CMA USA PART-1, SECTION – A

MOCK TEST-2, MCQ-50, TIME-90 MINUTES

ACCOUNT RECIEVABLE
1.Question

Because the ________ method violates the ________, it is unacceptable for

financial reporting.

A. direct write-off; matching principle

B. direct write-off; going-concern principle
C. allowance; matching principle
D. allowance; relevance criteria

2.Question

Claire Enterprises has $150,000 in accounts receivable at the end of the

current year, and it estimates its bad debts to be 5% of the receivables.
Hence, the accountant reports $7,500 as bad debts and the net realizable
value as $142,500. Under which of the following circumstances will the
amount of bad debts
reported reduce?
A. If the company shortens the credit period allowed.
B. If the company lengthens the credit period allowed.
C. If the allowance for doubtful accounts has a credit balance of $1,500.
D. If the allowance for doubtful accounts has a debit balance of $1,500.

3. Question
When should a merchandiser recognize an account receivable?
A. At the point of sale
B. When cash is received
C. When payment is requested
D. When the goods are delivered

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CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES

4. Question
Using the percentage-of-receivables basis, Continental Industries estimates it
will have total bad debts of $25,150 in the coming year. If Continental's trial
balance shows an Allowance for Doubtful Accounts with a debit balance of
$8,750, which of the following adjusting entries should the firm include on its
balance sheet?
A. Bad Debt Expense = Debit of $16,400; Allowance for Doubtful Accounts = Credit of
$16,400
B. Bad Debt Expense = Debit of $33,900; Allowance for Doubtful Accounts = Credit of
$33,900

C. Bad Debt Expense = Debit of $25,150; Allowance for Doubtful Accounts = Credit of
$25,150
D. Allowance for Doubtful Accounts = Debit of $16,400; Bad Debt Expense = Credit of
$16,400

5. Question
Both Fowler Landscaping and Stanley Cleaning Services have estimated their
uncollectible accounts for 20x8 to be $3,500. In addition, both companies use
the allowance method for uncollectible accounts. If Stanley Cleaning Services
has to record a larger adjusting entry for their Allowance for Doubtful
Accounts account at the end of 20x7, what can you assume about the
balance of the Allowance for Doubtful Accounts account for each company?
A. Stanley Cleaning Services has a credit balance in Allowance for
Doubtful Accounts at the end of 20x7, whereas Fowler Landscaping
has a debit balance.

B. Stanley Cleaning Services has a zero balance in Allowance for

Doubtful Accounts at the end of 20x7, whereas Fowler Landscaping
has a debit balance.

C. Stanley Cleaning Services has a debit balance in Allowance for

Doubtful Accounts at the end of 20x7, whereas Fowler Landscaping
has a credit balance.

D. Stanley Cleaning Services has a credit balance in Allowance for

Doubtful Accounts at the end of 20x7, whereas Fowler Landscaping
has a zero balance.

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CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES

INVENTORY

6. Question

The table shows the inventory of Elkins Light Fixtures. If Elkins applies the lower-of-
cost-or-net-realizable-value basis per bulb, what would be the value of the inventory
reported on the balance sheet?

Cost Net Realizable Value

Bulb A $66,000 $70,000
Bulb B $36,000 $30,000
Bulb C $80,000 $84,000

A. $184,000
B. $180,000
C. $176,000
D. $182,000

7. Question
A physical count of inventory at the end of the accounting period is
required under which inventory system(s)?
A. Perpetual system
B. Periodic system

C. Periodic and perpetual systems

D. Sampling system

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CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES

8. Question
What will be the effect on the financial statements in the year when slower-
moving inventory items continue to be valued at historical cost instead of the
lower of cost or net realizable value basis?
A. Assets are understated and net income is overstated.
B. Assets are understated and net income is understated.
C. Assets are overstated and net income is overstated.
D. Assets are overstated and net income is understated.

9. Question

The following costs pertain to Den Co.'s purchase of inventory:

700 units of product A $3,750

Freight-in 175
Cost of materials and labor incurred to bring product A to saleable condition 900
Insurance cost during transit of purchased goods 100
Total $4,925

What amount should Den record as the cost of inventory as a result of this
purchase?

A. $3,925
B. $4,650
C. $4,825
D. $4,925

LIFO is used when prices are rising and companies wish to do which of the
following?
A. Maximize income taxes
B. Adjust beginning inventory
C. Minimize income taxes
D. Lower cost of goods

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CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES

Question 11
The ending inventory of the Ryan Company is understated in year one by
$20,000. This error is not corrected in year one or in year two. What impact will
this error have on total net income for years one and two combined?

A. No effect on total net income for the two years

B. Overstated total income by $20,000
C. Understated total income by $20,000
D. Overstated net income for year one by $20,000 and year two by
$20,000 for a total overstatement of $40,000

TAX- 4
Question 12
Jason is meeting with the accounting staff and executives at Haskins
Plumbing to develop tax-planning strategies. For which of the following
reasons might the accountants and executives have called this meeting?

A. They have deferred tax assets that need to be assessed for a valuation
allowance.
B. They have deferred tax liabilities that need to be assessed for a valuation
allowance.
C. They recently became aware that a new corporate tax rate has been enacted.
D. They need to discuss recognizing a tax benefit for last year's
operating loss that will be completely covered by this year's net
income.

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CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES
Question 13

Temporary differences arise when expenses are deductible for tax purposes:

After they are recognized in financial income

Before they are recognized in financial income

A. No, Yes
B. Yes, Yes
C. Yes, No
D. No, No

Question 46

A company has the following liabilities at year-end:

Mortgage note payable; $16,000 due within 12 months $355,000

Short-term debt that the company has refinanced with long-term debt shortly after $175,000
year-end but prior to the issuance of the financial statements
Deferred tax liability arising from book and tax differences in depreciation $25,000

What amount should the company include in the current liability section of the
balance sheet?

A. $0
B. 16,000
C.41,000
D. $191,000

Question 14
When accounting for income taxes, a temporary difference occurs in which of the
following scenarios?

A. An item is included in the calculation of net income, but is never taxable or

deductible.
B. An item is included in the calculation of net income in one year and in
taxable income in a different year.
C. An item is not taxable due to a change in the tax law.
D. The accrual method of accounting is used.

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CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES

LIABILITIES---3
Question 15
Bob Corp makes commercial fishing lures. The lures are sold with a three-year
assurance warranty. Bob Corp estimates that the average warranty cost is $5 per
lure. In year 20X1, Bob Corp sells 4,000 lures. The actual warranty costs related to
the 20X1 sales for 20X1, 20X2, and 20X3 were $7,000, $8,000 and $6,000
respectively. What amount does Bob record as assurance warranty expense in year
20X3?

A. $0
B. $21,000
C. $20,000
D. $1,000

Question 16

A company has the following liabilities at year-end:

Mortgage note payable; $16,000 due within 12 months $355,000

Short-term debt that the company has refinanced with long-term debt shortly after $175,000
year-end but prior to the issuance of the financial statements
Deferred tax liability arising from book and tax differences in depreciation $25,000

What amount should the company include in the current liability section of the
balance sheet?

A. $0
B. 16,000
C.41,000
D. $191,000

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CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES

Question 17

Brite Corp. has the following liabilities at December 31, 20X3:

Accounts Payable $55,000

Unsecured Notes, 8%, due July 1, 20x4 $400,000
Accrued Expenses $35,000
Contingent Liability $450,000
Deferred Income Tax Liability $25,000
Serial Bonds due March 31, 20X4 $1,000,000

The contingent liability is an accrual for possible losses on a $1,000,000 lawsuit

recently filed against Brite. Brite's legal counsel expects the suit to be settled in
20X5 and has estimated that Brite may be found liable for damages in the
range of $450,000 to $750,000. What amount should Brite report as current
liabilities on its December 31, 20X3 balance sheet?

A. $1,490,000
B. $515,000
C. $940,000
D. $1,515,000

DEFERED TAX===2
Question 18
For calendar year 3, Clark Corp. had depreciation of $300,000 on its income
statement. On its Year 3 tax return, Clark had depreciation of $500,000. Clark's
income statement also included $50,000 accrued warranty expense that will be
deducted for tax purposes when paid in a future year. Clark's enacted tax rates are
30% for Year 3 and 25% for future years. These were Clark's only temporary
differences. In Clark's Year 3 income statement, the deferred portion of its
provision for income taxes should be:
A. $60,000.
B. $45,000.
C. $50,000.
D. $37,500.

Question 19
8
CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES
Deferred taxes should be recognized for permanent differences and temporary
differences, respectively.

A. Yes, Yes
B. Yes, No
C. No, Yes
D. No, No

INCOME STATEMENT
Question 20
With regard to comprehensive income, how does net income differ in
a one-statement approach compared to a two-statement approach?
A. Net income includes comprehensive income in a one-statement
approach but not in a two-statement approach.
B. Net income in a one-statement approach is used to calculate earnings per
share, but earnings per share are not reported in a two- statement
approach.
C. Net income is reported as a subtotal in a one-statement approach but
as a total on a two-statement approach.
D. Net income includes income, expenses, gains, and losses all together in a
one-statement approach, but income and expenses are separated from
gains and losses when calculating net income in a two-statement
approach.

Question 21
The management of Arthur Energy recognized a contingent liability of $50,000 in the
current year. However, before the annual report was issued, the company resolved
the issue, making a lump-sum payment of $42,000. The board of directors has
decided to incorporate the transaction in the subsequent year's financial statements
rather than to adjust the statements about to be issued. Which of the following
provisions of U.S. GAAP, if applicable, is likely to suggest that management's decision
is wrong?

A. If an event provides additional evidence about conditions that existed as

of the balance sheet date before statements are issued, and the event
clarifies the estimates used, then the financial statements should be
adjusted.

B. Loss contingencies must be recognized when it is probable that a

loss has been incurred and the amount of the loss is reasonably
estimable.

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CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES
C. Whenever GAAP or industry-specific regulations allow a choice
between two or more accounting methods, the method selected
should be disclosed.

D. As new information becomes available about estimates made in previous years,

those estimates should always be adjusted and financial statements should be
restated if they have been previously issued.

Question 22
Last year Urban Kicks earned $5.2 million from the sale of shoes and $1.4 million
from the sale of one of their manufacturing plants. How would these cash flows be
categorized on the statement of cash flows?

A. Both would be recorded as an operating activity on the statement of cash

flows.
B. Both would be recorded as an investing activity on the statement of cash
flows.

C. Money from the sale of shoes would be recorded as an operating

activity in the statement of cash flows, while money from the sale of
property would be recorded as an investing activity in the statement
of cash flows.
D. Money from the sale of property would be recorded as an operating
activity on the statement of cash flows, while money from the sale of
shoes would be recorded as an investing activity on

Question 23

What is one major difference between a stock split and a stock dividend?
A. The total paid-in capital increases with a stock split but has no change with a
stock dividend.
B. The par value per share decreases with a stock split but has no change with a
stock dividend.
C. The total retained earnings has no change with a stock split but increases with a
stock dividend.
D. The total par value of the stock increases with

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CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES

Question 24

All of the following are classifications on the Statement of Cash Flows except:
*Source: Retired ICMA CMA Exam Questions.
A. investing activities.
B. equity activities.
C. operating activities.
D. financing activities.

Question 25

In the Tolmer Company, Treasury Stock increased $15,000 from a cash

purchase, and Retained Earnings increased $40,000 as a result of net income
of $62,000 and cash dividends paid of $22,000. What is the net cash used by
financing activities?
A. ($37,000)
B. $55,000
C. ($22,000)
D. ($15,000)

Question 26
The cash flow from operations for Charlene Energy Inc. is $25,000 for the
current year. If the amortization expense increases by $5,000 and other factors
remain same, under which of the following assumptions will the cash flow from
operations remain unaffected?
A. Cash paid for intangibles also increased by $5,000 during the year.
B. The company has an infinite life.
C. The company is operating in a tax-free environment.
D. The company can change the amortization method during a financial year.

Question 27
In the Winterbottom Company, land decreased $75,000 because of a cash sale for
$75,000, the equipment account increased $30,000 as a result of a cash purchase,
and Bonds Payable increased $100,000 from an issuance for cash at face value.
What is the net cash provided by investing activities?

A. $75,000
B. $145,000
C. $70,000
D. $45,000

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CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES
Question 28
Why is it important for a financial analyst to scrutinize the statement of cash flows’
footnotes?

A. Footnotes provide significant information about noncash investing and

financing activities, such as the issuing of stock for fixed assets.
B. Footnotes provide vital information about a company's liquidity
position, trend in revenue from different demographic regions, and
changes in capital structure.
C. Footnotes detail the executive compensation details and
shareholders' voting procedures and information.
D. Footnotes provide significant information about mergers and acquisitions
a company is targeting in the current year.

Question 29
Pegasus Software has reported the following items related to its cash flows:

Cash at the end of the period $14,500,809

Cash outflows from investing activities ($18,986,983)
Cash outflows from financing activities ($2,975,425)

If Pegasus Software had $4,650,657 in cash at the beginning of the year,

what was the total of cash flows from operating activities?

A. $25,861,710
B. $31,812,560
C. $28,837,135
D. ($6,161,406)

Question 30
How is the retained earnings statement related to the statement of cash
flows when accounting for dividends?

A. The retained earnings statement shows dividends declared, and the

statement of cash flows shows dividends paid.

B. The retained earnings statement shows dividends paid, and the

statement of cash flows shows dividends received.

C. The retained earnings statement shows dividends received, and the

statement of cash flows shows dividends declared.

D. The retained earnings statement shows dividends paid, and the

statement of cash flows shows dividends declared.
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CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES

Question 31
The statement of shareholders' equity shows a:
*Source: Retired ICMA CMA Exam Questions.

A. reconciliation of the beginning and ending balances in the Retained Earnings

account.
B. reconciliation of the beginning and ending balances in shareholders' equity
accounts.
C. computation of the number of shares outstanding used for earnings per share
calculations.
D. listing of all shareholders' equity accounts and their corresponding dollar
amounts.

Question 32
Suzanne Rogers, a financial analyst, is analyzing Capital One's stock. She is
more interested in estimating the cash flows Capital One can generate. From
the financial analyst's perspective, which of the following balance sheet
reporting is best suited to avoid adjustments?

A. Inventory reported at current market value; fixed assets reported at historical cost.
B. Inventory reported at replacement cost; fixed assets reported at market value.
C. Inventory reported at historical cost; fixed assets reported at historical cost.
D. Inventory reported at historical cost; fixed assets reported at fair value.

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CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES

Question 33
The financial statements included in the annual report to the shareholders are
least useful to which one of the following?

*Source: Retired ICMA CMA Exam Questions.

A. Competing businesses.
B. Stockbrokers.
C. Managers in charge of operating activities.
D. Bankers preparing to lend money.

Question 34
In good years, Dailey Industries often loans cash to other companies, but in difficult
years, they have to borrow cash from other entities. How would they record these
differently on the statement of cash flows?

A. Loaning money would be classified as an investing activity,

whereas borrowing money would be classified as a financing
activity.

B. Loaning money would be classified as a financing activity,

whereas borrowing money would be classified as an investing
activity.

C. Loaning money would be classified as an operating activity,

whereas borrowing money would be classified as a financing
activity.

D. Loaning money would be classified as a financing activity,

whereas borrowing money would be classified as an operating
activity.

Question 35
On January 1, Year 1, Harrow Co., as lessee, signed a five-year non-
cancellable equipment lease with annual payments of $100,000 beginning
December 31, Year 1. Harrow properly treated this transaction as a finance
lease. The five lease payments have a present value of $379,000 at January
1, Year 1, based on the implicit interest rate of 10%. What amount should
Harrow report as interest expense for the year ended December 31, Year 1?
A. $27,900
B. $10,000

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CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES
C. $37,900
D. $0

Question 36
On December 30, Year 1, Rafferty Corp. leased equipment under a finance lease.
Annual lease payments of $20,000 are due December 31 for 10 years. The
equipment's useful life is 10 years, and the interest rate implicit in the lease is 10%.
The finance lease obligation was recorded on December 30, Year 1, at $135,000,
and the first lease payment was made on that date. What amount should Rafferty
include in current liabilities for this finance lease in its December 31, Year 1,
balance sheet?

A. $8,500
B. $6,500
C. $11,500
D. $20,000

Question 37
Which of the following conditions is not part of a finance lease?

A. The owner is responsible for all insurance on the property.

B. The lessee records an asset on its balance sheet.
C. The lessee pays for all maintenance on the property.
D. The lessee assumes the risks commonly held by an owner.

Question 38
Curry Seasonings has a patented technology for finely grinding spices while
maintaining flavor. This has allowed the company to make some of the world's
finest spices. However, recently a competitor patented a newer technology that
results in the production of more potent spices than Curry's spices. What
would you recommend they do to revalue the intangible asset?
A. Run a fair value test and then a recoverability test.
B. Run a recoverability test and then a fair value test.
C. Run a recoverability test only.
D. Run a fair value test only.

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CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES

Question 39

On December 30, 20X5, Haber Co. leased a typical new machine from Gregg
Corp. The following data relate to the lease transaction at the inception of the
lease:

Lease term 10 years

Annual payment at the end of each lease year $100,000
Useful life of machine 12 years
Implicit interest rate 10%
Present value of annuity due $1 for 10 periods at 10% 6.76
Present value ordinary annuity $1 for 10 periods at 10% 6.15
Fair value of the machine $700,000

The lease has no purchase option, and the possession of the machine
reverts to Gregg when the lease terminates. At the inception of the lease,
Haber should record a lease liability of:

A. $0.
B. $615,000.
C. $630,000.
D. $676,000.

Question 40
Consider the statements below regarding accounting treatments under
U.S. GAAP and IFRSs. Which statements are correct?

I. U.S. GAAP permits intangible assets to be revalued to fair value (the

revaluation model) if there is an active market for the asset.

II. IFRS does not permit the use of LIFO to account for inventory.

III. Under IFRS, fair value accounting for property, plant and equipment is only
allowed when fair value is reliably measurable.

IV. Under U.S. GAAP research and development costs are capitalized as
incurred.

A. I, II, and III, only.

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CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES
B. II and III, only.
C. II, III and IV, only.
D. II and IV, only.

Question 41
Consider the statements below regarding accounting treatments for goodwill
under U.S. GAAP. Which statement is the most correct description of the
accounting treatment for goodwill under U.S. GAAP?
A. U.S. GAAP allows goodwill to be amortized for a period not to exceed 40 years.
B. U.S. GAAP does not allow the amortization of goodwill.
C. U.S. GAAP tests goodwill for impairment but goodwill is not amortized.
D. U.S. GAAP allows goodwill to be amortized for a period not to exceed 20 years.

Question 42
Pam and Sue are discussing IFRS and GAAP principles. Pam says that the two
reporting standards were very similar, but Sue disagrees, explaining that they are
very different from one another. Who is correct?

A. Pam, IFRS and U.S. GAAP are both principles-based approaches.

B. Pam, IFRS and U.S. GAAP are both rules-based approaches.
C. Sue, IFRS approaches are primarily principles-based, while GAAP uses mostly rules-
based approaches.
D. Sue, IFRS approaches are primarily rules-based, while GAAP uses mostly principles-
based approaches.

Question 43
The beginning inventory for 20x4 is overstated. The effects of this error on
cost of goods sold for 20x4, net income for 20x4, and assets at December 31,
20x4, respectively, are represented by which of the following options?
A. Overstatement, understatement, overstatement
B. Understatement, overstatement, overstatement
C. Overstatement, understatement, no effect
D. Understatement, overstatement, no effect

Question 44
Sweetwater Water Sports owns 35% of Surfside Surf Shop's voting stock. In
20x6, Surfside recorded net income of $300,000 and paid dividends of $30,000.
If Sweetwater mistakenly recorded these transactions using the fair value method

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CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES
rather than the equity method, how would this affect the balance of their
investment account, net income, and retained earnings, respectively?
A. Overstate, understate, understate
B. Overstate, overstate, overstate
C. Understate, overstate, overstate
D. Understate, understate, understate

Owner’s equity-4
Question 45
The purchase of treasury stock:
A. Decreases common stock authorized.
B. Decreases common stock issued.
C. Decreases common stock outstanding.
D. Has no effect on common stock outstanding.

Question 46

Based on the stock's par value, a large stock dividend is most similar to a ________; but
based on the
stock's market value, a large stock dividend is most similar to a ________.

A. small stock dividend; stock split

B. stock split; small stock dividend
C. cash dividend; small stock dividend
D. stock split; cash dividend

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CMA USA PART-1, SECTION – A
MOCK TEST-2, MCQ-50, TIME-90 MINUTES

Question 47
In the financial statements, the presentation of an accumulated other
comprehensive loss is similar to the presentation of what other financial item?
A. The excess paid-in capital from common stock
B. A net loss rather than net income in

a c. single accounting period

Retained Earning

D. The cost of treasury stock

Question 48
Both stock splits and stock dividends ________ total stockholders’ equity, while only
________ result in a
decrease in the par value of common stock.
A. increase; stock splits
B. increase; stock dividends
C. decrease; stock dividends

D. maintain; stock splits

Question 49
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.

Question 50
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 achieving future profitability.
D. predict the company’s future revenues.

19