Tag: CMA Exam

 

MCQ                                                                                                                                                     

All of the following are elements of a Statement of financial position except

A. Liabilities

B. Assets

C. Shareholders’ equity

D. Revenue

The Correct Answer

D

The Explanation

Both all assets; liabilities and Shareholders’ equity are elements of a Statement of financial position. But revenue; expenses and gains & losses are elements of an income statement

MCQ

Wang’s real estate agency has increased its listings by offering an extensive advertising program, but Wang is concerned about her advertising costs. She is not sure how much she spends on advertising per listing because her advertising costs have both variable and fixed components.

Month	Number of Listings	Advertising Cost
January 2019	480	$30,565
February 2019	420	$27,205
March 2019	350	$23,145
April 2019	230	$15,025
May 2019	220	$15,280
June 2019	420	$27,205
July 2019	480	$30,565
August 2019	510	$32,485
September 2019	500	$31,835
October 2019	560	$36,020
November 2019	540	$36,920
December 2019	480	$30,565

Based on the information above and the high–low method, what is Wang’s fixed cost for advertising?

A.$1,860

B.$1,213

C.$863

D.$2,230

The Correct Answer

A

The Explanation

The month with the highest number of listings is October2019 (560), and the month with the lowest number of listings is May 2019 (220), so use the data for those months for the high–low method.

The variable cost=($36,020 − $15,280) ÷ (560 − 220)

= 20740  ÷ 340 = $ 61

The fixed cost = total cost -the variable cost.

The fixed cost according to May’s data = 15,280 -( 220 × $61)

= 15,280 – 14,030

=  15,280 -13420

= $1860

MCQ

A business absorbs overheads on a direct labour hourly basis, which were budgeted at 2,500 labour hours with overheads of $56,500. Actual results were 2,350 hours with actual overheads of $54,050. Calculate the over or under recovery.

A.$940 under recovery

B.$1,000 over recovery

C.$940 over recovery

D.£1,000 under recovery

The Correct Answer

A

The Explanation

The overhead rate is $22.60 (56,500/2,500) and is applied to the actual hours of 2,350, to give the costs recovered of $53,110. If this is compared to the actual costs of $54,050, there is an under recovery of $940.

MCQ

Wang Inc. has decided to start a cash budgeting program to improve overall cash management. Information gathered from the past year reveals the following cash collection trends.

50% of sales are on credit; 40% of credit sales are collected in month of sale; 30% of credit sales are collected first month after sale; 20% of credit sales are collected second month after sale; 10% of credit sales result in bad debts

Gross sales for the last five months were as follows.

January     $1,220,000                 February          1,240,000

March        1,250,000                  April               1,230,000

May            1,260,000

Sales for June are projected to be $255,000. Based on this information, the expected cash receipts for March would be

A.$1,200,000

B.$1,183,000

C.$1,216,000

D.$1,232,000

The Correct Answer

B

The Explanation

March cash receipts as shown below

March cash sales                    =         $1,250,000 x .5           =          $625,000

March sales collections          =          $1,250,000 x .5 x .4    =          250,000

February sales collections     =          $1,240,000 x .5 x .3    =          186,000

January sales collections       =          $1,220,000 x .5 x .2    =          122,000

Total cash collections is $ 1,183,000

MCQ                                                                                                                                                

………. uses financial reporting to evaluate the strengths and weaknesses addition, to evaluate the past performance to plan for the firm’s future.

A.Management

B.Suppliers

C.Regulatory agencies

D.Creditors

The Correct Answer

A

The Explanation

The firm’s management has the authority through the decisions of the administration to redistribute resources (assets) and tasks (employees) through the strategic plan and budgets according to their vision and mission under the SWOT analysis.

MCQ

The modern furniture company produces 3 products of office furniture and it wants to add a new product which is expected to achieve $2500/unit as contribution margin , its production need 15 feet of “zan”, 20 feet of “arrow” and 300working hours.

If shadow price for one feet of “zan” is $1, one feet of “arrow” is $5 and one working hour is $7.5.

A. advise this company to add this product; because this product increase a contribution margin by $150

B. advise this company to add this product; because this product increase a contribution margin by $135

C. advise this company to don’t add this product; because this product decrease a contribution margin by $150

D. advise this company to don’t add this product; because this product decrease a contribution margin by $135

The Correct Answer

B

The Explanation

The change of contribution margin

= 2500 – ((15×1) + (20×5) + (300×7.5)

= 2500 – 2365

=  + $135

MCQ

Potential investors can get the best possible idea of a firm’s ability to give a stock or cash dividends to its stockholders according to the firm’s:

A.Balance sheet & Income statement

B.Balance sheet & Retained earnings statement

C.Statement of cash flows & Retained earnings statement

D.Statement of cash flows & Income statement

The Correct Answer

C

The Explanation

In order for a firm to be able to pay cash dividends to its shareholders, it needs to generate cash on a consistent basis. The statement of cash flows provides the best source of information concerning a firm’s ability to generate cash and to sustain cash generation. But stock dividends related to retained earnings & it don’t need a firm’s cash flows

MCQ

Wang Company has retained earnings of $250,000, common stock of $500,000, and total common stockholders’ equity of $750,000. It has 250,000 shares of $2 par value common stock outstanding. If Wang Company declares a 3-for-1 stock split on its common stock, which of the following will occur?

A.Total paid-in capital will increase by $1,500,000.

B.Retained earnings will increase by $750,000.

C.Retained earnings will decrease by $750,000.

D.There will be no effect on total common stockholders’ equity.

The Correct Answer

D

The Explanation

A stock split increases the number of shares of stock authorized, issued, and outstanding. However, it has no impact on total paid-in capital, retained earnings, or total common shareholders’ equity.

MCQ

In the financial year ended 31 October 2019, Wang Limited received dividends of £15,000 and £10,000 in interest from the bank. A share issue in August 2019 raised £250,000 which was used to repay borrowings of £150,000. On 30 September 2019, a dividend of £50,000 was paid to shareholders.

What is Wang Limited’s cash inflow from financing activities for the year ended 31 October 2019?

A.£250,000

B.£250,000

C.£250,000

D.£50,000

The Correct Answer

D

The Explanation

The first step in answering this question is to decide which of the cash flows in the question arise from financing activities. Dividends received and interest received are both investing cash inflows so these two sources of cash are irrelevant in the calculation of cash flows from financing activities.

Financing cash outflows = £250,000 – £200,000 = £50,000

There are financing cash inflows of £250,000 from the share issue. Financing cash outflows are made up of the £150,000 repayment of borrowings and the £50,000 dividend paid to shareholders, a total of £200,000 of financing cash outflows. £250,000 financing cash inflows – £200,000 financing cash outflows = a net cash inflow from financing of £50,000.

MCQ

Giving the following: sales £200,000, opening inventory £50,000, closing inventory £40,000, purchases £165,000, carriage inwards £5,000, the cost of goods sold should be……..

A.£175,000

B.£180,000

C.£185,000

D.None of the above

The Correct Answer

B

The Explanation

The cost of goods sold = opening inventory + purchases

+ carriage inwards – closing inventory

COGS = 50,000 + 165,000 + 5,000- 40,000 = 180,000

 

MCQ

Often, …………… also referred to as EBIT

A.Gross Profit

B.Operating income

C.Net Income

D.Not on the above

The Correct Answer

B

The Explanation

EBIT meaning Earnings Before Interest and Taxes, It is an indicator of a company’s profitability. One can calculate it as revenue minus expenses, excluding tax and interest. EBIT is also referred to as Operating income

Following; Note disclosures and schedules specifically related to the income statement except

Investment securities

Earnings per share

Depreciation schedules

Components of pension expense

The Correct Answer

A

The Explanation

Note disclosures and schedules specifically related to the balance sheet include: investment securities; maturity patterns of bond issues; significant uncertainties and details of capital stock issues

But; Note disclosures and schedules specifically related to the income statement include the following: earnings per share (EPS); depreciation schedules; components of income tax expense and components of pension expense

MCQ

Given the following information: Cash £400; Creditors £48,164; Debtors £95,400; Value added tax (VAT) £13,900; Bank overdraft £3.404; Inventory (stock) £65,200. The working capital will be………….

A.£95,532

B.£102,340

C.£ 96,323

D.£ 98,104

The Correct Answer

A

The Explanation

Net working capital = Total current assets -Total current liabilities

= (400 + 95,400 + 65,200)

– (48,164 + 13,900+3,404)

= 161,000 – 65,468

= £95,532

MCQ                                                                                                                                                

A machine costing £20,000 is depreciated at 10% per annum by the straight line method. It is sold after three years for £15,000. Which one of the following statements is true?

A.The firm has made a £1,000 loss

B.The firm has made a £1,000 profit

C.The firm has made a £2,000 loss

D.The firm has made a £2,000 profit

The Correct Answer

B

The Explanation

The firm’s profit = sold value – book value

= sold value – (cost – cumulative depreciation)

Cumulative depreciation according to straight line method

=   costing × depreciation premium × Period

= 20,000 × 0.1 × 3 = £ 6,000

The firm’s profit = 15,000 – (20,000-6,000)

MCQ                                                                                                                                                

Under the statement of financial position; Assets are generally reported in order of……………..

A.liquidity

B.Risks

C.Profitability

D.Productivity

The Correct Answer

A

The Explanation

GAAP calls for accounts to be listed in the order of liquidity

Next; use financial reporting to extending or withholding credit except

A.Creditors

B.Employee

C.Bondholder

D.Suppliers

 The Correct Answer

B

The Explanation

Creditors, Bondholder and Suppliers using financial reporting to extending or withholding credit; but Employee using financial reporting to negotiate wages & fringe benefits.

MCQ

……… useing financial reporting to negotiate wages & fringe benefits.

A.Shareholder

B.Suppliers

C.Regulatory agencies

D.Employee

The Correct Answer

D

The Explanation

the salary policy of employees according to negotiation such areas as pay, fringe benefits (such as Medical insurance and retirement plans) , work schedules; that based on the employees ’contribution to the firm’s performance