Ethio-Lens College

Faculty of Business and Economics

Department of Accounting and Finance
Final Exam of Principle of Accounting I for 1st year accounting and finance

Name _____________________________________________IDNO _______________Sec ___

Exam date 21/01/2018 Time allowed 1:30 hours

I Choose the best answer (2 point each)

1. If total assets increased $20,000 during a period and total liabilities decreased $12,000 during the same
period, the amount and direction (increase or decrease) of the change in owner’s equity for that period is
A) $32,000 increase B) $8,000 increase C) $32,000 decrease D) $8,000 decrease
2. ABC Co. pays birr 10,000 cash to acquire land as a result of this transaction which one of the following is
false?
A. Current assets are reduced C. current assets are increased
B. Plant assets are increased D. Total assets stay the same
3. Assets are recorded at their original purchase price according to the
A. Historical cost principle C. Business entity concept
B. Cost benefit principle D. Matching principle
4. An enterprise is expected to operate for an indefinite period of time according to
A. Business entity concept C. Historical cost principle
B. Going concern concept D. Objectivity concept
5. Begins with journalizing of transaction and ends with post-closing trail balance.
A) Work sheet B) accounting cycle C) trail balance D) adjustment process
6. Which trial balance(TB) lists all business accounts before year end adjusting journal entries made
A. Unadjusted TB B) Adjusted TB C) Pre closing TB D) Post closing TB
7. Accounts with balances that are carried over to future years
A) Temporary accounts B) Revenue accounts C) Permanent accounts D) Withdrawal accounts
8. Which one of the following account is not liability?
A) Account payable B) Salary payable C) Note payable D) Account receivable
9. Costs that are incurred during generating revenue are
A. Withdrawal B. Expense C. Liability D. Current asset
10. A freight terms in which the buyer pays the transportation costs from shipping point to the final destination
A) FOB shipping point B) Merchandise point C) FOB destination D) Asset point
11. When will be the cost of goods sold will be the same as the cost of merchandise purchase?
A. there is no beginning merchandise inventory (first year of business
B. purchases are equal to net sales
C. there is no ending merchandise inventory
D. the beginning and ending merchandise inventory values are the same
12. Companies that buy raw materials and convert them into finished goods for customers are included in
A) manufacturing companies B) service companies C) merchandising companies D. retail companies
13. In manufacturing business, types of inventory do not include
A. Raw materials inventory B) finished goods inventory C) work in process inventory D) None
14. Which one of the following is false?
A. All overhead cost are fixed
B. Conversion cost includes direct labor cost and overhead cost
C. Prime cost includes direct labor cost and direct material cost
D. materials that become an integral part of the finished goods are direct materials

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15. Which of the following would require the Petty Cash account to be credited?
A. the petty cash fund is short by birr 6.50 C) the petty cash account is being increased
B. the petty cash fund is over by birr 8.50 D) the petty cash account is being decreased
16. To establish a petty cash fund for a department requires a journal entry that will
A. debit Miscellaneous Expense and credit Cash C) debit Cash and credit Petty Cash
B. debit Miscellaneous Expense and credit Petty Cash D) debit Petty Cash and credit Cash
17. 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 in the fund is reduced to a predetermined minimum amount.
D. All of the above
18. Which of the following is not a principle of internal control?
A. Responsibilities should be clearly established C) Record-keeping and custody should be combined
B. Adequate records should be maintained D) Divide responsibility for related transactions
19. The party who signs the check is
A. Maker B. Payer C. Payee D. None
20. The receivable that is usually evidenced by a formal instrument of credit is a (n)
A. Note payable B. Note receivable C. accounts receivable D. income tax receivable
21. On July 18, a firm received from one of its customers, ABC Co. a written promise to pay the firm $1,200,
at 12% interest, on September 17, for merchandise that ABC Co. had purchased from the firm. Which of
the following statements is true?
A) ABC is the payee of the note C) the firm is the endorser of the note
B) the firm is the maker of the note D) ABC is the maker of the note
22. The AFDA account has a year-end credit balance, prior to adjustment of $500. The bad debts are estimated
at 7% of $60,000 of outstanding accounts receivable. After the appropriate adjusting entry to recognize the
bad debt expense, the Allowance for Doubtful Accounts should have a ___________ credit balance.
B) $4,200 B) $3,700 C) $3,200 D) $5,200
23. At the end of the fiscal year, before the accounts are adjusted, Accounts Receivable has a balance of
$200,000 and Allowance for Doubtful Accounts (AFDA) has a credit balance of $2,500. If the estimate of
uncollectible accounts determined by aging the receivables is $8,500,the amount of bad debt expense
A. $2,500 B) $8,500 C) $6,000 D) $11,000
24. Accounts and notes receivables originating from sales transactions are called
A. Trade Receivables B. Trade payables C Trade equities D. Account payable
25. Which of the following accounts has a normal credit balance?
A. Account receivable B. Note Receivable C. Interest revenue D. Interest expense

Name_______________________________________________________ ID No___________________

Answer

1 6 11 16 21
2 7 12 17 22
3 8 13 18 23
4 9 14 19 24
5 10 15 20 25

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