Certified Management Accountant (CMA) Examination:
Advanced-Level Multiple-Choice Question Bank –
Version 2.0 150 Additional Questions Covering Financial
Planning, Performance Analytics, Strategic Financial
Management, Corporate Finance, Decision Analysis,
Risk Management, Capital Investment, and Professional
Ethics a well detailed one written and
graded A+ upgraded
Part 1: Financial Planning, Performance, and Analytics – Questions 1–75
Section A: External Financial Reporting Decisions (Questions 1–12)
1. Under U.S. GAAP, which of the following is the correct treatment for a change in accounting
principle?
A) Prospective application only
B) Retrospective application with restatement of prior periods
C) Cumulative effect adjustment to beginning retained earnings
D) Both B and C depending on the specific principle changed
Correct Answer: D
Rationale: Under U.S. GAAP, changes in accounting principle are generally applied
retrospectively with restatement of prior periods. However, when impracticable to apply
,retrospectively, a cumulative effect adjustment to beginning retained earnings is permitted.
Changes in accounting estimates are applied prospectively.
2. Which of the following is an example of a subsequent event that requires disclosure but
NOT adjustment?
A) Bankruptcy of a major customer that occurred before year-end
B) Settlement of a lawsuit that confirms a liability existed at year-end
C) Loss of a major customer after year-end
D) Discovery of fraud that existed at year-end
Correct Answer: C
Rationale: Events occurring after year-end that provide evidence about conditions that did NOT
exist at the balance sheet date require disclosure only. Loss of a major customer after year-end
is a non-adjusting event. The other events provide evidence about conditions that existed at
year-end.
3. Under the fair value measurement framework (ASC 820), which level of inputs is considered
the most reliable?
A) Level 1 – Quoted prices in active markets
B) Level 2 – Observable inputs other than quoted prices
C) Level 3 – Unobservable inputs
D) Level 4 – Management estimates
Correct Answer: A
Rationale: Level 1 inputs (quoted prices in active markets for identical assets/liabilities) are the
most reliable. Level 2 uses observable inputs; Level 3 uses unobservable inputs. There is no
Level 4.
4. A company has a foreign subsidiary whose functional currency is the local currency.
Translation adjustments are reported:
A) In net income
B) In other comprehensive income
C) As a component of retained earnings
D) In the statement of cash flows
,Correct Answer: B
Rationale: When the functional currency is the local currency, translation adjustments are
reported in other comprehensive income (OCI) as a separate component of shareholders'
equity. They are not included in net income.
5. Which of the following is NOT a component of other comprehensive income (OCI)?
A) Unrealized gains/losses on available-for-sale securities
B) Foreign currency translation adjustments
C) Changes in fair value of derivatives designated as cash flow hedges
D) Realized gains on sale of equipment
Correct Answer: D
Rationale: Realized gains on sale of equipment are included in net income, not OCI. OCI
includes unrealized gains/losses on available-for-sale securities, foreign currency translation
adjustments, and changes in fair value of cash flow hedges.
6. Under U.S. GAAP, goodwill impairment is tested at the:
A) Entity level
B) Reporting unit level
C) Segment level
D) Individual asset level
Correct Answer: B
Rationale: Under U.S. GAAP, goodwill is tested for impairment at the reporting unit level (the
operating segment level or one level below). Under IFRS, it is tested at the cash-generating unit
level.
7. A company changes its inventory valuation method from FIFO to weighted average. Under
U.S. GAAP, this is classified as:
A) Change in accounting estimate
B) Change in accounting principle
C) Correction of an error
D) Change in reporting entity
, Correct Answer: B
Rationale: A change in inventory valuation method is a change in accounting principle. It
requires retrospective application unless impracticable. It is applied with restatement of prior
period financial statements.
8. Which of the following is a characteristic of a finance lease from the lessee's perspective?
A) The lessee does not recognize the leased asset
B) The lessee recognizes a right-of-use asset and lease liability
C) The lessee treats lease payments as operating expenses
D) The lessee does not record depreciation expense
Correct Answer: B
Rationale: Under ASC 842, finance leases require recognition of a right-of-use asset and lease
liability at the present value of lease payments. The asset is depreciated and the liability is
amortized using the effective interest method.
9. Under the direct method of the statement of cash flows, which of the following would be
shown?
A) Net income
B) Cash collected from customers
C) Depreciation expense
D) Gain on sale of equipment
Correct Answer: B
Rationale: The direct method reports major classes of gross cash receipts and cash payments,
including cash collected from customers and cash paid to suppliers. Depreciation and gains are
non-cash items not included in the direct method.
10. A company has a defined benefit pension plan with an overfunded status. Under U.S.
GAAP, the overfunded amount is reported as:
A) A current liability
B) A non-current liability
Advanced-Level Multiple-Choice Question Bank –
Version 2.0 150 Additional Questions Covering Financial
Planning, Performance Analytics, Strategic Financial
Management, Corporate Finance, Decision Analysis,
Risk Management, Capital Investment, and Professional
Ethics a well detailed one written and
graded A+ upgraded
Part 1: Financial Planning, Performance, and Analytics – Questions 1–75
Section A: External Financial Reporting Decisions (Questions 1–12)
1. Under U.S. GAAP, which of the following is the correct treatment for a change in accounting
principle?
A) Prospective application only
B) Retrospective application with restatement of prior periods
C) Cumulative effect adjustment to beginning retained earnings
D) Both B and C depending on the specific principle changed
Correct Answer: D
Rationale: Under U.S. GAAP, changes in accounting principle are generally applied
retrospectively with restatement of prior periods. However, when impracticable to apply
,retrospectively, a cumulative effect adjustment to beginning retained earnings is permitted.
Changes in accounting estimates are applied prospectively.
2. Which of the following is an example of a subsequent event that requires disclosure but
NOT adjustment?
A) Bankruptcy of a major customer that occurred before year-end
B) Settlement of a lawsuit that confirms a liability existed at year-end
C) Loss of a major customer after year-end
D) Discovery of fraud that existed at year-end
Correct Answer: C
Rationale: Events occurring after year-end that provide evidence about conditions that did NOT
exist at the balance sheet date require disclosure only. Loss of a major customer after year-end
is a non-adjusting event. The other events provide evidence about conditions that existed at
year-end.
3. Under the fair value measurement framework (ASC 820), which level of inputs is considered
the most reliable?
A) Level 1 – Quoted prices in active markets
B) Level 2 – Observable inputs other than quoted prices
C) Level 3 – Unobservable inputs
D) Level 4 – Management estimates
Correct Answer: A
Rationale: Level 1 inputs (quoted prices in active markets for identical assets/liabilities) are the
most reliable. Level 2 uses observable inputs; Level 3 uses unobservable inputs. There is no
Level 4.
4. A company has a foreign subsidiary whose functional currency is the local currency.
Translation adjustments are reported:
A) In net income
B) In other comprehensive income
C) As a component of retained earnings
D) In the statement of cash flows
,Correct Answer: B
Rationale: When the functional currency is the local currency, translation adjustments are
reported in other comprehensive income (OCI) as a separate component of shareholders'
equity. They are not included in net income.
5. Which of the following is NOT a component of other comprehensive income (OCI)?
A) Unrealized gains/losses on available-for-sale securities
B) Foreign currency translation adjustments
C) Changes in fair value of derivatives designated as cash flow hedges
D) Realized gains on sale of equipment
Correct Answer: D
Rationale: Realized gains on sale of equipment are included in net income, not OCI. OCI
includes unrealized gains/losses on available-for-sale securities, foreign currency translation
adjustments, and changes in fair value of cash flow hedges.
6. Under U.S. GAAP, goodwill impairment is tested at the:
A) Entity level
B) Reporting unit level
C) Segment level
D) Individual asset level
Correct Answer: B
Rationale: Under U.S. GAAP, goodwill is tested for impairment at the reporting unit level (the
operating segment level or one level below). Under IFRS, it is tested at the cash-generating unit
level.
7. A company changes its inventory valuation method from FIFO to weighted average. Under
U.S. GAAP, this is classified as:
A) Change in accounting estimate
B) Change in accounting principle
C) Correction of an error
D) Change in reporting entity
, Correct Answer: B
Rationale: A change in inventory valuation method is a change in accounting principle. It
requires retrospective application unless impracticable. It is applied with restatement of prior
period financial statements.
8. Which of the following is a characteristic of a finance lease from the lessee's perspective?
A) The lessee does not recognize the leased asset
B) The lessee recognizes a right-of-use asset and lease liability
C) The lessee treats lease payments as operating expenses
D) The lessee does not record depreciation expense
Correct Answer: B
Rationale: Under ASC 842, finance leases require recognition of a right-of-use asset and lease
liability at the present value of lease payments. The asset is depreciated and the liability is
amortized using the effective interest method.
9. Under the direct method of the statement of cash flows, which of the following would be
shown?
A) Net income
B) Cash collected from customers
C) Depreciation expense
D) Gain on sale of equipment
Correct Answer: B
Rationale: The direct method reports major classes of gross cash receipts and cash payments,
including cash collected from customers and cash paid to suppliers. Depreciation and gains are
non-cash items not included in the direct method.
10. A company has a defined benefit pension plan with an overfunded status. Under U.S.
GAAP, the overfunded amount is reported as:
A) A current liability
B) A non-current liability
