Debark University, College of Business & Economics, Department of

Accounting & Finance

Model Exit Exam
1. Audit sampling is involved whenever an auditor:
A. performs substantive tests
B. examines 100% of the population
C. forms a conclusion about the population from which the sample is drawn
D. performs tests of controls
2. After considering the client's internal control the auditors have concluded that it is well
designed and is functioning as anticipated. Under these circumstances the auditors would most
likely:
A. Cease to perform further substantive tests.
B. Reduce substantive tests in areas where the internal control was found to be effective.
C. Increase the extent of anticipated analytical procedures.
D. Perform all tests of controls to the extent outlined in the preplanned audit program.
3. The overall objective in the audit of the sales and collection and payment cycle is
A. To ensure the reliability of the affected accounts.
B. To ensure the accuracy of the affected accounts.
C. To evaluate whether the affected accounts are fairly presented in accordance with
accounting standards.
D. To evaluate whether fraudulent payments were made.
4. Which of the following account is not part of the acquisition and payment cycle
A. prepaid expenses
B. sales returns and allowances
C. accounts payable
D. property, plant, and equipment
5. An auditor is gathering evidence on the completeness assertion. To do so, she performs a test
to verify that all goods received by the company have been recorded properly. The document
population for this test would consist of all
A. receiving reports
B. Vendor invoices.
C. Purchase orders.
D. Cash disbursements for accounts payable.
6. What critical event must take place before goods can be shipped in order to assure payment
can be reasonably expected?
A. determination of correct delivery address
B. credit approval
C. matching of shipping document with sales invoice
D. receipt of sales order from the customer
7. Business combinations unite previously separate business entities. Which one is taken place
through vertical integration?
A. Choice water combine with daily water
 Debark University, College of Business & Economics, Department of
Accounting & Finance
B. Farmers association combine with flour factory
C. Ambassador combine with Wal-Mart
D. All are correct
8. Assume Haile resorts group combine landmark hotel because landmark hotel is one of the most
accepted hotels in Gondar and have good name by customers. Haile resort group’s intention is
to get acceptance through business combination. Which one is correct about the reason of
combination?
A. Cost advantage
B. Lower risk
C. Acquisition of intangible assets
D. Avoidance of operating delay
9. Assume Pitt Co. pays $400,000 cash and issues 50,000 shares of Pitt Co. $10 par common
stock with a market value of $20 per share for the net assets of Seed Co. the net asset of Seed
Company is $1, 000,000 at fair value. The correct answer is:
A. There is goodwill on transaction
B. There is bargain in transaction
C. The bargain purchase amounts $400,000
D. B and C are correct answers
10. Which account is not to be summed in the process of consolidation on the date of acquisition?
A. Current assets
B. Plant asset
C. Current liabilities
D. Shareholders capital
11. Assume common stock and retained earnings of the acquirer are $100,000 and $20,000
respectively. When the acquirer company acquire a subsidiary with common stock and retained
earnings of $50,000 and $30,000 respectively, consolidated shareholders capital will be:
A. $200,000
B. $120,000
C. $150,000
D. $70,000
12. __________________is a currency other than the functional currency of the entity.
A. Foreign currency
B. Functional currency
C. Presentation currency
D. Domestic currency
13. Assume medroc groups imported merchandise inventory from USA for $1,000,000 on account
to Ethiopian customers at 1$=25Br. spot rate, but at the end of credit period, the foreign
exchange rate increased to 1$=30. The loss due to foreign exchange is:
A. $25,000,000
B. $5,000,000
C. $30,000,000
 Debark University, College of Business & Economics, Department of
Accounting & Finance
D. $27,500,000
14. Exchange rate values are determined by market forces without intervention by governments.
A. Fixed
B. Freely floating
C. Managed float
D. Pegged
15. Assume there is a reduction in the selling price and all other CVP parameters remain constant.
This change will:

A. increase contribution margin C. reduce fixed costs

B. Increase variable costs D. reduce operating income
16. Assume only the specified parameters change in a cost-volume-profit analysis. If the
contribution margin increases by Br.6 per unit, then operating profits will:
A. also increase by Br.6 per unit
B. increase by less than Br.6 per unit
C. decrease by Br.6 per unit
D. be indeterminable
17. A favorable variance indicates that:
A. Budgeted costs are less than actual costs
B. Actual revenues exceed budgeted revenues
C. The actual amount decreased operating income relative to the budgeted amount
D. All of these answers are correct.
18. Abrams planned to use Br.164 of material per unit but actually used Br.160 of material per
unit, and planned to make 1,200 units but actually made 1,000 units. The flexible-budget
amount is:
A. Br. 160,000 B. Br. 164,000 C. Br. 190,000 D. Br. 196,000
19. Berman's Camera Shop has prepared the following flexible budget for September and is in the
process of interpreting the variances. F denotes a favorable variance and U denotes an
unfavorable variance.

Flexible budget Variance

Materials Price Efficiency
Material A Br.40,000 1000F 3000U
Material B 60,000 500U 1500F
 Debark University, College of Business & Economics, Department of
Accounting & Finance

Direct manufacturing labor 80,000 500U 2500F

The most likely explanation of the above variances for Material A is that:
A. lower price than expected was paid for Material A
B. higher-quality raw materials were used than were planned
C. the company used a higher-priced supplier
D. Material A used during September was Br.2,000 less than expected
20. Snapper Tool Company has a production capacity of 3,000 units per month, but current
production is only 2,500 units. Total manufacturing costs are Br.60 per unit and marketing
costs are Br.16 per unit. Doug Levy offers to purchase 500 units at Br.76 each for the next five
months. Should Snapper accept the one-time-only special order if only absorption-costing data
are available?
A. Yes, good customer relations are essential.
B. No, the company will only break even.
C. No, since only the employees will benefit.
D. Yes, since operating profits will most likely increase
21. An example of a quantitative factor for the decision-making process is:
A. customer satisfaction
B. employee morale
C. product quality
D. manufacturing overhead
22. When deciding to lease a new cutting machine or continue using the old machine, the
following costs are relevant EXCEPT the:
A. Br.50,000 cost of the old machine
B. Br.20,000 cost of the new machine
C. Br.10,000 selling price of the old machine
D. Br.3,000 annual savings in operating costs if the new machine is purchased

23. Which of the following is an example of a contra revenue account for a merchandising
business?
A. Sales revenue
B. Cost of goods sold
C. Sales returns and allowances
 Debark University, College of Business & Economics, Department of
Accounting & Finance
D. Inventory

24. Favata Corporation manufactures two products, AA and CC. The following information was
available

AA CC
Selling price per unit Br.37 Br.26
Variable cost per unit 32 22
Total fixed costs Br.18,000
If Favata Corporation could produce and sell either 10,000 units of AA or 5,000 units of
CC at full capacity, it should produce and sell:
A. 10,000 units of AA and none of CC
B. 3,000 units of CC and 6,000 units of AA
C. 5,000 units of CC and none of AA
D. 4,000 units of AA and 5,000 units of CC
25. Limalimo Manufacturing produces two products, Big and Bigger. Limalimo expects to sell
10,000 units of product Bigger and to have an inventory of 2,000 units of Bigger on hand at the
end of the period. Currently, Limalimo has 800 units of Bigger on hand. Bigger requires two
labor operations, molding and polishing. Each unit of Bigger requires one hour of molding and
two hours of polishing. The direct labor rate for molding is Br.20 per molding hour and the
direct labor rate for polishing is Br.25 per polishing hour. The expected cost of direct labor for
Bigger is:
A. Br.224,000 B. Br.560,000 C. Br.616,000 D. Br784,000
26. The number of units in the sales budget and the production budget may differ because of a
change in:
A. finished goods inventory levels
B. overhead charges
C. direct material inventory levels
D. sales returns and allowances

27. The risk structure of interest rate refers:

A. The structure of how interest rates move over time.
B. The relationship among interest rates of different bonds with the same maturity.
 Debark University, College of Business & Economics, Department of
Accounting & Finance
C. The relationship among the term to maturity of different bonds.
D. The relationship among interest rates on bonds with different maturities
28. When an entity has rights to the assets, and obligations for the liabilities, relating to the
arrangement, the arrangement is:

A. Joint arrangement C. Joint venture

B. Joint operation D. Joint control

29. A joint operator shall recognize in relation to its interest in a joint operation includes the
following except:
A. Its assets, including its share of any assets held jointly;
B. Its revenue from the sale of its share of the output arising from the joint operation;
C. Its expenses, including its share of any expenses incurred jointly.
D. Its net asset from the joint arrangement
30. Among the main differences between branch and sales agency accounting, which one of the
following is incorrect:
A. Unlike branches, Agents acts as delegates of the principal
B. Sales agency usually carries samples of products, not inventory
C. Branch accounts receivables are managed by the home office
D. Agents transmit customer orders to the principal
31. Which account will be affected by elimination process of preparing combined financial
statement of Home Office and branches except:

A. COGS C. Inventory
B. Net income D. Cash

32. When the company’s taxable income and pretax income are $75,000 and $100,000
respectively and the tax rate is 30%. Based on this, which one is correct :
A. Based on IFRS rule, tax amount is $22,500
B. Based on tax rule, tax amount is $30,000
C. Deferred tax asset is $7,500
D. Deferred tax liability is $7,500
33. Assume Jay, a public limited company, has granted 300 share appreciation rights to each of its
500 employees on 1 July 20X5. The management feels that as at 31 July 20X6, the year-end of
Jay, 80% of the awards will vest on 31 July 20X7. The fair value of each share appreciation
right on 31 July 20X6 is $15. What is the fair value of the liability to be recorded in the
financial statements for the year ended 31 July 20X6?
A. $900,000
B. $1,125,000
C. $1,800,000
D. None of the above
 Debark University, College of Business & Economics, Department of
Accounting & Finance
34. Among the common features of agricultural activities, facilitating biological change by
enhancing suitable conditions reflect:
A. Capability to change
B. Measurement of change
C. Management of change

D. All are correct

35. A farmer owned 100 two years dairy cows on Jan 1, with fair value of $10,000. The fair value
of dairy cows of two years and three years at Dec 31 is $120 and $150 respectively. The
increment due to physical change is:

A. $2,000
B. $3,000
C. $5,000
D. $15,000
36. Relevant financial information;

A. Represents what it purports to represent

B. Is measured in a similar manner among different companies
C. Does not favor one set of interested parties over another
D. Is capable of making a difference in a decision
37. Which of the following defines the term ‘fair value’?

A. The price at which an orderly transaction to sell an asset or to transfer a liability would take
place between market participants at the reporting date under current market conditions.
B. price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date
C. The weighted average price at which orderly transactions to sell assets or to transfer liabilities
are taking place between market participants at the reporting date in the relevant market.
D. The entry price at the measurement date from the perspective of a market participant that holds
the asset or owes the liability.
38. Under the direct write-off method of accounting for uncollectible accounts, Bad Debt Expense
is debited.
A. When a credit sale is past due.
B. At the end of each accounting period.
C. Whenever a pre-determined amount of credit sales have been made.
D. When an account is determined to be uncollectible.
39. What is the net realizable value of inventories?
 Debark University, College of Business & Economics, Department of
Accounting & Finance
A. Estimated selling price less estimated costs to complete and estimated costs to make a
sale.
B. Estimated selling price less estimated costs to complete.
C. Estimated selling price less replacement cost value.
D. Estimated selling price less lower-of-cost-or-market.
40. An investment property should initially be measured at its______?
A. Fair value B. Cost C. Carrying value D. Net realizable value
41. Which one of the following is not the characteristics of intangible assets?
A. Identifiable
B. Can be seen and founded
C. Lack physical existence
D. Not monetary assets
42. Glaus Corp. signed a three-month, zero-interest-bearing note on November 1, 2012 for the
purchase of $250,000 of inventory. The face value of the note was $253,675. Assuming Glaus
used a “Discount on Note Payable” account to initially record the note and that the discount
will be amortized equally over the 3-month period, the adjusting entry made at December 31,
2012 will include
A. Debit to Discount on Note Payable for $1,225.
B. Debit to Interest Expense for $2,450.
C. Credit to Discount on Note Payable for $1,255.
D. Credit to Interest Expense for $2,450..
43. What condition is necessary to recognize an asset retirement obligation?
A. Company has an existing legal obligation and can reasonably estimate the amount
of the liability.
B. Company can reasonably estimate the amount of the liability.
C. Company has an existing legal obligation.
D. Obligation event has occurred.
44. Which of the following is NOT an accurate representation concerning revenue recognition?
A. Revenue from selling products is recognized at the date of sale, usually interpreted to
mean the date of delivery to customers.
B. Revenue from services rendered is recognized when cash is received or when
services have been performed.
C. . Revenue from permitting others to use enterprise assets is recognized as time passes
or as the assets are used.
D. Revenue from disposing of assets other than products is recognized at the date of
sale.
45. Cooper Construction Company had a contract starting April 2013, to construct a $12,000,000
building that is expected to be completed in September 2015, at an estimated cost of
$11,000,000. At the end of 2013, the costs to date were $5,060,000 and the estimated total
costs to complete had not changed. The progress billings during 2013 were $2,400,000 and the
 Debark University, College of Business & Economics, Department of
Accounting & Finance
cash collected during 2013 was 1,600,000. For the year ended December 31, 2013, Cooper
would recognize gross profit on the building of:
A. $421,667
B. $460,000
C. $540,000
D. $0
46. Taxable income of a corporation
A. Differs from accounting income due to differences in intra period allocation between
the two methods of income determination.
B. Differs from accounting income due to differences in inter period allocation and
permanent differences between the two methods of income determination.
C. Is based on generally accepted accounting principles.
D. Is reported on the corporation's income statement.
47. Under the indirect method of determining net cash provided by operating activities, which of
the following would be recorded as a deduction from net income
A. Decrease in accounts receivable.
B. Increase in salaries payable.
C. Decrease in accounts payable.
D. increase in deferred tax liability
48. All of the following should be classified under the operating section of the statement of cash
flows EXCEPT.
A. Decrease in inventory.
B. An increase in accumulated depreciation.
C. Decrease in prepaid insurance.
D. a purchase of land in e(change for a long<term note
49. IFRS requires companies to measure their financial assets based on all of the following
EXCEPT.
A. The company’s business model for managing its financial assets
B. Whether the financial asset is a debt or equity investment
C. The contractual cash flow characteristics of the financial asset.
D. All of these answer choices are IFRS requirements
50. A held-for-collection debt investment is purchased at a premium. The entry to record the
amortization of the premium includes
A. .Credit to Debt Investments.
B. Credit to Interest Receivable.
C. .Credit to Interest Revenue.
D. .None of these answers are correct.
51. Ibex Company purchases a Machinery today in exchange for a Br. 30,000 zero-interest-
bearing note payable three years from now. Assume an appropriate interest rate is 11 %. At
what amount Ibex should record this asset?
 Debark University, College of Business & Economics, Department of
Accounting & Finance
A. Br. 30,000
B. Br. 21,935.74
C. Br. 33,300
D. Br. 8,064.26
52. The equipment purchased on January 1, 2008, for $80,000 was depreciated using the straight-
line method based upon a 5-year life and $7,500 residual value. The equipment was sold on
December 31, 2010, for $40,000. What is the gain/loss on the sale of the equipment?
A. $3,500 B. $14,500 C. $36,500 D. $43,500
53. Financial management can be defined as a decision making process focused on:-
A. planning to raise fund
B. forecast allocation of funds
C. asset management
D. all are correct
54. Wealth maximization decision criterion is superior to profit maximization because of several
reasons except:-
A. it has an exact measurement
B. it considers time pattern of benefits
C. it’s easy to apply
D. it considers recognition to the interest of other stakeholders
55. Among the following statements, which one is best to reflect about agency conflict?
A. Managers are agents of the owners of the corporation
B. Board of directors are agents of the owners of the corporation
C. Conflict of goals between board of directors and owners of a corporation
D. Managers are interested to maximize the wealth of shareholders
56. Among the most frequently used techniques in analyzing financial statements, which one of
the following statement best reflects Common size Analysis?
A. The ratio of debt to equity
B. The amount of current asset from the total assets
C. Judgment of current profit by considering previous year profit
D. Comparison of firms profitability
57. Assume company A and Company B have a current ratio of 1.25 and 1.95 respectively. Based
on this data, which one is incorrect.
A. This ratio reflects profitability of both companies
B. Company A is better than company B in terms of profit generation
C. Company B is better than company A in terms of liquidity risk
D. Company A have cost advantage over company B
58. Which one of the following financial statement ration is odd:-
A. Return on asset
B. Total asset turn over
C. Return on equity
D. Profit margin
 Debark University, College of Business & Economics, Department of
Accounting & Finance
59. Among the four parameter to determine the time value of money, which one of the following is
incorrect

A. Future value D. Interest

B. Compounding E. Time period
C. Present value

60. Hana deposited Br. 1,800 in her savings account in Meskerem 1990. Her account earns 6
percent compounded annually for 5 years. The fourth parameter we can compute is:

A. Future value D. Interest

B. Compounding E. Time period
C. Present value

61. Which one of the following is odd

A. variance
B. standard deviation
C. expected return
D. mean deviation
62. Expected return is equal with possible return when:
A. Invest in more risk free assets
B. Probability of return is fully certain
C. Expected risk is high
D. A and C are correct
63. Which cost of capital will be computed using the constant growth valuation model?
A. Cost of preferred stock
B. Cost of debt
C. Cost of common stocks
D. All are correct
64. Which one of the following is correct about weighted average cost of capital?
A. Simple summation of total costs
B. Multiply each costs with their respective weight and sum all costs
C. Direct average cost of all costs of capital without weight
D. A and B are correct
65. Which one of the following statement about the net present value (NPV), is correct except:-
A. NPV is generally regarded as the best single screening criterion
B. It considers time value of money
C. It include both cash in and outflows
D. For Mutually exclusive projects, NPV>1 is always accepted

66. Which one of the following is correct about IRR(internal rate of return)
A. Discount rate that forces the NPV to 0
 Debark University, College of Business & Economics, Department of
Accounting & Finance
B. Accept the mutually exclusive project with the highest IRR
C. It have a problem of multiple IRR in some situations
D. All are correct
67. Assume the company invest $1,000,000 in a business expect to earn annual return of $150,000
per annum. Payback period of this business will be:
A. 6 and 2/3 years
B. 6.66 years
C. 7 years
D. All are correct

68. Which of the following accounts would be debited in an adjusting entry to record the use of
supplies during the period?
A. Supplies expense
B. Supplies
C. Prepaid supplies
D. Accounts payable
69. Which of the following accounts would be credited in an adjusting entry to record the accrual
of salaries expense?
A. Salaries payable
B. Salaries expense
C. Cash
D. Retained earnings
70. Which of the following is true about the perpetual inventory system?
A. It requires a physical count of inventory at the end of the period.
B. It records inventory transactions only when a sale is made.
C. It does not require the use of cost of goods sold account
D. It provides real-time information on inventory levels.

71. Which of the following is/are true about the auditing standards to conduct audits of
financial statements?
A. Auditors audit financial statements fairly in all material respects and with applicable
financial accounting frameworks
B. Auditors issue an opinion on financial statements based on accumulated audit
evidences
C. Auditors accumulate audit evidences to reach conclusions on financial statements
farnesses’ and internal control effectiveness
D. All of the above
 Debark University, College of Business & Economics, Department of
Accounting & Finance
72. All are true about the management’s responsibilities for financial statements and internal
controls. Except
A. Adopting accounting policies, maintaining adequate internal control, and making fair
representations in financial statements
B. Understanding and testing of the internal control to present fair financial
statements
C. Submitted reports to the Security and Exchange Commission’s on financial statements
D. Includes the statements on the annual reports in relation with Certified Public
Accountants’ firm
73. Which of the following is/are belongs to the auditors’ responsibilities?
A. Material misstatements
B. Reasonable Assurance
C. Professional Scepticism
D. All of the above
74. When auditors conduct an audit, the critical operation is analytical procedure throughout an
audit. Which one of the following is/are the primary purpose/s/ of the planning phases of
analytical procedure?
A. Prevent misstatement
B. Assess going concern
C. Understand the client’s business and industry
D. Reduce detailed test
75. The CPA auditors are odd to the audittee Company’s internal controls. Due to that they
perform the processes of understanding the internal control, out of them which of the following
is/are describes the process of understanding an internal control?
A. Obtain and accessed the auditee Company internal controls structure from narrative
statement, flowchart or internal control questionnaires
B. Auditors assess the risk and developed control risk matrix to state the company’s planned
detection risks and substantive tests
C. Tests of control procedures performed on inquire documentation, observation and re-
performance.
D. All of the above
 Debark University, College of Business & Economics, Department of
Accounting & Finance
76. All are true about the conditions for standard unqualified audit report. Except
A. Includes all financial statements
B. Financial statements comply with audit standards
C. Complies with the three standards of field work
D. Substantial doubt about going concern
77. One is the type of audit reports that arises when auditors have the knowledge and adequate
investigation on the absence of conformity with the audit standards produced auditor’s report
is_____________.
A. Standard Unqualified report D. Unqualified audit report with
B. Disclaimer report explanatory paragraph report
C. Adverse report E. Qualified report
78. One is the type of audit evidence gathering technique that figure out whether an evidence in an
auditing standards is appropriate in generally accepted auditing standards and applicable in an
International accounting standard guideline at a time.
A. Physical examination C. Conformation
B. Documentation D. Analytical procedures