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UNITY UNIVERSITY
DEPARTMENT OF ACCOUNTING AND FINANCE
ADAMA CAMPUS
MODEL EXAM
Max. Time allowed: 3 Hr.
Prepared by; ACFN Department February:10/ 2023
General Instructions:
Read the following instructions very carefully!
 Write your name, Id and section both on question paper and answer sheet.
 Cheating and an attempt to do so shall result in total cancellation of your results.
 Switch off your cell phone.
 Use the space provided for your answer.
 Return both the question paper and answer sheet to your respective invigilator.
BOOKLET No 1 Fundamentals of Accounting I
Instruction: Choose the best answer from the given alternatives and write the letter of your
answer on the separate answer sheet provided to you.
1. Which of the following would not be considered an internal user of accounting data for the
ABC Company?
A. President of the company B. Production manager
C. Merchandise inventory clerk D. President of the employees' labor union
2. The liability created by a business when it purchases coffee beans and coffee cups on credit
from suppliers is termed a(n)
A. Account payable. B. Account receivable.
C. Revenue. D. Expense.
3. The cost of assets consumed or services used is also known as
A. Revenue. B. An expense. C. A liability. D. An asset.
4. The best definition of assets is the
A. Cash owned by the company.
B. Collections of resources belonging to the company and the claims on these resources.
C. Owners‟ investment in the business.
D. Resources belonging to a company that have future benefit to the company.
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5. To show how successfully your business performed during a period of time, you would report
its revenues and expenses in the
A. Balance sheet. B. Income statement.
C. Statement of cash flows. D. Retained earnings statement.
6. Ashley‟s Accessory Shop started the year with total assets of $210,000 and total liabilities of
$120,000. During the year the business recorded $330,000 in revenues, $165,000 in expenses,
and dividends of $60,000. The net income reported by Ashley‟s Accessory Shop for the year
A.$120,000. B. $150,000. C. $195,000. D. $165,000.
7. As of January 1, 2022, Elena‟s Store had a balance in its retained earnings account of
$100,000. During the year Elena‟s Store had revenues of $80,000 and expenses of $45,000. In
addition, the business paid cash dividends of $20,000. What is the balance in Retained
Earnings at December 31, 20XX for Elena‟s Store?
A. $100,000 B. $115,000 C. $135,000 D. $155,000
8. Which of the following financial statements is concerned with the company at a point in time?
A. Balance sheet B. Income statement
C. Retained earnings statement D. Statement of cash flows
9. An income statement
A. Summarizes the changes in retained earnings for a specific period of time.
B. Reports the changes in assets, liabilities, and stockholders‟ equity over a period of time.
C. Reports the assets, liabilities, and stockholders‟ equity at a specific date.
D. Presents the revenues and expenses for a specific period of time.
10. Which of the following accounts is a liability account?
A. Dividends B. Cash C. Accounts Payable D. Capital Stock
11. A debit may signify a(n):
A. Increase in asset accounts B. Increase in liability accounts
C. Increase in the capital account D. Decrease in expense accounts
12. Which of the following applications of the rules of debit and credit is true?
A. Increase rent expense with debits and the normal balance is a debit.
B. Decrease accounts receivable with credits and the normal balance is a credit.
C. Increase accounts payable with credits and the normal balance is a debit.
D. Decrease cash with debits and the normal balance is a credit.
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D. Diversification leads to increased value.
31. A company can improve (lower) its debt-to-total assets ratio by doing which of the
following?
A. Borrow more. B. Shift short-term to long-term debt.
B. Shift long-term to short-term debt. D. Sell common stock.
32. Which of the following statements (in general) is