2017 Exit

Exam
Tir 26 Monday
Session 3, 8:30-11:00
1) All of the followings are true about Property, plant, and equipment
features, except:

• a. Possess physical substance

B
• b. Primarily held for resale

• c. Used in operation and not for resale

• d. Long-term so nature and usually depreciated

2) When using the periodic inventory system, when the cost of merchandise
is sold recorded

• A. at the time of sale

D
• B. Never recorded

• C. only during physical inventory

• D. at the end of the accounting period

3) The following sales are budgeted for the next four months
• April May June July
• Budgeted sales unit 480 560 600 100
• Each month ending inventory of finished goods should be 30% of
the next month's sales, Create the budgeted production for May.
A. 560 unit
budgeted unit sales + targeted ending finished goods inventory - beginning finished goods inventory
B. 600 unit
560+ (600*0.3)- (560*0.3)= 172

C. 572 unit C
D. 548 unit
4) Product A has a unit contribution margin of Birr 15. Product B has a unit
contribution margin of Birr 20. Product A requires three furnace hours,
while product B required five furnace hours. Determine which product
should be produced, assuming the furnace is a constraint

A. Product B unit contribution margin per production scarce hour is Birr 5

B. Product A Unit contribution margin per production scarce hour is Birr 5

C. Product A unit contributions margin per production scarce hour is Bier 4

D. Product B contribution margin per production scarce hour is Birr 4

Product A = 15/3H 5 Birr/H
Product B = 20/5H 4 Birr/H
B
5) The units of an item available for sale during the year were as follows:
• Jan. 1 Inventory 6 units at $50 $ 300
• Mar. 20 Purchase 14 units at $55 $770
• Oct. 30 Purchase 20 units at $62 $1,240
• Available for sale 40 units $2,310
• Assume that 26 unit sold until December 31 for $82. The periodic
inventory system is used. Determine the gross profit using the Average
cost method
AC= 2310/40= 57.75
• A. $1501.5
CGS= 57.75*26= 1501.5
• B. $750.75 EI= 57.75*16 = 444

• C. 630.5 GP= SALE –CGS

(82*26)- 1501.5
• D. 808.5 = 630.5
C
6) Which of the following is true regarding variable costing method? It

A. Treats all cost of production as product costs.

• B. Allocates a portion of fixed overhead to each unit product.

• C. Contains no element of fixed overhead cost in inventory.

• D. is generally used for external financial reports.

C
7) Which of the Following is an intangible asset that attaches to a
business because of factor like location, product superiority , and
reputation

A. Patent

B. Copy right D
C. Trademark

D. Good will
8) The condition in which taxpayers deliberately misrepresenting or
concealing the true state of their affairs to the tax authorities to reduce
their tax liability it referred to as

A. Regressive tax
B. Tax avoidance
C
C. Tax evasion

D. Direct tax
9) Which at the following describes long term contract losses accounting treatment?

A. Loss in the current period, the estimated cost increase requires a current-period
adjustment of excess gross profit recognized on the project in prior period

B. Loss an unprofitable contract, the estimated cost increase requires a current-period

adjustment of excess gross profit recognized on the project in future periods.

C. Loss on unprofitable contract, the estimated cost increase requires a current period
adjustment of excess gross profit recognized on the project in prior periods

D. Loss in the current period, the company must recognize in the current period the
entire expected contract loss

D
When a long-term contract is projected to result in a loss, the total expected loss is
recognized immediately in the current period, regardless of the stage of completion.
This is a fundamental principle of accounting conservatism – recognizing losses as soon as
they are foreseeable.
10) Which one of the following statements is the core principle of
M&M Proposition I, without taxes?

A. The capital structure of a firm is totally irrelevant.

B. The optimal capital structure is 100% debt.

A
C. The interest tax shield increases the value of a firm

D. Levered firms have greater value than unlevered firms

11) From the following cases which one is different?

• A. Compensation in cash or in kind to policyholders for losses suffered in

advance of, or during travel

• B. Contracts that provide compensation for the uncertain future event

• C. Credit related guarantees that require payments even if the holder has
not incurred a loss
C
• D. Payment based by changes in climatic, geological and other physical
variables that are specific to a party to the contract
12) Which of the following best describes the joint venture?

A. Joint arrangement whereby the parties share all liabilities and

obligations in a specified proportion.

B. Joint arrangement that requires the joint control of the

arrangement has rights to the assets, and obligations for the
liabilities, relating the arrangement
C
C. Joint arrangement whereby the parities that have joint control of
the arrangement have rights to the net assets of the arrangement

D. Joint arrangement whereby the parties to the joint arrangement

share all interest in the assets relating to the arrangement
13) A corporation has issued 25,000 shares of $100 par common stock
and holds 3,000 of these shares as treasury stock if the corporation
declares a $2 per share cash dividend, what amount will be recorded
as-cash dividends?

22000*2 = 44,000
A. $25,000

B. $22,000
C
C. $44,000

D. $50000
14) Which one of the following statements is true about static budget?

• A. Inappropriate in evaluating a manager's effectiveness in controlling

costs.

• B. A projection of budget data at several levels of activity

• C -It is based on actual activity for a period of time

• D. A projection of budget data at a single level of activity

D
15) When preparing consolidated financial statements on the date of
acquisition, what adjustment is made to the subsidiary's equity
accounts?

• A. All equity accounts are eliminated.

• B. Equity accounts are adjusted to fair value, and any excess is recorded
as goodwill.

• C. No adjustment is necessary.
A
• D. Only the retained earnings account is eliminated
16) If an investment has a positive net present value

• A. cost of capital exceeds the cutoff rate of return

• B. its IRR is less than the company's cutoff rate of return

• C. its internal rate of return is greater than the company's cost of

capital
C
• D. its internal rate of return less than the company cost of capital
17) Which of the following statement demonstrates the Balance-Related
Audit Objectives of existence for account payable balance?

• A. Accounts payable in the accounts payable list are accurate

• B. Accounts payable in the accounts payable list agree with related master
fife, and the total is correctly added and agrees with the general ledger

• C. Existing accounts payable are included in the accounts payable list

• D. Accounts payable in the accounts payable list exist

D
18) In a computerized accounting system, what is the purpose of backup?

A. To prevent unauthorized access to financial data

B. To reduce the risk of data loss

B
C. To automate the reconciliation process

D. To generate financial reports

19) Which of the following statement is true about product costs?
Costs are

• A. Reported on the income statement as either selling or

administrative expenses

• B. Linked to a time period rather than to completed products.

• C. Added to inventory during production

• D. Expressed in the period when incurred C

20) XYZ inc purchased land and building from JK Corporation for a
cash payment of Br 600,000. The estimated fair values of the assets
are land birr 235,200 and building Br. 324,800. At what amounts
should each of the assets be recorded, respectively ?

• A. Br. 252.000, Br. 348.000 L= (235200/560,000)*600,000 = 252,000

B= (324,800/560,00)*600,000= 348,000
• B. Br 235.200, Br 324,800
A
• C. Br. 211200 Br. 268.800

• D. Br 60.000, Br. 600,000

21) The Cutting department started the month with a beginning work in
process inventory of Birr 10,000. During the month, it was assigned the
following costs
• Direct material Direct labor Overhead applied
• Birr 120,000 Birr 35,000, Birr 15,000
• Inventory with a cost of Birr 158,000 was transferred to the next
department. The ending balance of Work in Process Inventory-Cutting is

• A. Birr 180.000 EWIP= TWIP – Cost good transferred

TWIP = BWIP+DMU+DML+MOH= 10000+120000+3500+15000 = 170,000

• B. Birr 12.000
D EWIP= 180,000- 158,000= 22,000
• C. Bir 170.000 =

• D. Birr 22,000
22) Which one of the following is an example of unsystematic risk?

• a. inflation decreases at the national level

• b. income taxes are increased across the board

• c. consumer spending on entertainment decreased nationally

• d. a national sales tax is adopted, C

23) Which of the following describes to a set of instructions to the audit
team that sets out the further audit procedures to be carried out

A. Audit Plan

B. Audit documentation

C. Audit working paper

D. Over all audit strategy A

24) Which one of the following fund type is classified under Proprietary
Fund?

• A. Debt service fund

• B. Internal service fund B

• C. Capital project fund

• D. General fund.
25) Which of the following is/are not among the economic significance of
public finance?

• a. Economic Stabilization

• b. Capital Formation
D
• c. Balanced Regional Development

• d. Increase Economic Inequalities

26) Which of the following is the example of Onerous Contract Provisions?

• a. A lawsuit in which it is only possible that the company might lose.

• b. A guarantee related to collectability of a receivable.

• c. Dismantling, restoring, and reclamation of oil and gas properties

• d. A loss recognized on unfavorable non-cancelable purchase commitments

related to inventory items.
D
27) Which of the following statements is true regarding the perpetual
inventory system?

• A. It updates inventory records continuously after each sale. A

• B. It requires physical inventory counts to determine the cost of goods sold
(COGS).

• C. It is only suitable for businesses with low-value, high-volume Inventory

items.

• D. It does not provide real-time information on inventory levels

28) Incremental analysis is the process of identifying the financial data
that

• a. Do not change under alternative courses of action.

• b. Change under alternative courses of action. B

• c. Are past oriented and focus on non-incremental effects.

• d. Are mixed under alternative courses of action.

29) Fikiru Ltd. issues Br. 800,000 of 10% bonds, due in 10 years, with
interest payable semi annually. At the time of issue, the market rate for
such bonds is 12%. What is the amount of discount amortization in the
first interest payment schedule using effective interest method?

• a. Br. 40,000

• b. Br. 20,000 Year

0
Cash paid Effective interest rate Amortization Ending caring value
708,240.62
June 30 40,000 42494.43 2494.44 750,7350.5

• c. Br. 2,494.44 Cash Paid = 800,000 *0.1*6/12= 40,000

Effective interest rate = 708240.62*0.12*6/12 = 42494.43

• d. Br. 12,494.44 C
30) When a company operates in multiple countries and conducts
transactions in different currencies, which of the following risks is most
relevant on s financial reporting?

• A. Credit risk

• B. Exchange rate risk

B
• C. Market risk

• D. Liquidity risk
31) Which of the following correctly explains treatment of the increase in
account receivable on statement of cash flow

• A. Deducted from net income to reach net cash flow from financing

• B. Deducted from net income to reach net cash flow from operating

• C. Added to net income to reach net cash flow from operating B

• D. Added to net income, to reach net cash flow from financing
32) Assume you deposit $1,000 in your bank account. If the bank pays 4
percent simple interest, how much will you accumulate in your account
after 10 years?
MV = P+I = 1000+400= 1400
• A. 1040
I= 1000*0.04*10= 400
• B. 1000

• C. 1480 D
• D. 1400
33) Which of the following explains the journal entry used to record
proportionate share in cash of a joint venture on venturers book?

• A. Cash debited and investment in joint venture credited.

• B. Investment income debited and investment in joint venture credited.

• C. Investment in joint venture debited and cash credited.

• D. Investment in joint venture debited and investment income credited.

A
34) Ato Gemechu the owner of ABC Company asks you to explain how he
should treat the following reconciling items when reconciling ABC Company
bank account; a NSF check, and a deposit in transit.
In which of the following correct way you will advise him to have correct bank
reconciliation ?

• A. Deduct NSF check from balance per books and add deposit in transit to
balance per bank

• B. Deduct NSF check from balance per books and deduct deposit in transit to
balance per bank

• C. Add NSF check and deposit in transit to balance per bank. A

• D. Deduct both from balance per books,
35) In Audit Sampling for Test of Control and Substantive Test of
Transaction which of the following is performed in evaluate the Results
step ?

• a. State the objective of the audit test

• b. Generalize from the Sample to the population

B
• c. Estimate the population exception rate

• d. Perform the Audit procedures

36) Temporary difference on accounting for income tax means:

• A. The difference between the cash basis of an asset or liability and its
reported amount in the financial statements

• B. The difference between the tax basis of an asset or liability and its
reported amount in the financial statements
B
• C. The difference between the IFRS record on financial statement and
internal book keeping for management accounting,

• D. The difference between the book basis of an asset or liability and

its reported amount in the financial statements
37) Which one of the following is a method of allocating overhead based
on each products use of activities in making the product

• a. Just in time inventory

• b. Activity-based costing B
• c. Total quality management

• d. Balanced scorecard
38) Which one of the following not describes cash?

• A. Current asset

• B. Standard medium of exchange

• C. Basis for measuring and accounting for all items

• D. Most illiquid asset

D
39) The development security market in Ethiopia can be challenged by

• a. The existence of many profitable companies

• b. The underdeveloped state of the bond (debt) market

• c. Considerable unexploited fertile land

B
• d. Nationalize efforts of private enterprise
40) When to say a given asset is incurred impairment loss as per IAS 36 ?

• A. When fair value less costs to sell or value in use equals to carrying
amount
B
• B. When carrying amount is greater than recoverable amount

• C. When far value less cost to sell or value in use is more than carrying
amount

• D. when recoverable amount is more than carrying amount

41) Journal entries based on the bank reconciliation are required for:

• a. Deductions from the cash balance according to the bank's balance.

• b. Additions and deduction to the cash balance according to the

bank's records.

• c. Additions to the cash balance according to the bank's balance.

• D. Additions to the cash balance according to the company's balance.

D
42) Which of the following definition is applied for audit sampling risk?

a. Audit sampling risk is the risk that an auditor reaches an incorrect

conclusion because the sample is not representative of the pers

b. Audit sampling risk is the risk that audit tests do not uncover exiting
exceptions in the sample

c. Audit sampling risk is a testing less than 100 percent of a population for
the purpose of making inferences about that population
A
d. Audit sampling risk is the exception rate that the auditor will permit in the
population and still be willing to conclude the control is operation effectivity
• 43) A form of business organization that have a separate legal existence,
transferable units of ownership, and limited liability

• a. Partnership
C
• b. Joint venture

• c. Corporation

• d. Cooperation
44) Which of the following demonstrates the entry when direct labor is
assigned to jobs? A debit

• a. Manufacturing Overhead and a credit to direct Labor.

• b. Direct Labor and a credit to Work in Process Inventory

• c. Direct Labor and a credit to Manufacturing Overhead. D

• d. Work in Process Inventory and a credit to direct Labor.
45) ABC Ltd. purchased equipment for Birr 800,000 by issuing a promissory
note. Which accounts are affected by

• a. Equipment increases, Notes Payable increases

A
• b. Equipment decreases! Notes Receivable decreases

• c. Equipment decreases Cash decreases

• d. Equipment-increases: Cash increases

46) An extraordinary item differ from special item in that an
extraordinary item is.

• A. Use in nature and frequent in occurrence.

• B. Reported on a separate line below General Revenues.

• C. Unusual in nature and infrequent in occurrence.

C
• D. Within management's control.
47) Which of the following statement interprets the difference between
sales agency and branches?

• A. Branch office display merchandise and take customers' orders, but they
do not stock merchandise to fill customers than sales agency

B. Branch office usually has more autonomy and provides a greater range of
services than a sales agency..

• C. The only accounting records required for branch offices are used to
B
record cash receipts and disbursements unlike sales agency

• D. Sales agency Usually has more autonomy and provides a greater range
of services than a branch office
48) How does the financial system facilitate economic growth ?

• A. by managing consumer spending habits

• B. by providing affordable housing options C

• C. by efficiently allocating resources for investment,

• D. by controlling economy
49) Which of the following statement demonstrates the reason for
government regulation on finance sector?

A. Government regulation ensures profitability of the company by

protecting from healthy competition the sector

B. Government regulation ensures soundness of financial intermediaries of

the company by protecting from healthy competition in the sector

C. Government regulation improves monetary control of the company by

minimizing information to investors

D. Government regulation decreases adverse selection and moral hazard

D
problems by increasing information to investors
50) Which of the following statements lends support to dividend irrelevance
rather than to dividend relevance theory?

• a. Investors prefer the certainty of dividends to the uncertainty of capital

gains

• b. Dividends are believed by many investors to signal information about the

company

• c. Certain companies may build up a clientele of shareholders due to their

dividend policy

• d. Shareholders can manufacture their own dividends by selling some of their

shares
D
51) Which of the following adjustments is made to the acquired company's
statement of financial position when preparing consolidated on the date of
acquisition?.

• A. Recognition of goodwill amortization

• B. Recognition of contingent assets D

• C. Recognition et contingent liabilities

• d. Elimination of intra-group transactions

52) Which of the following is not a method of business combination?

• A. Joint venture

• B. Merger
A
• C. Consolidation.

• D. acquisition