RIFT VALLEY UNIVERSITY

CHIRO CAMPUS

Credit Hour: 2
Course Code: MBA631
Course Title: Financial and Managerial Accounting
Name____________________________________________________________________________________

ID. _________________________________

Part I: Choose the best answer from the given alternatives

1. Three key activities of the accounting function are identifying transactions, recording
transactions, and communicating transactions. The proper order for these activities is
considered to be which of the following?
A. Communicating, recording, and identifying.
B. Recording, communicating, and identifying.
C. Identifying, communicating, and recording.
D. Identifying, recording, and communicating.
E. None of the above
2. Which one of the following users of accounting information is considered to be an
external user of accounting information rather than an internal user of accounting
information?
A. Sales staff D. Officers and directors
B. Company managers E. Budget officers
C. Company customers
3. All of the following people can properly be called managers. Which one of the following
individuals is not considered an internal user of accounting information?
A. Service manager
B. Research and development manager
C. Production manager
D. Partner of firm charged to conduct the company’s external audit
E. Human resources manager
4. A college student pays 150 cash for her textbook. In the student’s opinion, the textbook
is worth 50. In accounting, however, the value of the textbook is assumed to be and is
recorded at the 150 amounts. The accounting principle that is most demonstrated by
this example is:
A. The cost principle
B. The going-concern principle
C. The business entity principle
D. The monetary unit principle
 E. The conservatism principle
5. The basic accounting equation is Assets = Liabilities + Equity. The Equity term of the
equation can be further broken down into several other terms. Assume that the entity is
a sole proprietorship. Which of the following statements is correct?
A. Additional investments by the business owner will increase equity; and revenues
will decrease equity.
B. Additional investments by the business owner will decrease equity; and revenues
will increase equity.
C. Increases in expenses will decrease equity; and owner withdrawals will decrease
equity.
D. Revenues will increase equity; and owner withdrawals will increase equity.
E. Revenues will decrease equity; and owner withdrawals will increase equity.
6. If at the end of the accounting period the company’s liabilities total 19,000 and its
equity totals 40,000, then what must be the total of assets?
A. 14,000 C. 21,000 E. None of the above
B. 40,000 D. 59,000
7. If during the current accounting period the company’s assets increased by 24,000 and
equity increased by 5,000, then how did liabilities change?
A. Increased by 29,000 D. Decreased by 19,000
B. Increased by 24,000 E. Increased by 19,000
C. Decreased by 5,000
8. Selling price is the summation of
A. Direct and indirect costs
B. Product and administrative costs
C. Cost of sales and profit margin
D. Direct materials, direct labour and direct expenses
9. Production cost is the summation of
A. Direct and indirect costs
B. Product and administrative costs
C. Cost of sales and profit margin
D. Direct materials, direct labour and direct expenses
10. Accounting is the information system that
A. measures business activity.
B. communicates the results to decision makers.
C. processes data into reports.
D. All of the above
11. Which of the following is least likely to be a user of a business’s financial information?
A. Taxing authorities C. Customers
B. Creditors D. Investors
12. Consider the overall effects on Fossil of selling watches on account for $64,000 and
paying expenses totaling $25,000. What is Fossil’s net income or net loss?
 A. Net income of $39,000
B. Net loss of $39,000
C. Net income of $64,000
D. Cannot determine from the data given
13. The balance sheet reports
A. financial position on a specific date.
B. results of operations on a specific date.
C. financial position for a specific period.
D. results of operations for a specific period.
14. Your business purchased supplies of $2,500 on account. The journal entry to record this
transaction is as follows:
A. Supplies------------------------------2,500

Accounts receivable-------------------2,500

B. Supplies------------------------------2,500

Accounts payable----------------------2,500

C. Accounts payable------------------2,500

Supplies-------------------------------- 2,500

D. Inventory----------------------------2,500

Accounts payable --------------------2,500

Answer Sheet for Multiple Choice

1 8
2 9
3 10
4 11
5 12
6 13
7 14
 Part II: Written
1. Elaborate the distinction between Financial and Managerial Accounting. (2 points)
2. What are the Roles of Accounting in Business and limitations? (3 points)
3. Elucidate Accounting Conventions. (4 points)
4. Elaborate forms Modern business organizations? (3 Points)
5. Elucidate Inventories of Manufacturing Business. (3 Points)
6. What are the Benefits of Budget? (3 Points)
7. Suppose you are the manager of Google Furniture plc. The company needs a bank loan
in order to purchase equipment. In evaluating the loan request, the banker asks about
the assets and liabilities of the business. In particular, the banker wants to know the
amount of the business’s stockholders’ equity. (3 points)
Requirements
A. Is the banker considering an internal or external user of financial information?
B. Which financial statement would provide the best information to answer the
banker’s questions?
Part III: CASE:- Use your own Concept
8. Elshaday Lakew, the president of Elshaday Enterprises, applied for a Birr 1.5 million
loan from Buna International Bank S.C. The bank requested financial statements from
Elshaday Enterprises as a basis for granting the loan. Mr. Elshaday has told his
accountant to provide the bank with a balance sheet, an income statement, and a
statement of owner’s equity. Mr. Elshaday has decided to omit the statement of cash
flows, since there was a net decrease in cash during the past year. (5 points)
Required:
Discuss whether Mr. Elshaday is behaving in an ethical manner by omitting the statement
of cash flows. (Support your analysis with sufficient justification).
9. Journalizing the following transactions. (4 points)
Ned Brown opened a medical practice in San Diego, California.
Jan 1 The business received $29,000 cash and issued common stock.
2 Purchased medical supplies on account, $14,000.
2 Paid monthly office rent of $2,600.
3 Recorded $8,000 revenue for service rendered to patients on account.