1
Certified Management Accountant Part 1
What does Comprehensive income include? - -Correct Answer-All changes in
equity except those transactions executed by the owners of the company,
such as owner's contribution and distribution.
What are examples of other comprehensive income items? - -Correct
Answer-1. Foreign currency translation gains and losses
2. Gains or losses and prior service costs or credits related to a defined
benefit pension plan that have not been recognized as components of net
periodic benefit cost
3. Unrealized holding gains or losses for available for sale securities
4. The effective portion of the gain or loss on a derivative designated as a
cash flow hedge
What are examples of owners' distributions not included in comprehensive
income? - -Correct Answer-1. cash dividends when declared
2. re-acquisitions of equity securities
3. distributions "in kind" of non-cash assets
What is the full disclosure principle? - -Correct Answer-States that an entity
should include all information that will influence the understanding, judgment,
and decisions of the users of financial statements. Companies must disclose
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their significant accounting policies, assumptions, and estimates in the
footnotes to the financial statements.
What are Accounting Policy Disclosures? - -Correct Answer-Involve any of
the following:
1. A selection from existing acceptable accounting principles
2. Principles and methods that are predominantly adopted by the industry in
which the entity operates
3. Unusual or innovative applications of GAAP
i.e. depreciation methods, intangible asset amortization, inventory pricing,
etc.
What are disclosures for contingent gains? - -Correct Answer-Contingent
gains are not recognized until payment is received, but it is disclosed. Loss
contingencies are recognized when it is probable that a loss has occurred
and is reasonably estimable.
What is integrated reporting? - -Correct Answer-A methodology to disclose
financial results along with the measures of non-financial performance that
support long term value in a way that shows the interrelation among the two
What is integrated thinking? - -Correct Answer-more extensive thinking about
how capitals, resources, outcomes, and impacts that are an integral part of
the business model which is formed in ways most suitable to value creation
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What is the purpose of IR? - -Correct Answer-to improve corporate reporting
by demonstrating an understanding of the relationship between financial and
non-financial performance measures
What is the direct write off method for accounts receivable? - -Correct
Answer-Involves writing off a bad debt expense directly against the
corresponding receivable account. Therefore, a specific dollar amount from a
customer account will be written off as a bad debt expense. It is not allowed
under U.S. GAAP because it violates the expense recognition principle
Debit: Bad Debt Expense
Credit: Accounts Receivable
What is the allowance method? - -Correct Answer-The allowance method
follows GAAP matching principle since we estimate uncollectible accounts at
the end of the year. We use this estimate to record Bad Debt Expense and to
setup a reserve account called Allowance for Doubtful Accounts (also called
Allowance for Uncollectible Accounts) based on previous experience with
past due accounts. As a contra asset account to the Accounts Receivable
account, the Allowance for Doubtful Accounts (also called Allowance for
uncollectible accounts or Allowance for bad debts) reduces accounts
receivable to their net realizable value.
Debit: Allowance for Bad Debt
Credit: Accounts Receivable
What are consigned goods? - -Correct Answer-goods that are held for sale by
one party (consignor) although ownership of the goods is retained by another
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party (consignee). The consignee does not include consigned goods as part
of their inventory
What are good in transit? - -Correct Answer-items that are in transit as of end
of reporting period; ownership of inventory depends on the shipping
agreement.
What is FOB shipping point? - -Correct Answer-ownership of the goods
passes to the buyer when the public carrier accepts the goods from the seller
What is FOB destination? - -Correct Answer-ownership of the goods remains
with the seller until the goods reach the buyer
What are goods out on approval? - -Correct Answer-items held by customer
as of the balance sheet date but are not considered sold. Usually, a period is
granted to the customer to decide whether to buy or reject the product.
What costs are included in inventory? - -Correct Answer-1. Purchase price
net of trade discounts and rebates
2. Conversion or production costs if produced internally (direct labor and
overhead)
3. Other costs incurred to bring inventory into present location and condition
What costs are not included in inventory? - -Correct Answer-freight out,
abnormal waste or spoilage, and selling and administrative overhead; these
items are expensed as incurred.
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Certified Management Accountant Part 1
What does Comprehensive income include? - -Correct Answer-All changes in
equity except those transactions executed by the owners of the company,
such as owner's contribution and distribution.
What are examples of other comprehensive income items? - -Correct
Answer-1. Foreign currency translation gains and losses
2. Gains or losses and prior service costs or credits related to a defined
benefit pension plan that have not been recognized as components of net
periodic benefit cost
3. Unrealized holding gains or losses for available for sale securities
4. The effective portion of the gain or loss on a derivative designated as a
cash flow hedge
What are examples of owners' distributions not included in comprehensive
income? - -Correct Answer-1. cash dividends when declared
2. re-acquisitions of equity securities
3. distributions "in kind" of non-cash assets
What is the full disclosure principle? - -Correct Answer-States that an entity
should include all information that will influence the understanding, judgment,
and decisions of the users of financial statements. Companies must disclose
1
, 2
their significant accounting policies, assumptions, and estimates in the
footnotes to the financial statements.
What are Accounting Policy Disclosures? - -Correct Answer-Involve any of
the following:
1. A selection from existing acceptable accounting principles
2. Principles and methods that are predominantly adopted by the industry in
which the entity operates
3. Unusual or innovative applications of GAAP
i.e. depreciation methods, intangible asset amortization, inventory pricing,
etc.
What are disclosures for contingent gains? - -Correct Answer-Contingent
gains are not recognized until payment is received, but it is disclosed. Loss
contingencies are recognized when it is probable that a loss has occurred
and is reasonably estimable.
What is integrated reporting? - -Correct Answer-A methodology to disclose
financial results along with the measures of non-financial performance that
support long term value in a way that shows the interrelation among the two
What is integrated thinking? - -Correct Answer-more extensive thinking about
how capitals, resources, outcomes, and impacts that are an integral part of
the business model which is formed in ways most suitable to value creation
2
, 3
What is the purpose of IR? - -Correct Answer-to improve corporate reporting
by demonstrating an understanding of the relationship between financial and
non-financial performance measures
What is the direct write off method for accounts receivable? - -Correct
Answer-Involves writing off a bad debt expense directly against the
corresponding receivable account. Therefore, a specific dollar amount from a
customer account will be written off as a bad debt expense. It is not allowed
under U.S. GAAP because it violates the expense recognition principle
Debit: Bad Debt Expense
Credit: Accounts Receivable
What is the allowance method? - -Correct Answer-The allowance method
follows GAAP matching principle since we estimate uncollectible accounts at
the end of the year. We use this estimate to record Bad Debt Expense and to
setup a reserve account called Allowance for Doubtful Accounts (also called
Allowance for Uncollectible Accounts) based on previous experience with
past due accounts. As a contra asset account to the Accounts Receivable
account, the Allowance for Doubtful Accounts (also called Allowance for
uncollectible accounts or Allowance for bad debts) reduces accounts
receivable to their net realizable value.
Debit: Allowance for Bad Debt
Credit: Accounts Receivable
What are consigned goods? - -Correct Answer-goods that are held for sale by
one party (consignor) although ownership of the goods is retained by another
3
, 4
party (consignee). The consignee does not include consigned goods as part
of their inventory
What are good in transit? - -Correct Answer-items that are in transit as of end
of reporting period; ownership of inventory depends on the shipping
agreement.
What is FOB shipping point? - -Correct Answer-ownership of the goods
passes to the buyer when the public carrier accepts the goods from the seller
What is FOB destination? - -Correct Answer-ownership of the goods remains
with the seller until the goods reach the buyer
What are goods out on approval? - -Correct Answer-items held by customer
as of the balance sheet date but are not considered sold. Usually, a period is
granted to the customer to decide whether to buy or reject the product.
What costs are included in inventory? - -Correct Answer-1. Purchase price
net of trade discounts and rebates
2. Conversion or production costs if produced internally (direct labor and
overhead)
3. Other costs incurred to bring inventory into present location and condition
What costs are not included in inventory? - -Correct Answer-freight out,
abnormal waste or spoilage, and selling and administrative overhead; these
items are expensed as incurred.
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