(Test Bank) Certified Management Accountant (Cma), Cma 4 All Se, Wiley Efficient Learning, / Wiley Cma Excel 2020.

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1 CMA Exam Support Package Table of Contents CMA Part 1 Examination Practice Questions page 2 CMA Part 2 Examination Practice Questions page 188 CMA Part 1 & 2 Practice Essays page 382 CMA Part 1 & 2 Practice Essay Answers page 437 Additional Part 1 Practice Questions page 514 Additional Part 1 Practice Question Answers page 542 Additional Part 2 Practice Questions page 543 Additional Part 2 Practice Question Answers page 568 Additional Part 1 & 2 Practice Essays page 569 Additional Part 1 & 2 Practice Essay Answers page 575 Suggested Reading List page 580 CMA Exam Ratio Definitions page 585 Exam Test Taking Strategies page 589 Candidate Resource s page 591 2 CMA Part 1 – Financial Planning, Performance, and Control Examination Practice Questions © Copyright 201 9 Institute of Certified Management Accountants 3 CMA Part 1 – Financial Planning, Performance and Control Exam ination Practice Questions Section A: External Financial Reporting Decisions 1. CSO: 1A1a LOS: 1A1a The financial statements included in the annual report to the shareholders are least useful to which one of the following? a. Stockbrokers. b. Bankers preparing to lend money. c. Competing businesses. d. Managers in charge of operating activities. 2. CSO: 1A1a LOS: 1A1e When a fixed asset is sold for less than book value, which one of the following will decrease? a. Total current assets. b. Current ratio. c. Net profit. d. Net working capital. 3. CSO: 1A1a LOS: 1A1e On July 15, a company entered into a three -month agreement to rent a machine the c ompany needed to complete a special order. The machine would be delivered on August 1, and rental payments are due on the first day of each rental month. The effect this event would have on the company’s July 31 financial statements would be to a. cause no c hange in assets, liabilities, or income. b. increase both assets and income. c. increase both assets and liabilities. d. increase liabilities and decrease income. 4. CSO: 1A1a LOS: 1A1d All of the following are limitations to the information provided on the statement of financial position except the a. quality of the earnings reported for the enterprise. b. judgments and estimates used regarding the collectability, salability, and longevity of assets. c. omission of items that are of financial value to the business such as the worth of the employees. d. lack of current valuation for most assets and liabilities. 4 5. CSO: 1A1a LOS: 1A1b A statement of financial position provides a basis for all of the following except a. computing rates of return. b. evaluating capital structure. c. assessing liquidity and financial flexibility. d. determining profitability and assessing past performance. 6. CSO: 1A1b LOS: 1A1b An income statement could be used by an external investor for all of the following purposes except to a. analyze the company’s performance compared to the budget. b. compare the company’s results to those of its competitors. c. assess the risk of the company achie ving future profitability. d. predict the company’s future revenues. 7. CSO: 1A1b LOS: 1A1b The financial statement that provides a summary of the firm’s operations for a period of time is the a. income statement. b. statement of financial position. c. statement of shareholders’ equity. d. statement of retained earnings. 8. CSO: 1A1b LOS: 1A1e Bertram Company had a balance of $100,000 in Retained Earnings at the beginning of the year and $125,000 at the end of the year. Net income for this time period was $40,000. Bertram’s Statement of Financial Position indicated that Dividends Payable had dec reased by $5,000 throughout the year, despite the fact that both cash dividends and a stock dividend were declared. The amount of the stock dividend was $8,000. When preparing its Statement of Cash Flows for the year, Bertram should show Cash Paid for Divi dends as a. $20,000. b. $15,000. c. $12,000. d. $5,000. 5 9. CSO: 1A1b LOS: 1A1c All of the following are elements of an income statement except a. expenses. b. shareholders’ equity. c. gains and losses. d. revenue. 10. CSO: 1A1c LOS: 1A1b The statement of shareholders’ equity shows a a. reconciliation of the beginning and ending balances in shareholders’ equity accounts. b. listing of all shareholders’ equity accounts and their corresponding dollar amounts. c. computation of the number of shar es outstanding used for earnings per share calculations. d. reconciliation of the beginning and ending balances in the Retained Earnings account. 11. CSO: 1A1d LOS: 1A1e Which one of the following items could be identified on the cash flow statement prepare d using the indirect method? a. The payment of interest expense of $200,000. b. A change in unrealized holding gains of $50,000. c. A settlement of a lawsuit that was previously accrued. d. Depreciation related to buildings and equipment. 12. CSO: 1A1d CSO: 1A1d Consi der the following financial data for a company that is preparing its cash flow statement. Amortization expense = $150,000 Cash dividends paid to common shareholders = $75,000 Net income = $1,500,000 Work -in-process inventory increase over the prior year = $300,000 Gain on sale of equipment = $50,000 Using the indirect method, cash flow from operating activities would be a. $1,225,000. b. $1,300,000. c. $1,350,000. d. $1,375,000. 6 13. CSO: 1A1d LOS: 1A1c Dividends paid to company shareholders would be shown on th e statement of cash flows as a. operating cash inflows. b. operating cash outflows. c. cash flows from investing activities. d. cash flows from financing activities. 14. CSO: 1A1d LOS: 1A1c All of the following are classifications on the statement of cash flows except a. operating activities. b. equity activities. c. investing activities. d. financing activities. 15. CSO: 1A1d LOS: 1A1c The purchase of fixed assets should be accounted for on the st atement of cash flows as a(n) a. operating activity. b. investing activity. c. financing activity. d. noncash investing and financing activity. 16. CSO: 1A1d LOS: 1A1c A statement of cash flows prepared using the indirect method would have cash activities listed in which one of the following orders? a. Financing, investing, operating. b. Investing, financing, operating. c. Operating, financing, investing. d. Operating, investing, financing. 17. CSO: 1A1d LOS: 1A1e Kelli Company acquired land by assuming a mortgage for the full acquisition cost. This transaction should be disclosed on Kelli’s Statement of Cash Flows as a(n) a. financing activity. b. investing activity. c. operating activity. d. non-cash financing and investing activity. 7 18. CSO: 1A1d LOS: 1A1e Which one of the following should be classified as an operating activity on the statement of cash flows? a. A decrease in accounts payable during the year. b. An increase in cash resulting from the issuance of previously authorized common stock. c. The purchase of additional equipment needed for current production. d. The payment of a cash dividend from money arising from current operations. 19. CSO: 1A1d LOS: 1A1b When using the statement of cash flows to evaluate a compan y’s continuing solvency, the most important factor to consider is the cash a. balance at the end of the period. b. flows from (used for) operating activities. c. flows from (used for) investing activities. d. flows from (used for) financing activities. 20. CSO: 1A1d LOS: 1A1c The most commonly used method for calculating and reporting a company’s net cash flow from operating activities on its statement of cash flows is the a. direct method. b. indirect method. c. single -step method. d. multiple -step method. 21. CSO: 1A1d LOS: 1A1c The presentation of the major classes of operating cash receipts (such as receipts from customers) less the major classes of operating cash disbursements (such as cash paid for merchandise) is best described as the a. direct method of calculating net cash provided or used by operating activities. b. cash method of determining income in conformity with generally accepted accounting principles. c. format of the statement of cash flows. d. indirect method of calcul ating net cash provided or used by operating activities. 8 22. CSO: 1A1d LOS: 1A1e Which one of the following would result in a decrease to cash flow in the indirect method of preparing a statement of cash flows? a. Amortization expense. b. Decrease in inco me taxes payable. c. Proceeds from the issuance of common stock. d. Decrease in inventories. 23. CSO 1A1d LOS 1A1b The information reported in the statement of cash flows should help investors, creditors, and others to assess all of the following except the a. company’s ability to pay dividends and meet obligations. b. company’s ability to generate future cash flows. c. management with respect to the efficient and profitable use of the firm’s resources. d. cash and noncash investing and financing transactions during the period. 24. CSO: 1A1d LOS: 1A1g Larry Mitchell, Bailey Company’s controller, is gathering data for the Stat ement of Cash Flows for the most recent year end. Mitchell is planning to use the indirect method to prepare this statement, and has made the following list of cash inflows for the period. • Net income of $100,000 . • Securities purchased for investment p urposes with an original cost of $100,000 sold for $125,000. • Proceeds from the issuance of additional company stock totaling $10,000. The correct amount to be shown as net cash provided by operating activities is a. $100,000. b. $135,000. c. $225,000. d. $235,000. 25. CSO: 1A1d LOS: 1A1e During the year, Deltech Inc. acquired a long -term productive asset for $5,000 , and also borrowed $10,000 from a local bank. These transactions should be reported on Deltech’s Statement of Cash Flows as a. Outflows for Investing Activities, $5,000; Inflows from Financial Activities, $10,000. b. Inflows from Investing Activities, $10,000; Outflows for Financing Activities, $5,000. c. Outflows for Operating Activities, $5,000; Inflows from Financing Activities, $10,000. d. Outflows for Financing Activities, $5,000; Inflows from Investing Activities, $10,000. 9 26. CSO: 1A1d LOS: 1A1e Atwater Company has recorded the following payments for the current period. Purchase Trillium stock $300,000 Dividends paid to Atwater shareholders 200,000 Repurchase of Atwater Company stock 400,000 The amount to be shown in the Investing Activities Section of Atwater’s Cash Flow Statement should be a. $300,000. b. $500,000. c. $700,000. d. $900,000. 27. CSO: 1A1d LOS: 1A1e Carlson Company has the following payments recorded for the current period. Dividends paid to Carlson shareholders $150,000 Interest paid on bank loan 250,000 Purchase of equipment 350,000 The total amount of the above items to be shown in the Operating Activities Section of Carlson’s Cash Flow Statement should be a. $150,000. b. $250,000. c. $350,000. d. $750,000. 28. CSO: 1A1d LOS: 1A1e Barber Company has recorded the following payments for the current period. Interest paid on bank loan $300,000 Dividends paid to Barber shareholders 200,000 Repurchase of Barber Company stock 400,000 The amount to be shown in the Financing Activities Section of Barber’s Cash Flow Statement should be a. $300,000. b. $500,000. c. $600,000. d. $900,000. 10 29. CSO: 1A1d LOS: 1A1e Selected financial information for Kristina Company for the year just ended is shown below. Net income $2,000,000 Increase in accounts receivable 300,000 Decrease in inventory 100,000 Increase in accounts payable 200,000 Depreciation expense 400,000 Cash received from the issue of common stock 800,000 Cash paid for dividends 80,000 Cash paid for the acquisition of land 1,500,000 Kristina’s cash flow from financing activities for the year is a. $(80,000). b. $720,000. c. $800,000. d. $3,520,000. 30. CSO : 1A1d LOS: 1A1c An accountant with Nasbo Enterprises Inc. has gathered the following information in order to prepare the Statement of Cash Flows for the current year. Net income of $456,900 includes a deducti on of $45,600 for depreciation expense. The company issued $300,000 of dividends this year and purchased one new building for $275,000. The balance sheets from the current period and prior period included the following balances. Prior Year Current Yea r Accounts receivable, net $ 56,860 $ 45,300 Accounts payable 12,900 10,745 Inventory 186,700 194,320 Using the indirect method, what is the amount of cash provided by operating activities? a. $202,500. b. $405,205. c. $504,285. d. $521,405 . 11 31. CSO: 1A1d LOS: 1A1e For the fiscal year just ended, Doran Electronics had the following results. Net income $920,000 Depreciation expense 110,000 Increase in accounts payable 45,000 Increase in accounts receivable 73,000 Increase in deferred income tax liability 16,000 Doran’s net cash flow from operating activities is a. $928,000. b. $986,000. c. $1,018,000. d. $1,074,000. 32. CSO: 1A1d LOS: 1A1e Three years ago, James Company purchased stock in Zebra Inc. at a cost of $100,000. This stock was sold for $150,000 during the current fiscal year. The result of this transaction should be shown in the Investing Activities Section of James’ Statement of Cash Flows as a. Zero. b. $50,000. c. $100,000. d. $150,000. 12 33. CSO: 1A1d LOS: 1A1e Madden Corporation’s controller has gathered the following information as a basis for preparing the Statement of Cash Flows. Net income for the current year was $82,000. During the year, old equipment with a cost of $60,000 and a net carrying value of $53,000 was sold for cash at a gain of $10,000. New equipment was purchased for $100,000. Shown below are selected closing balances for last year and the current year. Last Year Current Year Cash $ 39,000 $ 85,000 Accounts receivable net 43,000 37,000 Inventories 93,000 105,000 Equipment 360,000 400,000 Accumulated depreciation - equipment 70,000 83,000 Accounts payable 22,000 19,000 Notes payable 100,000 100,000 Common stock 250,000 250,000 Retained earnings 93,000 175,000 Madden’s cash inflow from operating activities for the current year is a. $63,000. b. $73,000. c. $83,000. d. $93,000. 34. CSO: 1A1e LOS: 1A1j A leading manufacturer of electric vehicles has accumulated customer driving interaction data through its unique pilot driver -assist program. This data will be used to further develop more advanced autonomous features that the company plans to implement in the near future on its most popular model. In integrated reporting, the system used to accumulate and analyze t he driving data is best categorized as a. human capital. b. intellectual capital. c. natural capital. d. manufactural capital. 35. CSO: 1A1e LOS: 1A1h Which one of the following statements regarding an integrated report is correct? a. It only contains financial information. b. It only focuses on the creation of value over the long term. c. It should include material matters, both positive and negative. d. It must be included as a prominent and accessible part of another report. 13 36. CSO: 1A2a LOS: 1A2a A change in the estimate for bad debts should be a. treated as an error. b. handled retroactively. c. considered as an extraordinary item. d. treated as affecting only the period of the change. 37. CSO: 1A2a LOS: 1A2c Finer Foods Inc., a chain of supermarket s specializing in gourmet food, has been using the average cost method to value its inventory. During the current year, the company changed to the first -in, first-out method of inventory valuation. The president of the company reasoned that this change w as appropriate since it would more closely match the flow of physical goods. This change should be reported on the financial statements as a a. cumulative -effect type accounting change. b. retroactive -effect type accounting change . c. change in an accoun ting estimate. d. correction of an error. 38. CSO: 1A2a LOS: 1A2l Best Billiard Company owns 40% of Supreme Table Company’s stock at a historical cost of $300,000. Supreme Table recently reported their earnings for the prior year. Best Billiard’s proportion al share of Supreme Table’s prior year net income was $10,000. Best Billiard also received $15,000 in dividends from Supreme Table in the prior year. Best Billiard uses the equity method as the accounting treatment for this investment. Based on the informa tion presented, the proper presentation of this investment would result in Best Billiard reporting a. a decrease in the book value of their investment in Supreme Table. b. an increase in the book value of their investment in Supreme Table. c. their investment in Supreme Table at the original cost. d. consolidated financial statements with Supreme Table. 39. CSO: 1A2a LOS: 1A2k Under U.S. GAAP, which one of the following statements best describes the effects on the financial statements resulting from a change in the accounting classification for a security from available -for- sale to held -to-maturity? a. Comprehensive income will be impacted in the future by unrealized gains/losses. b. Net in come will not be impacted in the future by unrealized gains/losses. c. The balance sheet will be impacted by unrealized gains/losses. d. No change will occur regarding the accounting treatment for unrealized gains/losses. 14 40. CSO : 1A2b LOS: 1A2q A company has $ 100 million of debt that is due in March Year 3. In December Year 2, the company entered into a non -cancelable agreement with its lender to refinance the debt with the same interest rate, and the full principal is due in December Year 5. How should the deb t be classified on the December Year 2 balance sheet of the company? a. Classified as a current liability. b. Classified as a long -term liability. c. Considered as an off -balance sheet liability. d. Classified as a contingent liability. 41. CSO: 1A2b LOS: 1A2v For a corporation that is subject to the U.S. Income Tax Code and reports its financial results in accordance with U.S. GAAP, which one of the following requires the recognition of a deferred ta x liability? a. Subscriptions received in advance and accounted for ratably over the subscription term. b. An accrual for product warranty expenses that will be incurred and paid in the future. c. Interest received on state and municipal bonds. d. Sales accounted for on an accrual basis and on the cash basis for tax purposes. 42. CSO: 1A2c LOS: 1A2dd Which one of the following transactions would affect retained earnings but not additional paid -in capital? a. Declaration of a small stock dividend. b. Decrease in the value of an available -for-sale investment. c. Impairment of a long -term asset. d. Purchase of treasury stock using the cost method. 43. CSO: 1A2d LOS: 1A2nn During the month of October, a company purchased 1,000 units of inventory for $500 per unit and sold 900 of these units which represented 10% of the company’s annual sales budget in units. The company also incurred administrative costs of $300,000 during October. By applying the matching principle, the total amount of the company’s expenses on its October income statement is a. $750,000. b. $800,000. c. $810,000. d. $860,000. 15 44. CSO: 1A2d LOS: 1A2jj A consulting company won a $20.8 million three -year contract. The contract requires software development, hosting, and maintenance over three years. The total estimated cost of the project is $17 million, with $10 million expected in year one, $5 million in year two, and $2 million in year three. The billing schedule shows that $5 million will be billed upon start of the work, and then $5 million at each year en d. At the end of the first year, the actual cost incurred is $9 million, and total estimated costs are unchanged at $17 million. Using the percentage -of-completion method, how much revenue should be recognized at the end of the first year? a. $11 million. b. $10 million. c. $5 million. d. No revenue. 45. CSO: 1A2d LOS: 1A2jj At the beginning of the year, a company entered into a long -term contract to build a facility for $40 million. Half of the construction would be completed each year for the next two years. At the beginning of the following year, the company received a second contract to construct a second facility for $80 million. This project will last four years with 30%, 25%, 25%, and 20% of the facility completed during the four years, respectively. If the compa ny recognized revenue of $40 million in the second year, the method it used to account for long -term contracts was the a. completed -contract method under IFRS. b. completed -contract method under U.S. GAAP. c. percentage -of-completion method under IFRS. d. percentage -of-completion method under U.S. GAAP. 46. CSO: 1A2e LOS: 1A2ss A company is preparing its financial statements in accordance with U.S. GAAP. Listed below are select financial data for the company. Net income = $950,000 Depreciation = $40,000 Investment by owners = $60,000 Unrealized gain on available -for-sale securities = $90,000 Foreign currency translation loss = $20,000 What is the amount that would be reported as comprehensive income? a. $970,000. b. $1,020,000. c. $1,060,000. d. $1,120,000.