CMA Exam Support Package| IMa's Certification for Accountants and Financial Professionals in Business-

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CMA Part 1 – Financial Reporting, Planning, Performance, and Control Examination Practice Questions © Copyright 2017 Institute of Certified Management Accountants3 CMA Part 1 – Financial Repor... ting, Planning, Performance, and Control Examination 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: 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 income taxes payable. c. Proceeds from the issuance of common stock. d. Decrease in inventories. 3. 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 shares outstanding used for earnings per share calculations. d. reconciliation of the beginning and ending balances in the Retained Earnings account. 4. CSO: 1A1d LOS: 1A1b When using the statement of cash flows to evaluate a company’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.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 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. 7. 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 decreased 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 Dividends as a. $20,000. b. $15,000. c. $12,000. d. $5,000. 8. 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.5 9. CSO: 1A1d LOS: 1A1c Dividends paid to company shareholders would be shown on the 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. 10. 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. 11. CSO: 1A1d LOS: 1A1c The sale of available-for-sale securities should be accounted for on the statement of cash flows as a(n) a. operating activity. b. investing activity. c. financing activity. d. noncash investing and financing activity. 12. 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. 13. 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. noncash financing and investing activity.6 14. 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. 15. 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. 16. 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. 17. 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 calculating net cash provided or used by operating activities.7 18. 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. 19. CSO: 1A1a LOS: 1A1e Stanford Company leased some special-purpose equipment from Vincent Inc. under a long-term lease that was treated as an operating lease by Stanford. After the financial statements for the year had been issued, it was discovered that the lease should have been treated as a capital lease by Stanford. All of the following measures relating to Stanford would be affected by this discovery except the a. debt/equity ratio. b. accounts receivable turnover. c. fixed asset turnover. d. net income percentage. 20. CSO: 1A1d LOS: 1A1h Larry Mitchell, Bailey Company’s controller, is gathering data for the Statement 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 purposes 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. 21. 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, $10,000.8 22. 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. 23. 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. 24. 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. $900,000.9 25. 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 Gain on the sale of available-for-sale securities 700,000 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 Cash received from the sale of available-for-sale 2,800,000 securities Kristina’s cash flow from financing activities for the year is a. $(80,000). b. $720,000. c. $800,000. d. $3,520,000. 26. 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 Gain on the sale of available-for-sale securities 700,000 Cash receivable from the issue of common stock 800,000 Cash paid for dividends 80,000 Cash paid for the acquisition of land 1,500,000 Cash received from the sale of available-for-sale 2,800,000 securities Kristina’s cash flow from investing activities for the year is a. $(1,500,000). b. $1,220,000. c. $1,300,000. d. $2,800,000.10 27. 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. 28. 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. $150,000.11 29. 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. 30. 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 Gain on the sale of available-for-sale securities 700,000 Cash receivable from the issue of common stock 800,000 Cash paid for dividends 80,000 Cash paid for the acquisition of land 1,500,000 Cash received from the sale of available-for-sale securities 2,800,000 Assuming the indirect method is used, Kristina’s cash flow from operating activities for the year is a. $1,700,000. b. $2,000,000. c. $2,400,000. d. $3,100,000.12 31. 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. 32. CSO: 1A2a LOS: 1A2d Finer Foods Inc., a chain of supermarkets 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 was appropriate since it would more closely match the flow of physical goods. This change should be reported on the financial statements as a. cumulative-effect type accounting change. b. retroactive-effect type accounting change c. change in an accounting estimate. d. correction of an error. Section B: Planning, Budgeting and Forecasting 33. CSO: 1B2a LOS: 1B2b Cerawell Products Company is a ceramics manufacturer that is facing several challenges in its operations due to economic and industry conditions. The company is currently preparing its annual plan and budget. Which one of the following is subject to the least control by the management of Cerawell in the current fiscal year? a. A new machine that was purchased this year has not helped reduce Cerawell’s unfavorable labor efficiency variances. b. A competitor has achieved an unexpecte [Show More]

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