St.

Mary’s University
College of Open and Distance Learning
Financial Accounting/Financial Accounting I
Comprehensive Exercise I
Point: 60%
Name: ___________________________
ID. No.___________________________
Department: ______________________
Term: ___________________________
Center: __________________________
Program: Degree
Instructions:
 Make Sure that this Comprehensive Exercise I Paper has 5 Pages
 This comprehensive exercise–I is to be completed and submitted to the
office of your center.
 If you have any question please write on a separate sheet and attach to
this comprehensive exercise-I.
 Due Date: this comprehensive exercise-I must be done independently,
and submitted to the office of your center within 15 days.

Part I: True or False (1 pt. each)

Write ‘True’ if the statement is correct and ‘False’ if it is incorrect on the space provided.
___________1. Under cash basis of accounting revenues in recognized in the books of accounts
when cash is received.
___________2. Every adjusting entry affects the balance sheet account and an income statement
account.
___________3. Reversing entry is not required when advance collection is recorded as revenue,
but not as a liability.
___________4. A work sheet does not replace any financial statement and not presented as the
end result of the accountants’ work.
___________5. Under the completed contract method, revenue and gross profit are recognized
at the point of sale.
___________6. Accrual is an expense that has not been paid or revenue that has not been
received.
___________7. Deferred revenues are listed on the balance sheet as a current asset.

St. Mary’s University 1 Financial Accounting/ Financial Accounting I (Degree)

___________8. Deferred expenses are cash payments in advance for the goods and services that
are expected to give services in the future.
___________9. An installment method of accounting is appropriate for an income tax return
purpose rather than for the purpose financial reporting.
___________10. The working capital of a business enterprise is the sum of current assets
and current liabilities.
Part II: Multiple Choices
Choose the correct answer among the given alternatives and write the letter of your choice
on the space provided. (1 pt. each)
___________1. A field of accounting that focuses on the procedures used by the organizations
set up for a non-profit objective is known as __________.
A. financial accounting C. fund accounting
B. managerial accounting D. tax accounting
___________2. Among the given alternatives, which one is the primary qualitative
characteristic of accounting information?
A. Consistency C. Relevance
B. Comparability D. Neutrality
___________3. All are the elements of balance sheet, except _______________
A. liabilities C. net income
B. assets D. equity
___________4. An accounting principle which states a business enterprise will have a long
life, (unlimited life) is referred to as ___________
A. periodicity principle C. full disclosure principle
B. monetary unit principle D. going concern principle
___________5. A technique that corrects a necessary account before preparing a financial
statement is known as ___________
A. posting C. journalizing
B. adjustment D. ledger
___________6. Which one of the following is not an element of an income statement?
A. Expense C. Revenue
B. Cost of goods sold D. None of the above

St. Mary’s University 2 Financial Accounting/ Financial Accounting I (Degree)

___________7. Costs and expenses are recognized in the current accounting period when
____________ .
A. the allocation of costs to revenue is imperial to serve no useful purpose.
B. costs deferred as assets in the earlier period are not longer period benefits
C. costs incurred in the current period are not expected to provide any future
benefits
D. all of the above
___________8. When one of the following is not an example of a deferred expense?
A. Property tax paid in advance C. prepaid insurance
B. Fee earned but not yet received D. prepaid rent
___________9. Among the given alternatives, which one is a wrong statement about prepaid
expenses?
A. It need adjustment at the end of the period if they are recorded as an asset
initially.
B. Reversing entry is required if unearned revenue is recorded initially as a
liability.
C. It is recorded as an asset is better if they have a chance of collectability.
D. All of the above
___________10. Which one of following accounts is affected at the time of adjustment?
A. Account receivable C. Revenue
B. Long term liability D. All of the above
___________11. All are the components of current asset, except _____________.
A. marketable securities C. inventories
B. receivables D. none of the above
___________12. One of the following is different from the others.
A. Patent right C. Goodwill
B. Trade mark D. Copy right
___________13. The cost of goods available for sale for story corporation was birr 5,400,000.
The gross profit rate was 20% of sales. The sales for the year amounted to birr
4,800,000. The ending inventory is estimated to be ___________
A. Birr 960,000 C. birr 0
B. Birr 1,560,000 D. birr 1,080,000

___________14. Multiple income statements show ______________.

St. Mary’s University 3 Financial Accounting/ Financial Accounting I (Degree)
 A. gross profit but not income from operation
B. both gross profit and income from operation
C. neither gross profit nor income from operations
D. income from operations but not gross profit
___________15. Which one of the following statements is wrong about a periodic inventory
system?
A. Cost of goods sold is determined as per each sales transaction
B. The amount of an inventory is determined only periodically
C. Ending inventory is determined through physical counts
D. A physical count of an inventory is required under this system
Part III: Short answer
Give short and precise answer to the following questions given below on the space
provided. (5pts.each)
1. What are the objectives of financial reporting?
__________________________________________________________________________
__________________________________________________________________________
_________________________________________________________________________
2. Write down the advantage and disadvantage of balance sheet to the financial reporting?
__________________________________________________________________________
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3. What are the purposes of the statement of cash flows?
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
4. List down the three types of long-term liabilities.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
5. What are the objectives of financial reporting?
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________

6. Write down the general rules in the classification of receivables.

St. Mary’s University 4 Financial Accounting/ Financial Accounting I (Degree)
 __________________________________________________________________________
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7. List down the four types of long term investments.
__________________________________________________________________________
__________________________________________________________________________
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St. Mary’s University 5 Financial Accounting/ Financial Accounting I (Degree)