Part 1 : CMA Part1 Practice Questions A1
Question 1 - CIA 1194 P4 Q70 - Financial Statements
A company has purchased an asset with a 10-year useful life. It will use an accelerated
depreciation method for tax purposes. For reporting purposes, it will use straight-line
depreciation because this method is believed to reflect better the usage of the asset over its
economic life.
When applying the indirect method of calculating an entity's net operating cash flows, using
financial statements prepared for tax purposes rather than accrual accounting purposes will
result in
A. An understatement of cash flows throughout the economic life of depreciable assets.
B. An overstatement of cash flows in the early years and then an understatement of cash flows in
the later years of the economic life of depreciable assets.
C. No effect on cash flow amounts.
D. An overstatement of cash flows throughout the economic life of depreciable assets.
Question 2 - CMA 1288 P4 Q19 - Financial Statements
Which of the following items is specifically included in the statement of cash flows?
A. Operating and nonoperating cash flow information.
B. Conversion of debt to equity.
C. Acquiring an asset through a capital lease.
D. Purchasing a building by giving a mortgage to the seller.
Question 3 - CMA 694 P2 Q6 - Accounts Receivable and Inventory
During the year 1 year-end physical inventory count at Tequesta Corporation, $40,000 worth of
inventory was counted twice. Assuming that the year 2 year-end inventory was correct, the
result of the year 1 error was that
A. Year 1 retained earnings was understated, and year 2 ending inventory was correct.
B. Year 1 cost of goods sold was overstated, and year 2 income was understated.
C. Year 1 income was overstated, and year 2 ending inventory was overstated.
D. Year 1 cost of goods sold was understated, and year 2 retained earnings was correct.
Question 4 - CMA1287 P2 Q17 - Accounts Receivable and Inventory
Nasus Company began the month of November with 150 units of Model-XL brass hinges on
hand at a cost of $2.00 each. These hinges sell for $3.50 each. The following schedule presents
the additional activity in this inventory item during November.
Quantity
November ReceivedUnit PriceUnits Sold
4 100
6 200 $2.10
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Part 1 : CMA Part1 Practice Questions A1
6 200 $2.10
8 150
10 200 2.20
16 220
21 250 2.40
28 100
If Nasus uses perpetual moving average inventory pricing, the sale of 220 items on November 16
would be recorded at a unit cost of:
A. $2.08
B. $2.16
C. $2.10
D. $2.20
Question 5 - CMA 1295 P2 Q2 - Financial Statements
Royce Company had the following transactions during the fiscal year ended December 31, 20X1:
Accounts receivable decreased from $115,000 on December 31, 20X0 to $100,000 on
December 31, 20X1.
Royce's board of directors declared dividends on December 31, 20X1 of $0.05 per share
on the 2.8 million shares outstanding, payable to shareholders of record on January 31,
20X2. The company did not declare or pay dividends for fiscal 20X0.
Sold a truck with a net book value of $7,000 for $5,000 cash, reporting a loss of $2,000.
Paid interest to bondholders of $780,000.
The cash balance was $106,000 on December 31, 20X0 and $284,000 on December 31,
20X1.
Royce Company uses the direct method to prepare its statement of cash flows at December 31,
20X1. The interest paid to bondholders is reported in the
A. operating section, as a use or outflow of cash.
B. Investing section, as a use or outflow of cash.
C. Debt section, as a use or outflow of cash.
D. financing section, as a use or outflow of cash.
Question 6 - ICMA 10.P2.097 - Financial Statements
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 securities 2,800,000
Kristina's cash flow from financing activities for the year is
A. $800,000.
B. $(80,000).
C. $3,520,000.
D. $720,000.
Part 1 : CMA Part1 Practice Questions A1
Cash paid for the acquisition of land 1,500,000
Cash received from the sale of available-for-sale securities 2,800,000
Kristina's cash flow from financing activities for the year is
A. $800,000.
B. $(80,000).
C. $3,520,000.
D. $720,000.
Question 7 - CMA 696 P2 Q3 - Accounts Receivable and Inventory
An item of inventory purchased in year 1 for $25.00 has been incorrectly written down to a
current replacement cost of $17.50 at the end of year 1. The item is currently selling in year 2
for $50.00, its normal selling price. Which one of the following statements is correct?
A. The cost of sales for year 2 will be overstated.
B. The closing inventory of year 1 is overstated.
C. The income for year 2 will be overstated.
D. The income for year 1 is overstated.
Question 8 - CMA 696 P2 Q12 - Accounts Receivable and Inventory
Thomas Engine Company is a wholesaler of marine engine parts. The activity of carburetor 2642J
during the month of March is presented below.
No. of Unit Sales
March Units Cost Price
1 Inventory 3,200 $64.30$86.50
4 Purchase 3,400 64.75 87.00
14 Sales 3,600 87.25
25 Purchase 3,500 66.00 87.25
28 Sales 3,450 88.00
If Thomas uses a first-in, first-out perpetual inventory system, the total cost of the inventory for
carburetor 2642J at March 31 is
A. $201,300
B. $197,488
C. $196,115
D. $263,825
Question 9 - CMA 1294 P2 Q8 - Accounts Receivable and Inventory
Devereaux Inc. uses a perpetual inventory system and had the following inventory inflows and
outflows during the month of November.
November Activity
1 Balance 200 units at $20 per unit
10 Purchases160 units at 3 $20 per unit
18 Sales 180 units
20 Purchases140 units at $24 per unit
27 Sales 100 units
If Devereaux Inc. uses the moving average cost method, the value of its inventory at November
30 would be
Part 1 : CMA Part1 Practice Questions A1
November Activity
1 Balance 200 units at $20 per unit
10 Purchases160 units at $20 per unit
18 Sales 180 units
20 Purchases140 units at $24 per unit
27 Sales 100 units
If Devereaux Inc. uses the moving average cost method, the value of its inventory at November
30 would be
A. $4,960
B. $4,785
C. $4,480
D. $4,400
Question 10 - ICMA 13.P2.014 - Financial Statements
To calculate cash flows using the indirect method, which one of the following items must be
added back to net income?
A. Marketing expense.
B. Interest income.
C. Depreciation expense.
D. Revenue.
Question 11 - CMA 1295 P2 Q5 - Financial Statements
A statement of cash flows is intended to help users of financial statements
A. evaluate a firm's economic resources and obligations.
B. evaluate a firm's liquidity, solvency, and financial flexibility.
C. determine whether insiders have sold or purchased the firm's stock.
D. determine a firm's components of income from operations.
Question 12 - ICMA 13.P2.017 - Financial Statements
When using fair value accounting, it would be to a firm's benefit to report the liability at fair
value when it has
A. $50 million in variable rate preferred shares outstanding.
B. $28 million in outstanding bonds trading at $98.
C. $25 million in putable bonds trading at $102.
D. $32 million in outstanding bonds trading at $101.
Question 13 - CMA 691 P2 Q1 - 4
Accounts Receivable and Inventory
Sawyer Corporation is a wholesaler of industrial air compressor parts. The activity for Part
Number C-588 during May is as follows.
Unit Total
May Transaction Units Cost Cost
1 Inventory 1,400 $2.45 $3,430
Part 1 : CMA Part1 Practice Questions A1
Question 13 - CMA 691 P2 Q1 - Accounts Receivable and Inventory
Sawyer Corporation is a wholesaler of industrial air compressor parts. The activity for Part
Number C-588 during May is as follows.
Unit Total
May Transaction Units Cost Cost
1 Inventory 1,400 $2.45 $3,430
7 Purchase 1,800 2.75 4,950
16 Sales 2,000
20 Purchase 1,500 2.90 4,350
28 Sales 1,400
If Sawyer uses a last-in, first-out periodic inventory system, the total cost of the inventory for
Part Number C-588 at May 31 is
A. $3,510
B. $3,575
C. $3,230
D. $3,185
Question 14 - CMA 1287 P3 Q25 - Accounts Receivable and Inventory
One of the conditions necessary to recognize a transfer of receivables with recourse as a sale is
that the
A. The transferor is not both entitled and obligated to repurchase the receivables.
B. Transferor has derecognized all assets sold.
C. Transferee surrenders control of the receivables but retains a beneficial interest.
D. Transferred assets are isolated from the transferee.
Question 15 - ICMA 10.P2.012 - Financial Statements
The sale of available-for-sale securities should be accounted for on the statement of cash flows
as a(n)
A. financing activity.
B. operating activity.
C. noncash investing and financing activity.
D. investing activity.
Question 16 - CMA 696 P2 Q20 - Accounts Receivable and Inventory
Devereaux Inc. uses a perpetual inventory system and had the following inventory inflows and
outflows during the month of November.
5
November Activity
1 Balance 200 units at $20 per unit
10 Purchases 160 units at $20 per unit
18 Sales 180 units
20 Purchases 140 units at $24 per unit
27 Sales 100 units
Part 1 : CMA Part1 Practice Questions A1
outflows during the month of November.
November Activity
1 Balance 200 units at $20 per unit
10 Purchases 160 units at $20 per unit
18 Sales 180 units
20 Purchases 140 units at $24 per unit
27 Sales 100 units
If Devereaux Inc. uses the last-in, first-out method, the value of its inventory at November 30
would be
A. $4,400
B. $4,480
C. $4,785
D. $4,560
Question 17 - CMA 690 4.11 - Accounts Receivable and Inventory
Rice, Inc. uses the allowance method to account for uncollectible accounts. An account
receivable that was previously determined uncollectible and written off was collected during May.
The effect of the collection on Rice's current ratio and total working capital is as follows:
A. There is no impact on either of the ratios.
B. Both ratios will increase.
C. The current ratio will be unchanged, but working capital will increase.
D. Both ratios will decrease.
Question 18 - CMA 691 P2 Q3 - Accounts Receivable and Inventory
Sawyer Corporation is a wholesaler of industrial air compressor parts. The activity for Part
Number C-588 during May is as follows.
Unit Total
May Transaction Units Cost Cost
1 Inventory 1,400 $2.45 $3,430
7 Purchase 1,800 2.75 4,950
16 Sales 2,000
20 Purchase 1,500 2.90 4,350
28 Sales 1,400
If Sawyer uses a last-in, first-out perpetual inventory system, the total cost of the inventory for
Part Number C-588 at May 31 is
A. $3,521
B. $3,185
C. $3,230
D. $3,575
Question 19 - ICMA 10.P2.003 - Financial Statements
Which one of the following would result in a decrease to cash flow in the indirect method of
preparing a statement of cash flows?
Part 1 : CMA Part1 Practice Questions A1
Question 19 - ICMA 10.P2.003 - Financial Statements
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. Proceeds from the issuance of common stock.
B. Amortization expense.
C. Decrease in inventories.
D. Decrease in income taxes payable.
Question 20 - ICMA 10.P2.019 - Financial Statements
When a fixed asset is sold for less than book value, which one of the following will decrease?
A. Current ratio.
B. Total current assets.
C. Net profit.
D. Net working capital.
Question 21 - CMA 1290 P2 Q5 - Accounts Receivable and Inventory
Madison Corporation uses the allowance method to value its accounts receivable and is making
the annual adjustments at fiscal year end, November 30. The proportion of uncollectible
accounts is estimated based on past experience, which indicates 1.5% of net credit sales will be
uncollectible. Total sales for the year were $2,000,000 of which $200,000 were cash
transactions. Madison has determined that the Norris Corporation accounts receivable balance of
$10,000 is uncollectible and will write off this account before year-end adjustments are made.
Listed below are Madison's account balances at November 30 prior to any adjustments and the
$10,000 write-off.
Sales $2,000,000
Accounts receivable 750,000
Sales discounts (125,000)
Allowance for doubtful accounts (16,500)
Sales returns and allowances (175,000)
Bad debt expense 0
As a result of the November 30 adjusting entry to provide for bad debts, the allowance for
doubtful accounts will
A. Increase by $30,000.
B. Increase by $25,500.
C. Increase by $22,500.
D. Decrease by $22,500.
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Question 22 - ICMA 10.P2.094 - Financial Statements
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
Part 1 : CMA Part1 Practice Questions A1
Question 22 - ICMA 10.P2.094 - Financial Statements
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. $700,000.
C. $500,000.
D. $900,000.
Question 23 - CIA 1191 P4 Q32 - Financial Statements
In a statement of cash flows (indirect method), depreciation expense should be presented as:
A. an outflow of cash.
B. an inflow of cash.
C. an addition to net income in converting net income to net cash flows from operating activities.
D. a deduction from net income in converting net income to net cash flows from operating
activities.
Question 24 - CMA 1296 P2 Q24 - Financial Statements
When using the indirect method to prepare a statement of cash flows, which one of the following
should be deducted from net income when determining net cash flows from operating activities?
A. Amortization of premiums on bonds payable.
B. An increase in accrued liabilities.
C. Depreciation expense.
D. A loss on the sale of plant assets.
Question 25 - CMA 693 P3 Q1 - Accounts Receivable and Inventory
This information concerns items in Wilson's inventory.
Cameras Lenses Tripods
Historical cost per unit $210.00 $106.00 $53.00
Selling price per unit 217.00 145.00 73.75
Cost to distribute per unit 19.00 8.00 2.50
Current replacement cost per unit 203.00 105.00 51.00
Normal profit margin per unit 32.00 29.00 21.25
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The limits to the market value (i.e., the ceiling and the floor) that should be used in the lower of
cost or market comparison of cameras are
A. $217 and $185.
B. $185 and $166.
C. $198 and $166.
D. $217 and $198.
Part 1 : CMA Part1 Practice Questions A1
Current replacement cost per unit 203.00 105.00 51.00
Normal profit margin per unit 32.00 29.00 21.25
The limits to the market value (i.e., the ceiling and the floor) that should be used in the lower of
cost or market comparison of cameras are
A. $217 and $185.
B. $185 and $166.
C. $198 and $166.
D. $217 and $198.
Question 26 - ICMA 10.P2.098 - Financial Statements
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 securities 2,800,000
Kristina's cash flow from investing activities for the year is
A. $1,300,000.
B. $1,220,000.
C. $(1,500,000).
D. $2,800,000.
Question 27 - CMA 1292 P2 Q27 - Accounts Receivable and Inventory
Addison Hardware began the month of November with 150 large brass switchplates on hand at a
cost of $4.00 each. These switchplates sell for $7.00 each. The following schedule presents the
sales and purchases of this item during the month of November.
Qty. Unit Units
Nov. Recd. Cost Sold
5 100
7 200 $4.20
9 150
11 200 $4.40
17 220
22 250 $4.80
29 100
If Addison uses periodic weighted-average inventory pricing, the gross profit for November will
be
9
A. $1,548
B. $1,482
C. $1,574
D. $1,516
Part 1 : CMA Part1 Practice Questions A1
be
A. $1,548
B. $1,482
C. $1,574
D. $1,516
Question 28 - CIA 0592 P4 Q35 - Financial Statements
A financial statement includes all of the following items: net income, depreciation, operating
activities, and financing activities. What financial statement is this?
A. Income statement.
B. Statement of cash flows.
C. Statement of changes in stockholders' equity.
D. Balance sheet.
Question 29 - CMA 1292 P2 Q25 - Accounts Receivable and Inventory
Addison Hardware began the month of November with 150 large brass switchplates on hand at a
cost of $4.00 each. These switchplates sell for $7.00 each. The following schedule presents the
sales and purchases of this item during the month of November.
Qty. Unit Units
Nov. Recd. Cost Sold
5 100
7 200 $4.20
9 150
11 200 $4.40
17 220
22 250 $4.80
29 100
If Addison uses FIFO inventory pricing, the value of the inventory on November 30 would be
A. $936.
B. $1,012.
C. $1,104.
D. $1,046.
Question 30 - CMA 696 P2 Q15 - Accounts Receivable and Inventory
Thomas Engine Company is a wholesaler of marine engine parts. The activity of carburetor 2642J
during the month of March is presented below.
No. of Unit Sales
March Units Cost Price
1 Inventory 3,200 $64.30$86.50
4 Purchase 3,400 64.75 87.00
14 Sales 3,600 87.25 10
25 Purchase 3,500 66.00 87.25
28 Sales 3,450 88.00
If Thomas uses a weighted-average periodic inventory system, the total cost of the inventory for
carburetor 2642J at March 31 is
Part 1 : CMA Part1 Practice Questions A1
1 Inventory 3,200 $64.30$86.50
4 Purchase 3,400 64.75 87.00
14 Sales 3,600 87.25
25 Purchase 3,500 66.00 87.25
28 Sales 3,450 88.00
If Thomas uses a weighted-average periodic inventory system, the total cost of the inventory for
carburetor 2642J at March 31 is
A. $198,301
B. $198,372
C. $194,200
D. $199,233
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