 D. $11,200
2. What is the due date of a $12,000, 90-day, 8% note receivable dated August 5?
A. October 31 B. November 3 C. November 2 D. November 4
3. In preparing bank reconciliation, the amount of checks outstanding would be:
A. Added to the cash balance according to the bank statement.
B. Deducted from the cash balance according to the bank statement.
C. Added to the cash balance according to the depositor's records.
D. Deducted from the cash balance according to the depositor's records.
4. A profit-making business operating as a separate legal entity and in which ownership is
divided into shares of stock is known as a:
A. Proprietorship C. partnership
B. service business D. corporation
5. In periods of rising prices, LIFO will produce:
A. Higher net income than FIFO. C. Lower net income than FIFO.
B. The same net income as FIFO. D. Higher net income than average costing.
6. of the following items represents a deferral
A. Prepaid insurance C. Wages payable
B. Fees earned D. Accumulated depreciation
7. If the supplies account, before adjustment on May 31, indicated a balance of $2,250, and supplies
on hand at May 31 totaled $950, the adjusting entry would be:
A. debit Supplies, $950; credit Supplies Expense, $950.
B. debit Supplies, $1,300; credit Supplies Expense, $1,300.
C. debit Supplies Expense, $950; credit Supplies, $950.
D. debit Supplies Expense, $1,300; credit Supplies, $1,300.

8. Net loss will result during the time period

A. When assets exceed revenues C. When expenses exceed revenues
B. When revenues exceed expenses D. When assets exceed liabilities
9. Debit signifies
A. Decrease to liability C. Increase to an asset
B. Left-hand side amount column D. all of the above
10. The balance in unearned rent at the end of period represents
A. an asset B. a liability C. a revenue D. an expense
11. The controlling account in the general ledger that summarizes the debits and individual
customers in the subsidiary ledger in entitled
A. Accounts payable C. Sales
B. Accounts Receivable D. Purchase
12. which one is a Post closing trial balance account
A. Sales C. Accounts Receivable
B. Salary expense D. Interest expense
13. Accounts and notes receivable are reported in the current assets section of the balance sheet at:
A. cash (net) realizable value" C. Lower-of-cost-or-market value.
B. Net book value. D. Invoice cost.
14. Net sales for the month are $800,000, and bad debts are expected to be 1.5% of net sales. The
company uses the percentage-of-sales basis. If the Allowance for Doubtful Accounts has a credit
balance of $15,000 before adjustment, what is the balance after adjustment?
A. $15,000. C. $23,000.
B. $27,000. D. $31,000.
15. Jefferson Company purchased a piece of equipment on January 1, 2010. The equipment cost
$60,000 and had an estimated life of 8 years and a salvage value of $8,000. What was the
depreciation expense for the asset for 2011 under the double-declining-balance method?
A. $6,500. B. $11,250. C. $15,000. D. $6,562.
16. Maggie Sharrer Company expects to extract 20 million tons of coal from a mine that cost $12
million. If no salvage value is expected, and 2 million tons are mined and sold in the first year,
the entry to record depletion will include a:
A. Debit to Accumulate Depletion of $2,000,000.
B. Credit to Depletion Expense of $1,200,000.
C. Debit to Depletion Expense of $1,200,000.
D. Credit to Accumulated Depletion of $2,000,000.

17. Additions to plant assets are:

A. Revenue expenditures. C. Debited to a Purchases account.
B. Debited to a Repair Expense account. D. Capital expenditures.
18. Schopenhauer Company exchanged an old machine, with a book value of $39,000 and a fair
market value of $35,000, and paid $10,000 cash for a similar new machine. The transaction has
commercial substance. At what amount should the machine acquired in the exchange be recorded
on Schopenhauer's books?
A. $45,000. B. $46,000. C. $49,000. D. $50,000
19. A petty cash fund is:
A. Used to pay relatively small amounts.
B. Established by estimating the amount of cash needed for disbursements of relatively small
amounts during a specified period.
C. Reimbursed when the amount of money in the fund is reduced to a predetermined minimum
amount.
D. All of the above.
20. Journal entries based on the bank reconciliation are required for:
A. Additions to the cash balance according to the depositor's records.
B. Deductions from the cash balance according to the depositor's records.
C. Both A and B.
 D. Neither A nor B.
21. If merchandise is sold on account to a customer for $1,000, terms FOB shipping point, 1/10,
n/30, and the seller prepays $50 in transportation costs, the amount of the discount for early
payment would be:
A. $0 B. $10.00 C. $5.00 D. $10.50
22. The advantages of a partnership do not include:
A. Ease of formation. C. Freedom from government regulation.
B. Unlimited liability. D. Ease of decision making.
23. Which of the following is not a major advantage of a corporation?
A. Separate legal existence. C. Government regulations.
B. Continuous life. D. Transferable ownership rights.
24. One is a component of cash flows from Investing activities except
A. Sale of equipment C. Sale of land
B. Purchase of land D. Increase in inventory
25. When investment in branch is debited in the home office record:
A. home office will be debited in the branch account record
B. Shipment to branch credited in the home office account records
C. Home office account credited in the branch record
D. Shipment to branch credited in the home office account records
26. One is not a component of cash flows from operating activities.
A. Net Income C. Non-Cash Gains
B. Changes in Current Assets D. Notes Payable to Vendors
27. Which one is an odd?
A. Accounts payable C. Taxes payables
B. Wages payable D. Note payable
28. Assume XYZ company issued a note to 90 days for birr 12,000 note dated on December 31 and
the amount of interest is birr 120, then what is the rate of the note?
A. 14% C. 4%
B. 13% D. 3%
29. Profit or loss on joint venture business is shared by the co-venture
A. Equally
B. In the agreed upon ratio
C. In the ratio of capital contributed
D. As per salary allowance
30. Which of the following is/are Current Liabilities Having Contractual (Definite) Amount?
A. Dividend payable
B. Sale tax payable
C. Bonus payable
D. Property tax payable.
31. Identify the correct statement?
A. If the bonds sell for less than face value, they sell at a premium.
B. If the bonds sell for more than face value, they sell at a discount.
 C. If bonds sell at a discount, the effective yield exceeds the stated rate
D. If bonds sell at a premium, the effective yield is greater than the stated rate
32. Additions to plant assets are:
A. Revenue expenditures.
B. Debited to the Maintenance and Repairs Expense account.
C. Debited to the Purchases account.
D. Capital expenditures.

33. Which of the following is correctly related?

A. IAS 16--------Property, Plant and Equipment
B. IAS38---------Intangible asset
C. IAS 12--- ----Income tax
D. D. All of the above
34. Which of the following is correctly related?
A. Plant asset ---Depletion C. Natural resource ---Amortization
B. Fixed asset ---Depreciation D. Intangible asset ---depletion
35. Which depreciation method is un acceptable under international financial reporting
A. Straight line method
B. Double declining balance method
C. Unit of production method
D. Sum year digit method
36. If gain of Br.15,000 is recognized in selling (for cash) office equipment having book value
of Br.70,000 the total amount reported in cash flow from investing activities section of
statement of cash flow is:
A. Br.15, 000 B. B. Br.85, 000 C. Br.35,000 D. Br.55, 000
37. If Income Summary has a credit balance after revenues and expenses have been closed into it, the closing
entry for Income Summary will include a:
A. debit to the retained earnings account.
B. debit to the owner’s dividends account.
C. credit to the retained earnings account.
D. credit to the owner’s dividends account.
38. If Income Summary has a credit balance after revenues and expenses have been closed into it, the
closing entry for Income Summary will include a:
A. debit to the retained earnings account.
B. debit to the owner’s dividends account.
C. credit to the retained earnings account.
D. credit to the owner’s dividends account.
39. A credit sale of Br. 800 is made on April 25, terms 2/10, n/30, on which a return of Br. 50 is
granted on April 28. What amount is received as payment in full on May 4?
A. Br. 735 C. Br. 800
B. Br. 784 D. Br. 750
40. An aging of a company's accounts receivable indicates that Br. 9,000 is estimated to be
uncollectible. If Allowance for Doubtful Accounts has a Br. 1,100 credit balance, the
adjustment to record bad debts for the period will require a
A. debit to Bad Debts Expense for Br. 9,000.
B. debit to Allowance for Doubtful Accounts for Br. 7,900.
C. debit to Bad Debts Expense for Br. 7,900.
D. credit to Allowance for Doubtful Accounts for Br. 9,000.
41. Northstar Co. acquired a registered trademark for Br. 600,000. The trademark has a remaining
legal life of five years, but can be renewed every 10 years for a nominal fee. Northstar expects
to renew the trademark indefinitely. What amount of amortization expense should Northstar
record for the trademark in the current year?
A. Br. 0 C. Br. 40,000
B. Br. 15,000 D. Br. 120,000
42. Which inventory costing method would a company that wishes to maximize profits in a period
of rising prices use?
A. Weighted average. C. FIFO
B. Dollar-value LIFO. D. Moving average.
43. 73. Terri owns a 50 percent interest in the TT Partnership. At the beginning of the year, her basis
in
her partnership interest was Br. 75,000. The partnership reports a Br. 40,000 loss for the year
and distributes Br. 4,000 to Terri. What is her basis in her partnership interest at the end of the
year?
A. Br. 111,000 C. Br. 75,000
B. Br. 51,000 D. Br. 31,000
Part II: COST AND MANAGERIAL ACCOUNTING

44. Which one is the Advantages of Standard Costing

A. Time consuming
B. Obsolescence in fast changing conditions
C. Requirement of homogeneity
D. It acts as an effective tool for business planning
45. A credit sale of Br. 800 is made on April 25, terms 2/10, n/30, on which a return of Br. 50 is granted
on April 28. What amount is received as payment in full on May 4?
A. Br. 735B. Br. 784 C. Br. 800 D. Br. 750
46. An aging of a company's accounts receivable indicates that Br. 9,000 is estimated to be uncollectible.
If Allowance for Doubtful Accounts has a Br. 1,100 credit balance, the adjustment to record bad
debts for the period will require a
A. debit to Bad Debts Expense for Br. 9,000.
B. debit to Allowance for Doubtful Accounts for Br. 7,900.
C. debit to Bad Debts Expense for Br. 7,900.
D. credit to Allowance for Doubtful Accounts for Br. 9,000.
47. Which one of the following is a current liability?
 A. Prepaid Insurance B. Account Receivable C. Unearned Revenue D. Building
48. Which one is a cost that can be eliminated in whole or in part by choosing one alternative
over another?
A. Incremental cost C. Avoidable costs
B. Opportunity costs D. Unavoidable costs
49. Which of the following costs would a computer manufacturer include in manufacturing
overhead?
A. The cost of the disk drives.
B. The wages earned by computer assemblers.
C. The cost of the memory chips.
D. Depreciation on testing equipment.

50. Which budget is developed using budgeted revenues or cost amounts based on the level of
output actually achieved in the budget period.
A. Static budget C. Flexible budget
B. Budgetary control D. Standard costing
51. _____is developed using budgeted revenues or cost amounts based on the level of output
actually achieved in the budget period.
A. flexible budget C. Static budget
B. Master budget D. Sales budget
52. From the following which cost is doesn't include under the cost of constructing building?
A. Fees paid to architects, engineers for plans and supervisions,
B. Insurance incurred during construction
C. Interests incurred to finance the construction through borrowing
D. Amount of money that was paid to official in order to finish name change
53. _____ is based on past data relating to product, which is adjusted according to anticipated
changes in future
A. Standard Costs B. Variance C. Estimated D. All
analysis Costs
54. Which one is not type of cost classification based on decision making
A. Differential cost: C. Manufacturing cost
B. Opportunity cost D. Incremental cost
55. Which one of the following is incurred when the demand is greater than supply of materials?
A. Stock out costs C. Holding cost
B. Opportunity cost D. Ordering cost
Part III: FINANCE AND INVESTMENT
56. One of the following statements about promissory notes is incorrect. The incorrect statement
is:
A. The party making the promise to pay is called the maker.
B. The party to whom payment is to be made is called the payee.
C. A promissory note is not a negotiable instrument.
D. A promissory note is often required from high-risk customers.
57. Preferred stock may have priority over common stock except in:
A. Dividends. C. Cumulative dividend features.
B. Assets in the event of liquidation. D. Voting.
58. The growth in a principal sum representing the fee charged for the use of money for a given
time period is,
A. Interest C. Future value
B. Ordinary Annuity D. Interest rate
59. Which one is a component the statements of cash flows
A. Operating activities C. Financing activities
B. Investing activities D. All
60. A bank that originates, underwrites, and distributes new security issues of corporations and
government agencies to any potential investors are called;
A. Central Bank C. Commercial Bank
B. Investment Bank D. Development Bank
61. Commercial bank of Ethiopia pays 5.60%, compounded daily (based on 360 days) on a 9-
month certificate of deposit. If you deposit Br. 20, 000 you would expect to earn around
__________ in interest.
A. Br.840 C. Br. 1, 032
B. Br. 858 D. Br. 1, 121
62. The development of microfinance in Ethiopia could be viewed as follows, except
A. a shift by the ngo sector and government from relief assistance to sustainable
development
B. identification of considerable levels of untouched demand and potential market
growth for financial services
C. greater ability and willingness of government owned and private commercial banks
outreach to the rural community
D. of the above
63. Which one of the following is a reason for existence of financial intermediaries?
A. Existence of long term financial instruments
B. Problem related to asymmetric information
C. The ability to borrow funds directly from savers
D. To avoid government regulation in other financial markets
64. Which of the following is not a rationale for regulation of financial institutions and capital
markets?
A. To increase the activities of foreign concerns in domestic markets
B. To promote competition and fairness in the trading of financial securities
C. To prevent issuers of securities from defrauding investors
D. To control the level of economic activities
65. Which financial ratio measures a company's ability to generate profits relative to its equity?
a) Return on equity
 b) Return on assets
c) Working capital ratio
d) Debt-to-equity ratio
66. Which of the following is a method of calculating the internal rate of return of an
investment?
a) Net present value
b) Payback period
c) Discounted cash flow analysis
d) All of the above
67. Which of the following is a method of calculating the payback period of an investment?
a) Net present value
b) Internal rate of return
c) Discounted cash flow analysis
d) All of the above

68. Efficient portfolios can be defined as those portfolios which for a given level of risk provides
A. Minimum return
B. Average return
C. Maximum return
D. Moderate return
69. Assume you have two stocks; Stocks L and U. The amount that invests in stock L is birr
300,000 and stock U is birr 300,000. Suppose the economy actually enters a recession. In this
case, half your money (the half in L) loses 20 percent. The other half (the half in U) gains 30
percent. What is the expected return?
A. 5% loss
B. 5 % profit
C. 50% profit
D. 50% loss
70. Which of the following leverage is the variability in EPS given a change in EBIT.
A. Financial Leverage
B. Operating leverage
C. Combined leverage
D. Balance sheet leverage
71. Assume the total current asset and liability of the company is birr 500,000 and birr 300,000
respectively. Then what is gross working capital and net working capital of the company
respectively?
A. Birr 300,000 and birr 500,000
B. Birr200,000 and birr300,000
C. Birr 500,000 and birr 200,000
D. Birr 200,000 and Birr 500,000
72. Assume XY is a corporation companies and paid dividend to shareholder at the end of each
year. But in during this year the company does not have sufficient funds to pay cash dividend
and paid dividend for each shareholder based on equipment, car, land and other based on
number of shares. Which type of dividend the company use?
A. Cash dividend
B. Bond dividend
C. Stock dividend
D. Property dividend
73. Assume the total outstanding share of ABC Company during this year is 20,000 shares with
par value is birr 60 per share. Suppose that ABC Corporation decides to declare a four for
one stock split, then how many outstanding shares of the company after stock split?
A. 80,000 shares
B. 160,000 shares
C. 10,000 shares
D. 5,000 shares
74. Assume the total asset of XY company before financial forecasting is birr 400,000, but the
total sales of the company are decrease by 7%, and then what is the total asset of the
company after decrease sales?
A. Birr 428,000
B. Birr28,000
C. Birr 372,000
D. Birr 49,000
Part IV: AUDITING AND ASSURANCE SERVICES
75. The audit objective of presenting all transactions and accountsin the financial statements are in fact
included is related to which of the PCAOB assertions?
A. Existence. C. Completeness.
B. Rights and obligations. D. Valuation.
76. The second-step in decision process is
A. Make prediction C. Evaluate their performance
B. Gather information D. Choose an alternative
77. One is the step in decision process:
A. Gather information C. Evaluate their performance
B. Make prediction D. All
78. Data must be collected about three facts of each business activity. What are they?
A. The business activity, the resources it affects and the people who participate
B. The business activity, the transactions it creates, the impact on the financialstatements
C. The inputs, outputs and processes used
D. Who is involved, what was sold, how much was paid
79. Accounting information plays major roles in managerial decision making by
A. identifying situations requiring management action
B. reducing uncertainty
C. providing a basis for choosing among alternative actions
D. All of the above
80. Which one of the following is not one of the rules that describe how the three types of entities
should relate to one another in an REA data model? Each event is linked to at least
A. one resource that it affects C. two other entities
B. one other event D. two participating agents
81. The audit objective that all balances include items owned by the client is related most closely
to which one of the ASB balance assertions?
A. Existence.
B. Rights and obligations.
C. Completeness.
D. Valuation.
82. Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory
items provide assurance about the PCAOB assertion of
A. Completeness.
B. Existence.
C. Presentation.
D. Valuation
83. The audit objective that all transactions are recorded in the proper account is related most
closely to which one of the ASB transaction assertions?
A. Occurrence.
B. Completeness.
C. Accuracy.
 D. Classification
84. Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory
items provide assurance about the ASB balance assertion of
A. Completeness.
B. Existence.
C. Presentation.
D. Valuation
85. Rights and obligations. In performing an attestation engagement, a CPA typically
A. Supplies litigation support services.
B. Assesses control risk at a low level.
C. Expresses a conclusion on an assertion about some type of subject matter.
D. Provides management consulting advice.
86. The audit objective that all transactions are recorded in the proper period is related most
closely to which of the Audit Standards Board (ASB) transaction assertions?
A. Occurrence.
B. Completeness.
C. Cutoff.
D. Accuracy.

Part V: PUBLIC FINANCE AND PUBLIC SECTOR ACCOUNTING

87. Assume at the beginning of May FERIHA Company sold merchandise, for cash. It received
Br.2, 000,000 & credited sales account by Br.2, 000,000 the amount include value added tax
of 15% on sales. Based on the above data the amount of sale revenue and VAT payable
respectively would be:
A. Br.300, 000 and Br.2, 000,000 C. Br.1, 739,130 and Br.260, 870
B. Br.2, 000, 000 and Br.300, 000 D. Br.260, 870 and Br.1, 739, 130
88. A capital projects fund is a fund to account for
A. activities in which goods or services are provided to the public for a fee
B. construction of highways, bridges, or parks
C. principal and interest payments on general long-term debt
D. assets held in trust to provide retirement benefits
89. Which fund has relatively the shortest life span?
A. General Fund C. Capital Projects Fund
B. Pension Trust Fund D. Internal Service Fund
90. A fund that accounts the principal and interest payments on general long-term debt is:
A. Agency Fund C. Permanent Fund
B. Debt Service Fund D. General Fund
91. Encumbrance accounting is not applicable in:
A. Debt-service Fund C. Special Revenue Fund
B. Capital Projects Fund D. General Fund
92. A proprietary fund is a fund that is used to account
A. all taxes collected by government
B. acquisition or construction of long term assets
C. trust funds held for the benefit of employees
D. business-type activities of the government
93. One of the following is NOT a proprietary fund?
A. Internal Service Fund C. Investment Fund
B. Enterprise Fund D. A and B
94. Which of the following fund is used to account grants in which the principal must be invested
and preserved but the investment earnings can be used for individual beneficiaries?
A. Private Trust Fund C. Agency Fund
B. Permanent Fund D. Investment Trust Fund
95. How much is gross earning?
A. 17850 B. 18000 C. 16950 D. 17000
96. How much is pension contribution?
A. 1000 B. 890 C. 980 D. 840
97. Tax payers whose annual turnover is estimated by the Tax Authority at Birr 500,000 or less.
A. Category A B. category C C. Category B D. category D
98. All are books of accounts must contain except
A. a record of business assets and liabilities including a detailed register of fixed assets
B. not record of all daily income and expenses
C. a record of all purchases and sales of goods and services
D. the particular goods and services sold
99. compensation by the government are
A. Tax relief
B. tax return
C. Tax having
D. tax base
100. Which of the following is TRUE about an agency fund?
A. Government acts as collecting agent. C. There are no net assets.
B. No revenue and expense accounts are used D. All are true

Answer Sheet

1 C 21 B 41 A 61 A 81 B
2 B 22 B 42 C 62 C 82 D
3 B 23 C 43 B 63 B 83 D
4 D 24 D 44 D 64 A 84 D
5 A 25 C 45 A 65 A 85 C
6 A 26 D 46 C 66 D 86 C
7 D 27 D 47 C 67 D 87 D
8 C 28 C 48 B 68 C 88 B
9 D 29 B 49 B 69 B 89 C
10 A 30 D 50 C 70 A 90 B
11 B 31 C 51 A 71 C 91 A
12 A 32 D 52 C 72 D 92 D
13 A 33 D 53 C 73 A 93 C
14 B 34 B 54 C 74 C 94 A
15 B 35 D 55 C 75 C 95 C
16 C 36 B 56 C 76 B 96 C
17 D 37 C 57 D 77 B 97 B
18 A 38 C 58 C 78 A 98 B
19 D 39 A 59 D 79 D 99 A
20 C 40 A 60 B 80 C 100 D