CODE: ABS4 1

Institutional Exam for Accounting and Budgeting services Level – IV

PART 1: MULTIPLE CHOICE QUESTIONS (36 POINTS). TIME ALLOWED: 1 HOUR
1. Commercial Banks Coffee PLC purchases Birr 60,000 of coffee from Ethiopian Commodity Exchange
market after availing the required cash in its ECX payee out account. The effect on the components of the
basic accounting equation of Commercial Banks Coffee PLC is:
A. An increase in assets and liabilities C. A decrease in assets and liabilities
B. No change in total assets D. An increase in assets and a decrease in liabilities
2. The cash Birr 8,050 reported on the balance sheet, the Net income is Birr 2,750 on the income statement the
owner’s capital of Birr 16,450 at the beginning period shown, the amount of withdrawal for personal use
1,200. What is the amount owner’s capital report at end of the operation?
A. Birr 19,200 B. Birr 18,000 C. Birr 26,050 D. None
3. All of the following financial reports except one are prepared regularly.
A. Balance sheet C. Income statements
B. Audit Report D. Trial balance
4. Which type of audit evidence is most often associated with inventory, cash verification securities note
receivable fixes assets and it is the most reliable and useful type of evidence?
A. Documentation C. Physical examination
B. Confirmation D. Observation
5. As of December 31, 1996, Mohammed and Baubed Company have liabilities of Birr 5,000 and owner’s
equity of Birr 7,000. It received revenues of Birr 23,000 during the year ended December 31, 1996. What
are the assets for Mohammed and Baubed Company as of December 31, 1996?
A. Birr 2.000 B. Birr 25,000 C. Birr 12,000 D. Birr 35,000
6. The statement that reports revenues and expenses is the:
A. Statement of owner’s equity C. Statement of financial position
B. Statement of financial performance D. Statement of cash flows
7. Awash bank is a first pioneer private banks buys a birr 1,200,000 VAT on credit. The transaction will affect
the:
A. Income statement only
B. Statement of financial position only
C. Income statement and owner’s equity statement only
D. Income statement, owner’s equity statement, and balance sheet
8. The financial statement that summarizes the financial position of a Awash Bank PLC is the :
A. Income statement C. Balance sheet
B. Operating statement D. Owner’s equity statement
9. In recording the disposal of plant asset through exchange of plant assets in non-recognition of gain the
record should include the following.
A. Debit accumulated depreciation new equipment and credit old equipment and cash.
B. Debit accumulated depreciation and credit equipment.
C. Debit cash accumulated depreciation and credit equipment.
D. Debit cash and credit equipment.
10. A manufacturer has beginning and ending finished goods inventory Birr 70,000 and 90,000 respectively.
Al so cost of goods manufactured is Birr 200,000. What is cost of goods sold?
A. Birr 20,000 B. Birr 180,000 C. Birr 70,000 D. Birr 270,000
11. Which of the following events is not recorded in the accounting records?
A. Equipment is purchased on account.
B. An employee is terminated
C. A cash investment is made into the business.
D. The owner withdraws cash for personal use.
1
 CODE: ABS4 1

12. The Loin Advertising Company is owned by Olana Peter, Alemitu, the inventory clerk, indicates that Birr
9,750 of supplies was used during the period. The effect on specific items in the basic accounting equation:
A. A decrease in Supplies and a decrease in Olana Peter, Capital
B. A decrease in Cash and an increase in Supplies
C. An increase in Accounts Payable and a decrease in Supplies
D. An increase in Supplies Payable and a decrease in Olana Peter, Capital
13. Performing services on account will have the following effects on the components of the basic accounting
equation:
A. Increase assets and decrease owner’s equity.
B. Increase assets and increase owner’s equity.
C. Increase assets and increase liabilities
D. Increase liabilities and increase owner’s equity
14. Which method of inventory costing is TAX PURPOSE?
A. Specific Identification B. FIFO C. LIFO D. Average-Cost
15. A company normally sells its products for Birr 20 per unit, which includes a profit margin of 25%.
However, the selling price has fallen to Birr 15 per unit. This company's current inventory consists, 200
units purchased at Birr 16 per unit. Replacement cost has now fallen to Birr 13 per unit. Calculate the value
of inventory at the lower of cost or market.
A. Birr 2,550 B. Birr 2,600 C. Birr 2,700 D. Birr 3,000 E. Birr 3,200
16. An over statement of ending inventory result in:
A. An over statement of total assets C. An understatement of net income
B. An understatement of net income D. Understatement of net income
17. The process by which opportunities for improvements are monitored, relevant code of practice are used and
work schedule are adjusted for small/medium business operation:
A. Identify daily work requirement C. Monitor and manage work
B. Develop effective work habit D. Evaluate work performance
18. Which of the following statement at users of accounting information is INCORRECT?
A. Creditors is an external users C. Management is an external users
B. Regulatory authorities are external user D. Taxing authority are external user
19. Which accounting assumption assumes that an enterprise will continue in operation long enough to carry
out its existing objectives and commitments?
A. Monetary unit assumption C. Economic entity assumption
B. Time period assumption D. Going concern assumption
20. A company is more likely to use a job order cost system if:
A. It manufactures a large volume of similar products
B. Its production is continuous
C. It manufactures products with unique characteristics
D. It uses a periodic inventory system
21. The beginning cash balance was Birr. 5,000. At the end of the period, the balance was Birr. 6,000. If total
cash paid out during the period was Birr. 24,000, the amount of cash receipts was:
A. Birr. 23,000 B. Birr. 25,000 C. Birr. 13,000 D. Birr. 35,000
22. Which of the following is NOT a characteristic of a partnership?
A. Taxable entity B. Mutual agency C. Co-ownership of property D. Limited life
23. If the unit selling price is birr.16, the unit variable cost is birr.12 and fixed costs are birr.160,000, what are
the Break-Even Point sales in unit
A. 5,714 units B. 13,333 units C. 10,000units D. 40,000units
24. Which of the following is NOT one of the five basic phases of the management process?
A. Planning B. Decision making C. Controlling D. Operating

2
 CODE: ABS4 1

25. John car repair shop started the year with total assets of Birr. 60,000 and total liabilities of Br. 40,000.
During the year the business recorded Birr.100, 000 in car repair revenues, Birr. 55,000 in expenses, and
dividends of Birr. 10,000. The net income reported by John Car Repair Shop for the year was:
A. Birr.35,000 B. Birr.45,000 C. Birr.20,000 D. Birr.90,000
26. The purchase of an office building by issuing long-term notes payable should be reported as:
A. Cash outflow in the financing section of the statement of cash flows.
B. Cash outflow in the investing section of the statement of cash flows.
C. Cash outflow in the operating section of the statement of cash flows.
D. Noncash investing and financing activity.
27. Which of the following is an example of a deferral?
A. Accruing year-end wages
B. Recognizing revenues earned but not yet recorded
C. Recording prepaid rent
D. Recognizing expenses incurred but not yet recorded
28. A company began the accounting period with Birr. 50,000 in owner’s capital, ended with Birr. 75,000 in
owner’s capital, and the owner withdrew Birr. 30,000 during the period for personal use. What was the
company’s net income or loss for the period?
A. Birr.55,000 net income C. Birr.30,000 net loss
B. Birr.5,000 net loss D. Birr.5,000 net income
29. Deciding whether to record a sale when the order for services is received or when the services are
performed is an example of a
A. Classification issue C. Valuation issue
B. Recognition issue D. Communication issue
30. Which of the following is not part of the accounting process?
A. Recording C. Financial decision making
B. Identifying D. Communicating
31. A corporation has issued 25,000 shares of Birr.100 par common stock and holds 3,000 of these shares as
treasury stock. If the corporation declares a Birr 2 per share cash dividend, what amount will be recorded as
cash dividends?
A. Birr. 22,000 B. Birr. 25,000 C. Birr. 44,000 D. Birr. 50,000
32. ___________ is noncompliance with a tax laws by failing to pay taxes that are due
A. Tax incidence B. Tax evasion C. Tax avoidance D. Tax shift
33. Which of the following is NOT an element of internal control?
A. Control environment C. Monitoring
B. Compliance with laws and regulations D. Control procedures
34. The purchase of supplies on account should result in:
A. A debit to Supplies Expense and a credit to Cash.
B. A debit to Supplies Expense and a credit to Accounts Payable.
C. A debit to Supplies and a credit to Accounts Payable.
D. A debit to Supplies and a credit to Accounts Receivable
35. A sequence for the payment liquidate a partnership is:
A. Pay liabilities Allocate gain/loss Distribute cash to partners Sell NCA for cash
B. Sell NCA for cash Allocate gain/loss Pay liabilities Distribute cash to partners
C. Sell NCA for cash Distribute cash to partners Pay liabilities Allocate gain/loss
D. Pay liabilities Sell NCA for cash Allocate gain/loss Distribute cash to partners
36. The statement that reports revenues and expenses is the:
A. Statement of owner’s equity C. Statement of financial position
B. Statement of financial performance D. Statement of cash flows

3
 CODE: ABS4 1

37. Which of the following is NOT elements of Income statement

A. Revenue and Expense C. Operating Expense
B. Gross profit D. Prepaid expense
38. The budgeted income statement is:
A. The end product of the operating budgets.
B. The end product of the financial budgets.
C. The starting point of the master budget.
D. Dependent on cash receipts and cash disbursements
39. For the month of May, River Company has beginning finished goods inventory of Birr 50,000, ending
finished goods inventory of Birr 35,000, and cost of goods manufactured of Birr 125,000. What is the cost
of goods sold for May?
A. Birr 90,000 B. Birr 140,000 C. Birr 110,000 D. Birr 170,000
40. The current sequence of partnership liquidation process
A. Payment of liability  selling NCA for cash  distribution of cash to partner
B. Selling of NCA for cash  distribution of cash to partner  payment of liability
C. Selling of NCA for cash  payment of liability  distribution of cash to partner
D. Payment of liability  distribution of cash to partner  selling NCA for cash
41. The merchandise inventory at the end of the year was over stated erroneously by birr. 10,000.00 the error
will effect on:
A. Under statement of the gross profit for the year by birr. 10,000
B. Over statement of the net income for the year by birr. 10,000
C. Over statement of the cost of merchandise sold for the year by birr. 10,000
D. Under statement of net income for the year of birr. 10,000
42. A process costing system is used by an company that
A. Produce different product
B. Produce items special request of customer
C. Produce heterogeneous product
D. Produce homogeneous product
43. If a corporation has an outstanding 1,500 share of birr 15 cumulative preferred stock of birr 100 par and
dividend has be passed for past three years .What is the amount of preferred dividend that must be declared
in current year before a dividend can be declared on the common stock?
A. Birr. 52, 500 B. Birr. 67,500 C. Birr. 70,000 D. Birr. 90,000
44. Jan is a bookkeeper, cash receipts and prepares the monthly bank reconciliations. It has NOT given much
consideration to internal control. An assessment of this situation indicates
A. Documentation procedures are violated
B. Independent internal verification is violated
C. Segregation of duties is violated
D. Establishment of responsibility is violated
45. Net present value is negative when
A. The present value of cash inflows is greater than the present value of cash outflows.
B. The present value of cash outflows is greater than the present value of cash inflows.
C. The future value of cash inflows is greater than the present value of cash outflows.
D. The present value of cash outflows is greater than the future value of cash outflows.
46. If beginning capital was Birr 25,000, ending capital is Birr 37,000, and the owner's withdrawals were Birr
23,000, the amount of net income or net loss for the period was:
A. Net loss of birr. 35,000 C. Net income of birr. 35,000
B. Net income of birr. 14,000 D. Net loss of birr. 14,000

4
 CODE: ABS4 1

47. Assume GEDA merchandise inventory for June 1 was birr. 210,000, purchases during June were birr
450,000 net sales for the same month total birr 840,000 (net) and gross profit percentage is estimated to be
25% of sale what will be inventory on hand at the end of the month?
A. Birr 20,000 B. Birr 30,000 C. Birr 40,000 D. Birr 50,000
48. Inventory is a process of:
A. Valuation. B. Cost Allocation. C. Cash Accumulation D. Appraisal
49. River Company expects Birr 650,000 of credit sales in March and Birr 800,000 of credit sales in April.
Dixon historically collects 70% of its sales in the month of sale and 30% in the following month. How
much cash does Dixon expect to collect in April?
A. Birr 800,000 B. Birr 755,000 C. Birr. 560,000 D. Birr 1,015,000
50. A depreciation method accepted by proclamation of Ethiopian income tax law for business
A. Straight line method C. Double decline balance
B. Unit of production D. Sum-Year-digit
51. Which of the following statement at users of accounting information is INCORRECT?
A. Creditors is an external users C. Business officer is an external users
B. Regulatory authorities are external user D. Taxing authority are external user
52. One of the following is an element that helps managers make decisions in a legal context.
A. Identifying compliance requirements C. Financial auditing
B. Scheduling and planning D. Technical requirements
53. All the material significant item revenues recorded in the financial statement.
A. Objectivity C. Matching Principle
B. Going- concern principle D. Materiality Principle
54. Joe is warehouse custodian and also maintains the accounting record of the inventory held at the warehouse.
An assessment of this situation indicates
A. Documentation procedures are violated
B. Independent internal verification is violated
C. Segregation of duties is violated
D. Establishment of responsibility is violated
55. Financial budget that helps to finance the project
A. Sales budget C. Cash forecast budget
B. Production budget D. Materials usage budget
56. Costs are traced or allocated to the product is
A. Cost accumulation C. Cost allocation
B. Cost assignment D. Cost allocation base
57. Depreciation is a process of:
A. Valuation. B. Cost Allocation. C. Cash Accumulation D. Appraisal
58. What are the three elements which change equity:
A. Income, investments by owner (s) and distribution to owners
B. Depreciation expense, accumulated depreciation and provision for loan losses
C. Investments by owner (s), long term liability and interest bearing deposits
D. Distribution to owner (s), interest income, current loans and cash
59. The cost of materials that have not yet entered on to the manufacturing process.
A. Material inventory B. Work-in-process C. Finished goods D. All of the above
60. At the end of the fiscal year, Accounts Receivable has a balance of birr.100, 000 and Allowance for
Doubtful Accounts has a balance of birr.7, 000. The expected net realizable value of the accounts receivable
is:
A. Birr.7,000 B. Birr.100,000 C. Birr.93,000 D. Birr.107,000

5
 CODE: ABS4 1

61. The total estimated sale for the coming year is 250,000 units. The estimated inventory at the beginning of
the year is 22,500 units, and the desired inventory at the end of the year is 30,000 units. The total
production indicated in the production budget is:
A. 242,500 units. B. 280,000 units C. 257,500 units. D. 302,500 units
62. ABC Company buys a Br. 900 machine on credit. This transaction will affect:
A. Income statement only
B. Balance sheet only
C. Income statement and owner’s equity statement only
D. Income statement, owner’s equity statement, and balance sheet
63. A note for birr 36,000 is payable in 60- days with interest rate of 10% the amount of maturity value will be (
360 days)
A. Birr 36,100 B. Birr 36,150 C. Birr 36,600 D. Birr 36,660
64. An inventory system that continuously discloses the cost of inventory on hand and cost of inventory sold is:
A. Physical inventory system C. First-In, First-Out system
B. Periodic inventory system D. Perpetual inventory system
65. The income statement report, sales revenue is Birr 650,000. The gross margin of sales is 20%, what is the
cost of goods sold?
A. Birr 650,000 B. Birr 260,000 C. Birr 130,000 D. Birr 520,000
66. If the beginning inventory was Birr 120,000, cost of merchandise purchase was Birr 180,000 and ending
inventory was Birr 140,000. How much will be the cost of goods sold?
A. Birr 160,000 B. Birr 150,000 C. Birr 120,000 D. Birr 180,000
67. When accountant convert a previous sale on account (dishonored note) to a note receivable
A. Debit accounts receivable and credit owner’s equity
B. Debit accounts receivable and credit accounts payable
C. Debit notes receivable and credit accounts receivable
D. Debit notes receivable and credit notes payable
68. The pervasive formula of accounting i.e. A=L+C is mainly shown in one of the following financial
statements
C. Cash flow statement C. Capital statement
D. Income statement D. Balance sheet
69. Which of the following is a disadvantage of the corporate form of organization?
A. Limited liability C. Continuous life
B. Owner is separate from management D. Ability to raise capital
70. Which of the following is a NOT characteristic of a partnership?
A. Double taxation C. Co-ownership of property
B. Mutual agency D. Limited life
71. In the annual report, where would a financial statement reader find out if the company’s financial
statements give a fair representation of its financial position and operating results?
A. Notes to the financial statements
B. Management discussion and analysis section
C. Balance sheet
D. Auditor’s report
72. The purchase of an office building by issuing long-term notes payable should be reported as a
A. Cash outflow in the financing section of the statement of cash flows.
B. Cash outflow in the investing section of the statement of cash flows.
C. Cash outflow in the operating section of the statement of cash flows.
D. Noncash investing and financing activity.

6
 CODE: ABS4 1

73. 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 B. Corporation C. Partnership D. Service Business
74. Which of the following is NOT a step in the accounting process?
A. Identification B. Recording C. Economic entity D. Communication
75. The long term asset that have No Physical Existence but are right that have value is known;
A. Current assets B. Fixed assets C. Intangible assets D. Inventory
76. Which of the following is NOT one of the five basic phases of the management process?
A. Planning B. Decision making C. Controlling D. Operating
77. The historical cost principle states that:
A. Assets should be initially recorded at cost and adjusted when the fair value changes.
B. Activities of an entity are to be kept separate and distinct from its owner.
C. Assets should be recorded at their cost.
D. Only transaction data capable of being expressed in terms of money is included in the accounting
records.
78. The statement that reports revenues and expenses is the:
C. Statement of owner’s equity C. Statement of financial position
D. Statement of financial performance D. Statement of cash flows
79. A business organized as a Corporation
A. It is NOT a separate legal entity in most
B. It requires those stockholders be personally liable for debt of business
C. It is owned by stockholders
D. It terminates when one of its original stockholders dies
80. Which of the following business can be owned by one (single) person?
a. Joint Venture B. Sole Proprietorship C. Corporation D. Partnership
81. Which of the following statements about users of accounting information is incorrect?
A. Management is an internal user. C. Taxing authorities are external users
B. Present creditors are external users. D. Regulatory authorities are internal users
82. Break Even Point can be defined?
A. The level of activity where variable cost are covered by sales revenues
B. The level of activity where profit equal to fixed cost
C. The level of activity where cash flow is zero
D. The level of activity where at which there is neither profit nor loss
83. One of the following can decrease the balance of liability account
A. Cash debit from advance collection C. Cash debit from collection sales
B. Cash credit for payment of accrued salary D. Debit expense for accrued liability
84. The cost of materials that have yet entered on to the manufacturing process.
A. Material inventory B. Work-in-process C. Finished goods D. All of the above
85. Payroll register sheet is
A. pay period refers to the length of time covered by each payroll payment
B. Less sensitive by employees
C. The day in which wages and salary are paid to employees
D. The list of employees business along with each employees gross earnings, deduction and net
pay for a particular pay period.
7
 CODE: ABS4 1

86. The beginning raw material was $ 10,000. During the year purchased raw material for 125,000
were made, but only 75,000 were paid. The balance raw material at end of the year was 30,000.
what was the amount of raw material used in production
A. $55,000 B. $95,000 C. $45,000 D. $105,000
87. The following data is taken from Error Company, liability Birr 90,000 and Asset three times
equity, calculate amount of asset and capital.
A. Asset Birr. 90,000 and Capital 120,000 C. Asset Birr. 45,000 and Capital 120,000
B. Asset Birr. 135,000 and Capital 45,000 D. Asset Birr. 90,000 and Capital 45,000
88. Which of the following is a characteristic of a corporation?
A. Declaration of a dividend by the stockholders
B. Appointment of officers by the stockholders
C. Transferability of shares of stock
D. Unlimited liability
89. Conversion cost is:
A. The combination of direct labor and factory overhead cost
B. The combination of raw material and direct labor
C. Direct material cost only
D. Direct labor cost only
90. In preparing bank reconciliation, a service charge shown on the bank statement should be
A. Added to the balance per the bank statement
B. Deducted from the balance per the bank statement
C. Added to the balance per the depositor’s records
D. Deducted from the balance per the depositor’s records
91. Which of the following credit terms is most advantageous to the buyer?
A. 1/10, N/30 B. 5/10, N/60 C. 2/10, N/30 D. 5/10, N/20
92. If the supplies account, before adjustment on May 31, indicated balance of Birr 2,250 and an
inventory of supplies on hand at May 31, totaled Birr 950, the adjusting entry would be:
A. Debit supplies Br. 950, Credit supplies expense Br. 950
B. Debit supplies Br. 1300, credit supplies expense Br.1,300
C. Credit supplies Expense 950 and Debit supplies Br. 950
D. Debit supplies Expense Br. 1,300, Credit supplies Br. 1,300
93. A petty cash fund is:
A. Reimbursed when the amount of money in the fund is reduced to a predetermined minimum
amount.
B. Established by estimating the amount of cash needed for disbursements of relatively small
amounts during a specified period.
C. Used to pay relatively small amounts.
D. All of the above
94. If sales are $500,000, variable costs are $200,000, and fixed costs are $240,000, what is the
contribution margin ratio?
A. 40% B. 52% C. 48% D. 60%
95. A fixed asset cost of Birr. 60,000 and Book value of the asset is Birr 2,000. If asset sold birr.
5,000 in cash. A recognized gain or loss
A. Br. 5,000 Gain B. Br. 3,000 Gain C. Br. 2,000 Loss D. Br. 3,000 Loss
8
 CODE: ABS4 1

96. The banker accountant credited the customer account in error and in preparing bank reconciliation
the error could be adjusted by:
A. Adding to depositor balance C. Deducting to depositor balance
B. Adding to bank balance D. Deducting to bank balance
97. A fixed asset cost of Birr. 60,000 and Book value of the asset is Birr 2,000. If asset sold birr.
5,000 in cash. A recognized gain or loss
A. Br. 5,000 Gain B. Br. 3,000 Gain C. Br. 2,000 Loss D. Br. 3,000 Loss
98. Working capital is
A. Total assets minus total liabilities C. Current assets minus current liabilities
B. Current assets minus total liabilities D. Total assets minus current liabilities
99. Long-term liabilities normally include
A. Proprietor's capital C. Loan secured by debentures
B. Bank overdraft D. Trade creditors
100. The expanded accounting equation is:
A. Assets + Liabilities = Owner’s Capital + Owner’s Drawings + Revenues + Expenses
B. Assets = Liabilities + Owner’s Capital + Owner’s Drawings + Revenues - Expenses
C. Assets = Liabilities - Owner’s Capital - Owner’s Drawings – Revenues - Expenses
D. Assets = Liabilities + Owner’s Capital - Owner’s Drawings + Revenues – Expenses
101. Which of the following highlights the correct order of the stages in the accounting cycle?
A. Journalizing, Final Accounts, Posting To The Ledger And Trial Balance
B. Journalizing, Posting To The Ledger, Trial Balance And Final Accounts
C. Posting To The Ledger, Trial Balance, Final Accounts And Journalizing
D. Posting To The Ledger, Journalizing, Final Accounts And Trial Balance
102. The Trading and Profit and Loss account is also called
A. Balance Sheet C. Cash Flow Statement
B. Income Statement D. Trial Balance
103. A company estimated $420,000 of factory overhead cost and 16,000 direct labor hours for the
period. During the period, a job was completed with $ 4,500 of direct materials and $3,000 of
direct labor. The direct labor rate was $15 per hour. What is the factory overhead applied to this
job?
A. $2,100 B. $78,750 C. $5,250 D. $420,000
104. An example of a cash flow from an investing activity is:
A. Receipt of cash from the sale of equipment C. Receipt of cash from the sale of stock.
B. Payment of cash for dividends D. Payment of cash to acquire treasury stock.
105. A company is more likely to use a job order cost system if:
A. It manufactures a large volume of similar products C. Its production is continuous.
B. It manufactures products with unique characteristics D. It uses a periodic inventory system
106. A cash distribution of earnings by a corporation to its shareholders
a. Cash dividend B. Retained Earnings C. Cumulative Net income D. Capital
107. Which of the following is NOT an element of internal control?
A. Control environment B. Monitoring
C. Compliance with laws and regulations D. Control procedures
108. Johnny Car Repair Shop started the year with total assets of Birr. 60,000 and total liabilities of
Birr. 40,000. During the year the business recorded Birr.100, 000 in car repair revenues, Birr.
9
 CODE: ABS4 1

55,000 in expenses, and dividends of Birr. 10,000. The net income reported by Johnny Car Repair
Shop for the year was;
A. Birr. 35,000 B. Birr. 20,000 C. Birr. 90,000 D. Birr. 45,000
109. A company began the accounting period with Birr. 50,000 in owner’s capital, ended with Birr.
75,000 in owner’s capital, and the owner withdrew Birr. 30,000 during the period for personal use.
What was the company’s net income or loss for the period?
A. Birr. 30,000 net loss C. Birr. 5,000 net loss
B. Birr. 55,000 net income D. Birr. 5,000 net income
110. What are the Break-even point Sales in units; if fixed cost is Birr.10, 000 while the units
selling price and variable costs are birr 15 and birr 10 respectively?
A. 667 units B. 10,000 units C. 1,000 units D. 2,000 units
111. If beginning capital was Birr. 25,000, ending capital is Birr. 37,000 and the owner's
withdrawals were Birr. 23,000, the amount of net income or net loss for the period was:
A. Net loss of Birr. 35,000 C. Net income of Birr. 14,000
B. Net loss of Birr. 14,000 D. Net income of Birr. 35,000
112. Which of the following is NOT an example of intangible asset?
A. Franchise B. Land C. Goodwill D. Patents
113. The collection of accounts receivable is recorded by a
A. Credit to Cash and a credit to Accounts Receivable
B. Debit to Cash and a debit to Accounts Receivable
C. Credit to Cash and a debit to Accounts Receivable
D. Debit to Cash and a credit to Accounts Receivable
114. At the beginning of the current year, Wilson Corporation had 200,000 shares of $1 par
common stock outstanding and had retained earnings of $4,800,000. During the year, the company
earned $1,675,000 and paid a year-end cash dividend of $3 per share. What was Wilson’s retained
earnings at the end of the year?
A. $4,800,000 B. $5,875,000 C. $6,275,000 D. $6,475,000
115. The beginning Cash balance was Birr. 5,000. At the end of the period, the balance was Birr.
6,000. If total cash paid out during the period was Birr. 24,000, the amount of cash receipts was:
A. Birr. 23,000 B. Birr. 25,000 C. Birr. 13,000 D. Birr. 35,000
116. Which of the following is NOT a characteristic of a partnership?
A. Taxable entity B. Mutual agency C. Co-ownership of property. D. Limited life.
117. The trial balance of Jeo Company had accounts with the following normal balances: Cash
$5,000, Service Revenue $85,000, Salaries and Wages Payable $4,000, Salaries and Wages
Expense $40,000, Rent Expense $10,000, Owner’s Capital $42,000, Owner’s Drawings $15,000
and Equipment $61,000. In preparing a trial balance, the total in the debit column is:
A. $131,000 B. $91,000 C. $216,000 D. $116,000
118. CBE Addis Branch monitor work activities of each loan officers. The Feedback may the bank
may NOT include:
A. Setting specific and attainment objectives
B. Work activities are monitored and compared with set objectives
C. Work performance monitored
D. Deviation from work activities are reported

10
 CODE: ABS4 1

16. The process by which opportunities for improvements are monitored, relevant code of practice are
used and work schedule are adjusted for small/medium business operation:
A. Identify daily work requirement
B. Monitor and manage work
C. Develop effective work habit
D. Evaluate work performance
17. Which is the strategies to utilize specialized communication skills
A. Recognizing own limitations
B. Utilizing techniques and aids
C. Providing written drafts
D. Verbal and non verbal communication
E. All of the above
18. Garden Beer Grill located around Bole receives a bill of Birr 400 from the Lion Advertising
Agency. The owner, Elias Maru, is postponing payment of the bill until a later date. The effect on
specific items in the basic accounting equation is:
A. A decrease in Cash and an increase in Accounts Payable
B. A decrease in cash and an increase in Elias Maru, Capital
C. An increase in Accounts Payable and a decrease in Elias Maru, Capital
D. A decrease in Accounts Payable and an increase in Elias Maru, Capital
19. The Loin Advertising Company is owned by Olana Peter, Alemitu, the inventory clerk, indicates
that Birr 9,750 of supplies was used during the period. The effect on specific items in the basic
accounting equation is:
E. A decrease in Supplies and a decrease in Olana Peter, Capital
F. A decrease in Cash and an increase in Supplies
G. An increase in Accounts Payable and a decrease in Supplies
H. An increase in Supplies Payable and a decrease in Olana Peter, Capital
20. Almaz Birara, owner of the Habesh Bar and restaurant, withdraws Birr 5,000 in cash for personal
use. The effect on the specific items in the basic accounting equation is:
A. An increase in Accounts Receivable and a decrease in Almaz Birara, Capital.
B. An increase in Salary Expense and a decrease in Cash
C. An increase in Almaz Birara, Capital and a decrease in Cash
D. A decrease in Almaz Birara, Capital and a decrease in Cash
21. The balance of supplies account before adjustment on shows Birr. 60,000, at the end of the month
inventory supplies birr. 36,500. The supplies recorded an asset at the end of the time purchase, at
the adjusting entry end of the month:
A. Debit supplies Expense and Credit supplies birr. 23,500
B. Credit supplies Expense and Debit supplies birr. 23,500
C. Credit supplies Expense and Debit supplies birr. 36,500
D. Debit supplies Expense and Credit supplies birr. 36,500
22. A credit sale of $75,000 is made on July 2, terms 2/10, net/30. A return of $5000 is granted on July
6. The amount received as payment in full on July 12 is:
A. $70,000. B. $68,500. C. $68,600. D. $65,000.
23. Which of the following is NOT part of the recording process?
A. Analyzing transactions C. Preparing a trial balance.
B. Entering transactions in a journal D. Posting transactions.
11
 CODE: ABS4 1

24. Which of the following statements about a journal is false?

A. It is not a book of original entry.
B. It provides a chronological record of transactions.
C. It helps to locate errors because the debit and credit amounts for each entry can be readily
compared.
D. It discloses in one place the complete effect of a transaction.
25. The purchase of supplies on account should result in:
E. A debit to Supplies Expense and a credit to Cash.
F. A debit to Supplies Expense and a credit to Accounts Payable.
G. A debit to Supplies and a credit to Accounts Payable.
H. A debit to Supplies and a credit to Accounts Receivable.
26. The order of the accounts in the ledger is:
A. Assets, revenues, expenses, liabilities, owner’s capital, owner’s drawings.
B. Assets, liabilities, owner’s capital, owner’s drawings, revenues, expenses.
C. Owner’s capital, assets, revenues, expenses, liabilities, owner’s drawings.
D. Revenues, assets, expenses, liabilities, owner’s capital, owner’s drawings.
27. A ledger:
A. Contains only asset and liability accounts.
B. Should show accounts in alphabetical order.
C. Is a collection of the entire group of accounts maintained by a company
D. Is a book of original entry
28. Posting
A. Normally occurs before journalizing.
B. Transfers ledger transaction data to the journal.
C. An optional step in the recording process
D. Transfers journal entries to ledger accounts
29. A trial balance:
A. Is a list of accounts with their balances at a given time
B. Proves the journalized transactions are correct.
C. Will not balance if a correct journal entry is posted twice.
D. Proves that all transactions have been recorded.
30. The trial balance of Jeo Company had accounts with the following normal balances: Cash $5,000,
Service Revenue $85,000, Salaries and Wages Payable $4,000, Salaries and Wages Expense
$40,000, Rent Expense $10,000, Owner’s Capital $42,000, Owner’s Drawings $15,000 and
Equipment $61,000. In preparing a trial balance, the total in the debit column is:
B. $131,000 B. $91,000 C. $216,000 D. $116,000
31. The revenue recognition principle states that:
A. Revenue should be recognized in the accounting period in which a performance obligation
is satisfied.
B. Expenses should be matched with revenues.
C. The economic life of a business can be divided into artificial time periods.
D. The fiscal year should correspond with the calendar year.

12
 CODE: ABS4 1

32. The time period assumption states that:

A. Companies must wait until the calendar year is completed to prepare financial statements.
B. Companies use the fiscal year to report financial information.
C. The economic life of a business can be divided into artificial time periods.
D. Companies record information in the time period in which the events occur.
33. Which of the following statements about the accrual basis of accounting is false?
A. Events that change a company’s financial statements are recorded in the periods in which the
events occur.
B. Revenue is recognized in the period in which services are performed.
C. This basis is in accord with generally accepted accounting principles.
D. Revenue is recorded only when cash is received, and expense is recorded only when cash is
paid.
34. If a corporation has outstanding 1,000 shares of $9 cumulative preferred stock of $100 par and
dividends have been passed for the preceding three years, what is the amount of preferred
dividends that must be declared in the three year before a dividend can be declared on common
stock?
A. $9,000 B. $36,000 C. $27,000 D.$45,000
35. Which of the following entries closes the dividends account at the end of the period?
A. Debit the dividends account, credit the capital stock account.
B. Debit the retained earnings account, credit the dividends account.
C. Debit the capital stock account, credit the dividends account.
D. Debit the dividends account, credit the retained earnings account.
36. Which of the following accounts would not be closed to the retained earnings account at the end
of a period?
A. Fees Earned B. Wages Expense
B. Rent Expense D. Accumulated Depreciation
37. Which of the following are external forces impacting on financial service industry?
A. Economic climate B. Inflation rate C. Exchange rate D. All of the above
38. Which accounting assumption assumes that an enterprise will continue in operation long enough
to carry out its existing objectives and commitments?
A. Monetary unit assumption C. Economic entity assumption
B. Time period assumption D. Going concern assumption
39. When a net loss has occurred, Income Summary is:
A. Debited and Owner’s Capital is credited.
B. Credited and Owner’s Capital is debited.
C. Debited and Owner’s Drawings is credited.
D. Credited and Owner’s Drawings is debited.
40. All of the following statements regarding budgeting is true except
A. Budgeting helps managers determine the resources needed to meet their
goals and
B. Budgeting is a key ingredient in good decision-making.
C. Budgeting is a bookkeeping task
D. The focus of budgeting is planning.
E. Budgeting is an executive responsibility.

13
 CODE: ABS4 1

41. The purchase of supplies on account should result in:

A. A debit to Supplies Expense and a credit to Cash.
B. A debit to Supplies Expense and a credit to Accounts Payable.
C. A debit to Supplies and a credit to Accounts Payable.
D. A debit to Supplies and a credit to Accounts Receivable.
42. The order of the accounts in the ledger is:
A. Assets, revenues, expenses, liabilities, owner’s capital, owner’s drawings.
B. Assets, liabilities, owner’s capital, owner’s drawings, revenues, expenses.
C. Owner’s capital, assets, revenues, expenses, liabilities, owner’s drawings.
D. Revenues, assets, expenses, liabilities, owner’s capital, owner’s drawings.
43. A ledger:
A. Contains only asset and liability accounts.
B. Should show accounts in alphabetical order.
C. Is a collection of the entire group of accounts maintained by a company
D. Is a book of original entry
44. Posting
A. Normally occurs before journalizing.
B. Transfers ledger transaction data to the journal.
C. An optional step in the recording process
D. Transfers journal entries to ledger accounts
45. A trial balance:
A. Is a list of accounts with their balances at a given time
B. Proves the journalized transactions are correct.
C. Will not balance if a correct journal entry is posted twice.
D. Proves that all transactions have been recorded.
46. Which of the following is a disadvantage of the corporate form of organization?
A. Limited liability B. Continuous life
C. Owner is separate from management D. Ability to raise capital
47. 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?
A. Birr. 22,000 B. Birr. 44,000 C. Birr. 25,000 D. Birr. 50,000
48. Which method of inventory costing is prohibited under IFRS?
A. Specific Identification. B. FIFO C. LIFO D. Average-Cost.
49. Which method of inventory costing is tax purpose?
A. Specific Identification. B. FIFO C. LIFO D. Average-Cost.
50. If merchandise inventory is being valued at cost and the price level is steadily rising, the method of
costing that will yield the highest net income is:
A. LIFO B. Average C. FIFO D. Periodic
51. An over statement of ending inventory result in:
A. An over statement of total assets C. An understatement of net income
B. An understatement of net income D. Understatement of net income
52. Accounting information should not be:
14
 CODE: ABS4 1

A. Relevant B. Reliable C. Timelines D. Unreliable

15