CMA ACTUAL PRACTICE EXAM
Content: Part 1: Financial Planning, Performance, and Analytics and Part 2: Strategic
Financial Management.
Time Allocation: While the actual CMA exam has a 4-hour time limit for each part, the
goal here is to provide a robust review. It is recommended to work through this in
sections to test your knowledge.
CMA Exam
Part 1: Financial Planning, Performance, and Analytics
(Questions 1-75)
Topic: External Financial Reporting Decisions (15%)
1. A company switched from the straight-line method of depreciation to an accelerated
method for newly acquired assets. How should this change be reported in the financial
statements?
a) As a cumulative effect adjustment to retained earnings
b) As a prior period adjustment
c) Prospectively, over the remaining useful life of the new assets
d) As a change in accounting principle, applied retrospectively
Answer: c) Rationale: A change in depreciation method for new assets is considered a
change in accounting estimate effected by a change in accounting principle. It is applied
prospectively. A change in depreciation method for existing assets would also be
prospective.
2. According to IFRS, which of the following is an indicator of a lease being classified as
a finance lease?
,a) The lease term is for a major part of the asset’s economic life.
b) The present value of lease payments equals substantially all of the asset’s fair value.
c) The asset is of a specialized nature such that only the lessee can use it without major
modification.
d) All of the above.
Answer: d) Rationale: IFRS 16 uses indicators for a finance lease. All three options are
indicators. The "major part" (typically 75%) and "substantially all" (typically 90%)
thresholds are common in practice, and specialized nature is a strong indicator.
3. A company has $1,000,000 in revenue, $600,000 in cost of goods sold, and $200,000
in operating expenses. What is the gross margin?
a) $200,000
b) $400,000
c) $800,000
d) $1,000,000
Answer: b) *Rationale: Gross Margin = Revenue - Cost of Goods Sold = $1,000,000 -
$600,000 = $400,000. Operating expenses are deducted after gross margin to calculate
operating income.*
4. Under U.S. GAAP, which of the following is not a required disclosure for a business
combination?
a) The primary reasons for the acquisition
b) The fair value of total consideration transferred
c) The amount of goodwill expected to be deductible for tax purposes
d) Pro forma results of operations for the current period only
Answer: d) Rationale: U.S. GAAP (ASC 805) requires pro forma results of operations for
the current period and the prior comparable period as if the acquisition occurred at the
beginning of the prior period.
5. Which of the following best describes "comprehensive income"?
a) Net income plus other comprehensive income
b) Revenue minus expenses
c) Operating income plus financing income
d) Retained earnings plus paid-in capital
Answer: a) Rationale: Comprehensive income is the total change in equity from non-
owner sources. It includes net income and other comprehensive income (OCI) items like
unrealized gains/losses on available-for-sale securities and foreign currency translation
adjustments.
,6. A company issues $1,000,000 face value bonds at a discount. Over the life of the
bonds, the carrying value of the liability will:
a) Remain constant.
b) Increase to the face value.
c) Decrease to zero.
d) Fluctuate based on market rates.
Answer: b) Rationale: When bonds are issued at a discount, the carrying value is below
face value. The discount is amortized over the life of the bond, increasing the carrying
value until it reaches face value at maturity.
7. Which of the following items is classified as a financing cash flow under U.S. GAAP?
a) Purchase of equipment
b) Dividends paid to shareholders
c) Interest received on notes receivable
d) Sale of trading securities
Answer: b) Rationale: Under U.S. GAAP, dividends paid are classified as a financing
activity. Interest paid and received are classified as operating. Under IFRS, dividends paid
can be financing or operating, and interest can be operating or financing.
8. What is the impact on the financial statements of recording a contingent liability that
is probable and reasonably estimable?
a) No impact, only disclosure
b) Decrease in liabilities and decrease in equity
c) Increase in liabilities and decrease in equity (expense)
d) Increase in assets and increase in liabilities
Answer: c) Rationale: If a loss is probable and the amount can be reasonably estimated, it
must be accrued. This increases a liability (e.g., Warranty Liability) and increases an
expense, which decreases equity.
9. When preparing a statement of cash flows using the indirect method, an increase in
accounts receivable is:
a) Added to net income.
b) Subtracted from net income.
c) Reported as an investing outflow.
d) Reported as a financing inflow.
Answer: b) Rationale: An increase in accounts receivable indicates that revenue was
recognized but not collected in cash. This is a use of cash, so it is subtracted from net
income to reconcile to operating cash flow.
, 10. A company’s trial balance shows a credit balance in the "cash" account. This is most
likely a result of:
a) A bank reconciliation error.
b) An overdraft, which should be reclassified as a current liability.
c) An overstatement of sales.
d) A timing difference that will reverse next month.
Answer: b) Rationale: A credit balance in cash indicates a bank overdraft. Under U.S.
GAAP, overdrafts are generally classified as a current liability (accounts payable) unless
there is a right of offset with another account at the same bank.
Topic: Planning, Budgeting, and Forecasting (20%)
11. What is the primary purpose of a rolling (continuous) budget?
a) To set fixed annual targets that cannot be changed
b) To always have a budget that extends a specific period into the future
c) To simplify the budgeting process by using last year’s numbers
d) To comply with SEC regulations
Answer: b) *Rationale: A rolling budget continuously adds a new period (e.g., a month
or quarter) as the current period concludes. This ensures management always has a plan
for the upcoming 12-24 months.*
12. Which of the following is the first step in the activity-based budgeting (ABB)
process?
a) Determine the budgeted cost driver rates
b) Determine the demand for products or services
c) Determine the budgeted resource costs
d) Determine the activities required to meet the demand
Answer: b) Rationale: ABB begins by forecasting the demand for products or services.
From there, the organization determines the activities required to meet that demand, then
the resources needed for those activities, and finally the costs of those resources.
13. A company expects to sell 10,000 units. Beginning inventory is 1,000 units and
desired ending inventory is 1,500 units. How many units must be produced?
a) 9,500
b) 10,000
Content: Part 1: Financial Planning, Performance, and Analytics and Part 2: Strategic
Financial Management.
Time Allocation: While the actual CMA exam has a 4-hour time limit for each part, the
goal here is to provide a robust review. It is recommended to work through this in
sections to test your knowledge.
CMA Exam
Part 1: Financial Planning, Performance, and Analytics
(Questions 1-75)
Topic: External Financial Reporting Decisions (15%)
1. A company switched from the straight-line method of depreciation to an accelerated
method for newly acquired assets. How should this change be reported in the financial
statements?
a) As a cumulative effect adjustment to retained earnings
b) As a prior period adjustment
c) Prospectively, over the remaining useful life of the new assets
d) As a change in accounting principle, applied retrospectively
Answer: c) Rationale: A change in depreciation method for new assets is considered a
change in accounting estimate effected by a change in accounting principle. It is applied
prospectively. A change in depreciation method for existing assets would also be
prospective.
2. According to IFRS, which of the following is an indicator of a lease being classified as
a finance lease?
,a) The lease term is for a major part of the asset’s economic life.
b) The present value of lease payments equals substantially all of the asset’s fair value.
c) The asset is of a specialized nature such that only the lessee can use it without major
modification.
d) All of the above.
Answer: d) Rationale: IFRS 16 uses indicators for a finance lease. All three options are
indicators. The "major part" (typically 75%) and "substantially all" (typically 90%)
thresholds are common in practice, and specialized nature is a strong indicator.
3. A company has $1,000,000 in revenue, $600,000 in cost of goods sold, and $200,000
in operating expenses. What is the gross margin?
a) $200,000
b) $400,000
c) $800,000
d) $1,000,000
Answer: b) *Rationale: Gross Margin = Revenue - Cost of Goods Sold = $1,000,000 -
$600,000 = $400,000. Operating expenses are deducted after gross margin to calculate
operating income.*
4. Under U.S. GAAP, which of the following is not a required disclosure for a business
combination?
a) The primary reasons for the acquisition
b) The fair value of total consideration transferred
c) The amount of goodwill expected to be deductible for tax purposes
d) Pro forma results of operations for the current period only
Answer: d) Rationale: U.S. GAAP (ASC 805) requires pro forma results of operations for
the current period and the prior comparable period as if the acquisition occurred at the
beginning of the prior period.
5. Which of the following best describes "comprehensive income"?
a) Net income plus other comprehensive income
b) Revenue minus expenses
c) Operating income plus financing income
d) Retained earnings plus paid-in capital
Answer: a) Rationale: Comprehensive income is the total change in equity from non-
owner sources. It includes net income and other comprehensive income (OCI) items like
unrealized gains/losses on available-for-sale securities and foreign currency translation
adjustments.
,6. A company issues $1,000,000 face value bonds at a discount. Over the life of the
bonds, the carrying value of the liability will:
a) Remain constant.
b) Increase to the face value.
c) Decrease to zero.
d) Fluctuate based on market rates.
Answer: b) Rationale: When bonds are issued at a discount, the carrying value is below
face value. The discount is amortized over the life of the bond, increasing the carrying
value until it reaches face value at maturity.
7. Which of the following items is classified as a financing cash flow under U.S. GAAP?
a) Purchase of equipment
b) Dividends paid to shareholders
c) Interest received on notes receivable
d) Sale of trading securities
Answer: b) Rationale: Under U.S. GAAP, dividends paid are classified as a financing
activity. Interest paid and received are classified as operating. Under IFRS, dividends paid
can be financing or operating, and interest can be operating or financing.
8. What is the impact on the financial statements of recording a contingent liability that
is probable and reasonably estimable?
a) No impact, only disclosure
b) Decrease in liabilities and decrease in equity
c) Increase in liabilities and decrease in equity (expense)
d) Increase in assets and increase in liabilities
Answer: c) Rationale: If a loss is probable and the amount can be reasonably estimated, it
must be accrued. This increases a liability (e.g., Warranty Liability) and increases an
expense, which decreases equity.
9. When preparing a statement of cash flows using the indirect method, an increase in
accounts receivable is:
a) Added to net income.
b) Subtracted from net income.
c) Reported as an investing outflow.
d) Reported as a financing inflow.
Answer: b) Rationale: An increase in accounts receivable indicates that revenue was
recognized but not collected in cash. This is a use of cash, so it is subtracted from net
income to reconcile to operating cash flow.
, 10. A company’s trial balance shows a credit balance in the "cash" account. This is most
likely a result of:
a) A bank reconciliation error.
b) An overdraft, which should be reclassified as a current liability.
c) An overstatement of sales.
d) A timing difference that will reverse next month.
Answer: b) Rationale: A credit balance in cash indicates a bank overdraft. Under U.S.
GAAP, overdrafts are generally classified as a current liability (accounts payable) unless
there is a right of offset with another account at the same bank.
Topic: Planning, Budgeting, and Forecasting (20%)
11. What is the primary purpose of a rolling (continuous) budget?
a) To set fixed annual targets that cannot be changed
b) To always have a budget that extends a specific period into the future
c) To simplify the budgeting process by using last year’s numbers
d) To comply with SEC regulations
Answer: b) *Rationale: A rolling budget continuously adds a new period (e.g., a month
or quarter) as the current period concludes. This ensures management always has a plan
for the upcoming 12-24 months.*
12. Which of the following is the first step in the activity-based budgeting (ABB)
process?
a) Determine the budgeted cost driver rates
b) Determine the demand for products or services
c) Determine the budgeted resource costs
d) Determine the activities required to meet the demand
Answer: b) Rationale: ABB begins by forecasting the demand for products or services.
From there, the organization determines the activities required to meet that demand, then
the resources needed for those activities, and finally the costs of those resources.
13. A company expects to sell 10,000 units. Beginning inventory is 1,000 units and
desired ending inventory is 1,500 units. How many units must be produced?
a) 9,500
b) 10,000
