Salale University

College of Business and Economics

Department of Accounting and Finance
Time allowed: 2:00hrs.
Mark allotted: 100%
Exam date: 03/09/2024
Name ___________________________
Part I: Choose the best answer ( 2 point each)
1. Which one of the following is the primary importance of accounting information
system?
A. Financial planning C. Tax and licensing
B. Policy approval D. Decision-making
2. Which of the following financial statement reports the resources that a business owns
and controlled by an entity at a particular point in time:
A. Statement of change in equity C. Balance sheet
B. Statement of profit and loss D. Statement of cash flow
3. Adjusting entries affect
A. Balance sheet accounts only
B. Income statement accounts only
C. Both Balance sheet and income statement accounts
D. Either Balance sheet or income statement accounts
4. On January 1, 2020, Lexy Company paid rent of $60,000 for the month January,
February, March and April. The $60000 was initially recorded as prepaid rent. The rent
expense for the month of January should be:
A. $ 6000 B. $ 1000 C. $ 2000 D. $ 1500 E. None
5. The form listing the titles and balances of the accounts in the ledger on a given date is;
A. Income Statement C. Statement of Owner’s Equity
B. Balance Sheet D. Trial Balance
6. If we failed to record adjustments for prepaid expense recorded as an asset initially
except
A. Net income will be over stated
B. Expense account will be understated
C. Asset account will be over stated
D. Asset account will be under stated
7. Mr. Tomas deliver home rent service on monthly receipt basis and he has a plan to
receive advance payment from its customers. One of the following is true on the
accounts of Mr. Tomas
A. Receipt of advance payment recorded as debit to prepaid rent and credit to cash
B. Receipt of advance payment recorded as debit to cash and credit to earned revenue
C. Receipt of advance payment recorded as debit to unearned revenue and credit to cash
D. Receipt of advance payment recorded as debit to cash and credit to unearned revenue
8. The receipt of cash from customers in payment of their accounts would be recorded by:
A. A debit to Accounts Receivable and a credit to Cash.
B. A debit to Cash and a credit to Accounts Payable.
C. A debit to Cash and a credit to Accounts Receivable
D. A debit to Accounts Payable and a credit to Cash.
9. An accounting assumption that states an enterprise will continue in operation long
enough to carry out its existing objectives and commitments?
A. Monetary unit assumption C. Going concern assumption
B. Economic entity assumption D. Time period assumption
10. Which of the following is best described the accounting equation formula?
A. Asset = Liability +Capital C. Asset - Liability=Equity
B. Asset - Equity=Liability D. Asset + Liability=Equity
11. __________ refers to amounts that shareholders contributed to the business?
A. Contributed capital C. Dividend
B. Retained earnings D. Withdrawal
12. An accumulated amount that has been earned but not distributed to shareholders is
known as?
A. Contributed amounts C. Retained Earnings
B. Dividend pay-out D. Withdrawal amount
13. One of the following would be an example of a transposition error?
A. Writing $605 instead of $506
B. Entering $605 twice
C. Forgetting to deposit a check for $605
D. Deleting the $605 entry
14. Lucy Car Repair Shop started the year with total assets of 600,000 and total liabilities of
400,000. During the year the business recorded 1000,000 in car repair revenues, 550,000
in expenses, and dividends of 100,000. The net income reported by Lucy’s Car Repair
Shop for the year was
A. 100,000 C. 300,000
B. 250,000 D. 450,000
15. Which of the following type of assets are usually the management could reasonably be
expected to convert into cash within one year?
A. Current Asset C. Non-current Asset
B. Current Liability D. Non-Current Liability
18. Which of the following is/are false regarding cash?
A. Cash used as medium of exchange
B. Cash is the most liquid asset
C. Cash is mostly affected by business transactions
D. Cash does not used to measure the value of other assets
19. Which of the following is not an activity listed in the statement of cash flows?
A. Investing Activities C. Operating Activities
B. Funding Activities D. Financing Activities
20. All of the following are true about internal control over cash except :
A. The individuals who receive cash should not also disburse cash
B. The individuals who handle cash can maintain accounting records
C. Cash receipts are immediately recorded and deposited and are not used directly to
make payments.
D. Bank accounts are reconciled monthly.
21. An accumulated amount that has been earned but not distributed to shareholders is
known as?
A. Contributed amounts C. Retained Earnings
B. Dividend pay-out D. Withdrawal amount
22. Journal entries based on the bank reconciliation are required for:
A. Additions to the cash balance according to the company’s records.
B. Deductions from the cash balance according to the company’s records.
C. Both A and B.
D. Neither A nor B
23. ____________are cash receipts recorded by the depositor, but not reached the bank to be
included in the bank statement for the current month.
A. Outstanding Checks
B. Charges for depositing NSF- checks
C. Deposits in transit
D. Notes collected by bank

24. Which of the following lists the order in which closing entries are made?
A. Expense, Revenue, Income Summary, Dividends
B. Dividends, Revenue, Expense, Income Summary
C. Revenue, Expense, Income Summary, Dividends
D. Income Summary, Revenue, Expense, Dividends
25. Which of the following is largest single source of revenue for the government?
A. Employment Income Tax C. Rental income tax
B. Business income tax D. Other income tax
26. One of the following is true about note receivable
A. Involve informal agreement between parties
B. Involve written agreement between parties
C. Supported by sales/ purchase invoice
D. A & C
27. If you are accountant in any office in Ethiopia, by what rates do you calculate Employee
Pension?
A. 11% B. 15% C. 7% D. 10 %
28. A manufacturing Co. has a Total Fixed Cost of Br. 35,000 & a Unit Variable Cost of Br.
3. If the co. can sell, what it produces at a price of Br. 8, what is the breakeven quantity?

A. 3000 B. 7000 C. 5000 D. 9000

29. Amount of money paid to an employee for bearing a particular office responsibility, e.g.
Head of a particular department or division is:
A. Hardship Allowance C. Position Allowance
B. House allowance D. Desert Allowance
30. What is major source of revenue for an insurance company?
A. Interest income C. Salvage
B. Insurance premiums D. Rental income
31. The entry to record a credit sales transaction when using a perpetual inventory system
would include credits to the following accounts:
A. Cost of goods sold and sales
B. Sales and inventory
C. Cost of goods sold and inventory
D. Account receivable and cost of goods sold
32. One of the following is different
A. Account payable C. Bond payable
B. Bonus payable D. Salary payable
33. One of the following is true about plant assets ________
A. All long lived assets are a tangible asset
B. Plant assets are depreciable
C. All plant assets are depreciable
D. All long lived assets are a plant asset
34. One of the following is not true about liability
A. Liability is a probable future sacrifice of economic benefit
B. Liability arises from present obligation
C. Liability is a probable future economic benefit
D. Liability is a result of past transaction
35. Which of the following is not a characteristic of a partnership:
A. It is a non-taxable entity
B. There is mutual agency in a partnership
C. The partners have the right to always share income equally
D. Once invested, a specific asset doesn’t belong to anyone of the partners
36. Which of the following is a characteristic of a corporation?
A. Each share can act as an agent of a corporation
B. Limited life.
C. It is legally separate from its owners
D. It is a mutual
E. agency
37. All are true about depreciation expense
A. Depreciation is decrease in market value
B. Depreciation is the process of valuation
C. Depreciation is the process of allocating cost of plant asset
D. Depreciation is increase in usefulness of plant asset

38. Which depreciation method allocates the same percentage of depreciation every year for
the useful life of the asset but?

A. Units-of-output-method C. Sum of years digit method

B. Straight-line method D. Double declining balance method
39. Identify correctly matched long lived asset with their respective decrease in usefulness
A. Depletion: process of cost allocation; plant asset
B. Depreciation: process of cost allocation; natural resource
C. Depletion: process of cost allocation; natural resource
D. Amortization: process of valuation; intangible asset

40. Alex and Dagm agree to form AD partnership. Alex contributed birr 60,000 in cash and
to spent one – half time to the partnership. Dagm agreed to contribute birr 40,000 and to
devote full time to the partnership. How will Alex and Dagm share net income or net
loss?
A. 1:2 B. 2:1
 C. 3:2 D. 1:1
41. ______ is a flat monthly salary of an employee that is paid for carrying out the normal
work of employment and it is subject to change if employees promoted.
A. Bonus C. Basic salary
B. Allowance D. Overtime earning
42. All are expenditures incurred in connection with acquisition of land except_______
A. Legal fees
B. Commission fees
C. Demolition costs of old building and unwanted material
D. Transportation cost
43. A corporation financial statement doesn’t report cent amounts. This is an example of
the application of which of the following
A. Cost principle C. Matching
B. Materiality D. Consistency
44. Which of the following depreciation methods consider salvage value in computing the
depreciation base of the asset except?
A. Straight-line method C. Units-of-output-method
B. Sum-of-the-years’-digits method D. Double declining balance method
45. The classification of asset as current and fixed reported on financial statement is
supported by
A. Business entity concept C. Cost principle
B. Materiality concept D. Going concern concept
46. A large cash withdrawal by partner Dawit from D Square LLP, which is viewed by all
partners as a permanent reduction of Dawit’s ownership equity in the partnership,
is recorded with a debit to:
A. Cash C. Loan Receivable from Dawit
B. Dawit, capital D. Drawing
47. On January 1, 2020 Sony Company purchased copy machine with a cost of Br. 205, 000
and a salvage value of Br. 5, 000 with economic life of five years or 100,000 operating
hours. Assuming fiscal period of Sony Company ends on December 31. The machine will
be depreciated over a 5 year useful life using the declining balance method. What would
be the depreciation rate?
 A. 25% C. 40%
B. 20% D. B and C
48. On January 1, 2020 Nile Company purchased printing machine with a cost of Br. 185,
000 and a salvage value of Br. 5, 000 with economic life of five years or 100,000
operating hours. Assuming fiscal period of Nile Company ends on December 31. The
machine will be depreciated over 100,000 operating hours using unit of production
method. What would be the depreciation rate
A. Br 1.8 / hour
B. Br 18 /hour
C. Br 18.5 /hour
D. Br180, 000/ hr
39. In preparing bank reconciliation, the amount of checks outstanding would be:
A. Added to the cash balance according to the bank statement
B. Added to the cash balance according to the company’s records.
C. Deducted from the cash balance according to the company’s records
D. Deducted from the cash balance according to the bank statement
E. None
37. One of the following is not true about note receivable
A. Involve informal agreement between parties
B. Involve written agreement between parties
C. Supported by sales/ purchase invoice
D. A & C
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