Dire Dawa University

School of Business and Economics

Department of accounting and Finance
Final Exam for the course Financial Accounting I
Namedept_____________
ID NO. Time Allowed: 3:00 hrs
Maximum Load: 50% Exam Date JUNE8, 2015
Instructions
Write your name, I.D. No. and department clearly and neatly on both
exam and Answer sheet
Your hand writing for the answers should be clear and neat
Keep away any pieces of paper rather than the question paper
Switch off your mobile
Cheating and any attempt to cheat will disqualify your result
Make sure that the Exam has three parts,8 True/false, 22 multiple
choice, and 4 workout

INSTRUCTOR: ANWAR.A

GOOD LUCK!!!

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Part I: TRUE/FALSE (1 point)

1. Company does not close Allowance for doubtful account at the end of the period.
2. Receipt of cash from sale of land is an example of a cash flow from a financing activity.
3. The balance of uncollectible account expense is reported in the current period as
Administrative expense.
4. Direct write-off method is appropriate when the amount of uncollectible is Immaterial.
5. In effective Internal control, no one person should carry out all phases of a business
transaction from beginning to end.
6. In determining cost of goods sold, freight-out is added to net purchase.
7. Post-dated checks treated as receivable in the balance sheet.
8. Amortization expense is Noncash charges that are added back to net income in determining
cash provided by operation under indirect method.

PART II :CHOICE THE BEST ANSWER(1 POINT )

1. Companies repurchase their own stock for the following reason except:
A. to meets employee stock purchase.
B. to stabilize the stocks price.
C. to increase the outstanding share
D. to indicate that the management believes that the stock is undervalued.
E. none
2.which one of the following is incorrectly match?
A. acquisition of intangible asset-Investing activity.
B. interest on receivable-Operating activity.
C. treasury stock purchase-Financing activity.
D. loan to other parties-Investing activity.
E. none
3. A company should report bank overdraft in;
A. current asset portion.
B. long-term asset portion.
C. current liability portion.
D. long- term liability portion
E. none
4. Which one of the following should not be included in cash on the balance sheet?
A. petty cash fund C. change fund
B. certificate deposit D. all are cash E. none
5. In preparation its bank reconciliation for the month of march, year2 xyz company, has
available the following information;
Balance in bank statement, march31, year2 $36,050
Deposit in transit, march31, year2 6,250
Outstanding check march31, year2 5,720
Credit erroneously recorded by bank in xyz com march31year2 250
Bank service charge for march31, yea r2 50
The correct balance of xyz company cash on march31, year2 is:
A. $32,250 C. $36,300

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B. $36,250 D. $36,550 E. none
6. Which one of the following comprises a unique characteristic that effective internal control
over cash is required?
A. cash is a single asset readily converted into any other types of asset.
B. it is highly liquid asset.
C .it is easily transferable to individual without any legal document.
D. all of the above
E. none
7. Which of the following approach for bad debts is best described as a balance sheet method?
A. percentage of receivable basis.
B. direct write-off method
C. percentage of sales basis..
D. both A&B.
E. none
8.In 2001,K.B Lawrence Company had net credit sales of $750,000.On January 1,2001,
Allowance for Doubtful Account had a credit balance of $18,000.During 2001,$30,000 of
uncollectible account receivable were written off. Past experience indicates that 3% of net credit
sales become uncollectible. What should be the adjusted balance of Allowance for Doubtful
Account at December 31, 2001?
A. $12,000
B. $10,500
C. $22,500
D. $40,500
E. none
9. Andros co. Accept a$1, 000, 3-month, 12% promissory note in settlement of an account with
sore co. The entry to record this transaction is as follow:
A. Note Receivable 1,030
Account Receivable 1,030
B. Note Receivable 1,000
Account Receivable 1,000
C. Note Receivable 1,000
Sales 1,000
D. Note Receivable 1,020
Account Receivable 1,020
E. none
10. A method of estimating doubtful account expense that focuses on the Income statement
rather than the balance sheet is the allowance method based on:
A. Direct write-off of uncollectible trade account receivable.
B. Aging of trade Account Receivable.
C. Credit sales
D. The balance of trade Account Receivable
E. none

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11. Assume that a 90-day, 12% Br 1,800 note receivable dated nov8,2011 is discounted at the
payees bank on Dec3,2011 at the rate of 14% by ABC co.ABC co debit cash account for:
A. $1,800
B. $1,854
C. $1,900.87
D. $1,807.13
E. $1,846.87
12. Net Credit sales for the month are $800,000 and bad debts are expected to be 1.5% of net
credit sales. The company uses the percentage of sales basis. If the allowance for Doubtful
Account has a credit balance of $15,000 before adjustment, what is the balance after adjustment?
A. $15,000
B. $27,000
C. $12,000
D. $31,000
E. $3,000
13. xyz company receive a $30,000, six-month,10% promissory note from a customer. After
holding the note for two-month, xyz was need of cash and discounted the note at Olympic bank
at a 12% discount rate. The amount of cash received by xyz from the bank was;
A. $31,260
B. $30,000
C. $30,300
D. $30,240
E. none
14. Which one of the following inventory cost-flow method could use dollar-value pools?
A. specific identification.
B. weighted-average.
C. First-in first out
D. last-in first-out
E. none
15. In periods of rising price, LIFO will produce;
A. Higher net income than FIFO.
B. lower net income than FIFO
C. Higher net income than average costing.
D. The same net income than FIFO.
E. none
16. The following pertains to inventory item
Cost $60
Estimated selling price 88
Estimated cost of disposal 1
Normal gross profit margin 11
Replacement cost 51
Under the lower-of-cost -or market value this inventory is valued at;
A. $51 B. $56 C. $60 D. $67 E. none

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17. SOLIDA com.which uses the periodic inventory system, failed to record a $6000 purchase of
merchandise that was received on march31, year7 physical inventory (FIFO basis). The effect of
this error on SOLIDA com financial statement for the fiscal year ended march31, year7 was to;
A. overstate current asset and understate current liability.
B. overstates net income and understates current liability.
C. understates net income and understate current asset.
D. understate current asset and understate current liability.
E. none
18. If the inventory at the end of the year is understated by $200, the error will cause an:
A. Overstatement of gross profit for the year by $200.
B. Understatement of net income for the year by $200.
C. Understatement of cost of merchandise sold for the year by $200.
D. Overstatement of merchandise inventory for the year by $200.
E. none
19.Somers company has sales of $150,000 and cost of good available for sale of $134,000.If the
gross profit rate is 30%, the estimated cost of the ending inventory under the gross profit method
is:
A. $90,000
B. $60,000
C. $35,000
D. $15,000
E. none
20.The statement of cash flows should not be used to evaluate an entitys ability to:
A. earn net income.
B. generate future cash flows.
C. pay dividend.
D. meet obligations.
E. none
xyz com. Began the year and purchase merchandize as follows:
unit cost
Jan-1. Beginning Inventory 80 $60
Feb-10.Purchase 400 56
Sep-2. Purchase 160 50
Nov-26. Purchase 320 46
Dec4. Purchase 240 40
The ending inventory consists of 300 units,100 from each of the last purchase. Based on the
above data answer question 21&22
21. Under last-in first-out method cost-of ending inventory is;
A. $14,880
B. $17,120
C. $12,360
D. $13,600 E. none

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22. Under first-in-first-out method cost of merchandise sold is:
A. $45,920
B. $47,160
C. $42,400
D. $44,640
E. none
Part II: WORKOUT. Show each necessary step correctly, briefly and neatly
Question One
The bank statement of RAM Company shows Br 5,000.17 as of January 31,2010.Assume also
that on January 31,2010,the cash account of RAM CO, Shows a balance of Br.4,262.83.The
accountant of RAM company has identified the following items;
1. A deposit of Br.410.90 made after banking hours on Jan.31 does not appear on the bank
statement.
2. Two check issued in January have not yet been paid by the bank;
Check No.301 Br.110.25
Check No.342 Br.607.50
3. A credit memorandum was included in the bank statement, which was for proceeds from
collection of non-interest bearing note receivable from MAN Company Br.524.74
4. Three debit memorandum accompanied the bank statement; Fee charged by bank for handling
collection of note receivable Br.5; a NSF check of Br.50.25 received from a customer; and
service charge by bank for the month of January amount to Birr.12.00.
5. Check No.305 was issued by RAM Company for the payment of telephone expense in the
amount of Br.85 but was erroneously recorded in the cash journal as Birr.58.
Required;
1. Prepare bank reconciliation for RAM company on January31, 2010.(3 point)
2. Make the necessary journal entries assume that bank charges are recorded in miscellaneous
expense account. (2 point)
Question Two
In its beginning inventory on Jan1.2006,XYZ company had 120 units of merchandise that cost
Br 8 per unit.The following transaction were completed during 2006.
Feb 5. purchased on credit 150 units of merchandise at Br.10 per unit.
9. Returned 20 defective units from February 5 purchases to the supplier.
June 15.purchased for cash 230 units of merchandise at Br 9 per unit.
Sep 6. Sold 220 units of merchandise for cash at a price of Br.15 per unit. These Goods
are:120 units from the beginning inventory and 100 units for Feb.purchases.
Dec31.260 units are left on hand,30 units from Feb.5 purchases.
Required;
Prepare general journal entries for XYZ company to record the above transaction and adjusting
or closing entry for merchandise inventory on December 31.2006 using;
a).periodic inventory system (3 point)
b).perpetual inventory system(3 point)

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Question Three
1.At the end of the current year, account receivable has a balance of $2,500,000;allowance for
doubtful account has a debit balance of $9,000;and Net sales for the year total $32,000,000.bad
debt expense is determined at of 1% of net sales. Determine:
a).The amount of the adjusting entry for uncollectible account (1 point)
b).The adjusted balance of allowance for doubtful account, and bad debt expense ;( 1 point)
c).The net realizable value of account receivable (1 point)
2.At the end of the current year, account receivable has a balance of $ 325,000;allowance for
doubtful account has a credit balance of $3,900; and Net sales for the year total
$4,500,000.Using the aging method, the balance of allowance for doubtful account is estimated
as $25,000.Determine;
a).The amount of adjusting entry for uncollectible accounts (1 point)
b).The adjusted balance of allowance for doubtful account, and bad debt expense (1 point)
c).The net realizable value of account receivable (1 point)
Question Four
At cost At retail
Jan.1 beginning inventory Br 160,460 Br 264,900
Purchases 1,200,540 1,936,100
Purchase returns 27,600 44,100
Sales - 1,670,200
Sales returns - 16,600
Transportation in 23,000 -
Required; calculate the estimated cost of ending inventory
a). By retail method (1.5 point)
b). By gross profit method if the gross rate is 35% (1.5 point)

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 Answer sheet
Name____________________________ID.NO.________Department________
Part I True/False Part II Multiple Choice
1. _____ 1. _____ 11. _____
2. _____ 2. _____ 12. _____
3. _____ 3. _____ 13. _____
4. _____ 4. _____ 14. _____
5. _____ 5. _____ 15. _____
6. _____ 6. _____ 16. _____
7. _____ 7. _____ 17. _____
8. _____ 8. _____ 18. _____
9. _____ 19. _____
10. _____ 20. _____
21. _____
22. _____

Part III;Work out part

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