Cma part I test bank wiley with over 800 questions and answers-2022

Cma part I test bank wiley with over 800 questions and answers-2022 A1: Financial Statements Question 1: 1A1-LS34 Dividends paid to company shareholders would be shown on the statement of cash flows as: *Source: Retired ICMA CMA Exam Questions. A. cash flows from investing activities. B. operating cash inflows. C. cash flows from financing activities. D. operating cash outflows. Dividends paid to company shareholders would be shown on the statement of cash flows as cash flows from financing activities. Financing activities include all long-term debt and shareholders' equity transactions. Question 2: 1A1-LS39 Which one of the following should be classified as an operating activity on the statement of cash flows? *Source: Retired ICMA CMA Exam Questions. A. The purchase of additional equipment needed for current production. B. A decrease in accounts payable during the year. C. The payment of a cash dividend from money arising from current operations. D. An increase in cash resulting from the issuance of previously authorized common stock. A decrease in accounts payable during the year should be classified as an operating activity on the statement of cash flows. The proceeds from the issuance of stock and the payment of a dividend are financing activities. Purchase of equipment is an investing activity. Question 3: 1A1-LS40 All of the following are limitations to the information provided on the statement of financial position except the: *Source: Retired ICMA CMA Exam Questions. A. judgments and estimates used regarding the collectability, salability, and longevity of assets. B. lack of current valuation for most assets and liabilities. C. omission of items that are of financial value to the business such as the worth of the employees. D. quality of the earnings reported for the enterprise. Earnings for the enterprise are reported on the income, not the statement of financial position (i.e. the balance sheet). Question 4: 1A1-CQ09 Pierre Company had the following transactions during the fiscal year ending December 31, year 3: • Sold a delivery van with a net book value of $5,000 for $6,000 cash, reporting a gain of $1,000. • Paid interest to bondholders for the amount of $275,000 • Declared dividends on December 31, year 3, of $.08 per share on the 1.3 million shares outstanding, payable to shareholders of record on January 31, year 4. No dividends were declared or paid in prior years. • Accounts receivable decreased from $70,000 on December 31, year 2 to $60,000 on December 31, year 3. • Accounts payable increased from $40,000 on December 31, year 2 to $45,000 on December 31, year 3. • The cash balance was $150,000 on December 31, year 2, and $177,500 on December 31, year 3. Which of the answers below describes the correct entry for Pierre Company's statement of cash flows on December 31, year 3 using the indirect method? A. The decrease of $10,000 in accounts receivable is reported as a $10,000 decrease in the operating section of the statement of cash flows. B. The $104,000 dividend payout is represented as an outflow of funds in the financing section. C. Financing activities include the $1,000 gain from the sale of the delivery van. D. The $1,000 gain from the sale of the delivery van is included in operating activities as a deduction. Under the indirect method of cash flow statement preparation, net operating cash flow is determined by adjusting net income. Using the indirect method, the full $6,000 received for the asset sale is included in the Question 5: 1A1-CQ10 Pierre Company had the following transactions during the fiscal year ending December 31, year 3: • Sold a delivery van with a net book value of $5,000 for $6,000 cash, reporting a gain of $1,000. • Paid interest to bondholders for the amount of $275,000 • Declared dividends on December 31, year 3, of $.08 per share on the 1.3 million shares outstanding, payable to shareholders of record on January 31, year 4. No dividends were declared or paid in prior years. • Accounts receivable decreased from $70,000 on December 31, year 2 to $60,000 on December 31, year 3. • Accounts payable increased from $40,000 on December 31, year 2 to $45,000 on December 31, year 3.The cash balance was $150,000 on December 31, year 2, and $177,500 on December 31, year 3 What is the net effect of taking the total cash provided (used) by operating activities, adding it to the cash provided (used) by investing activities, and adding that to the cash provided (used) by financing activities? A. Positive cash flow of $27,500. B. Negative cash flow of $371,000. C. Positive cash flow of $22,500. D. Negative cash flow of $366,000. The total cash provided (used) by the three activities (operating, investing, and financing) should equal the increase or decrease in cash for the year. The difference between the beginning balance of cash of $150,000, and the ending balance of cash of $177,500 is equal to $27,500. Question 6: 1A1-CQ13 An item of inventory purchased for $30 had been incorrectly written down at the end of last year to a current replacement cost of $22. The item is currently selling for $60, its normal selling price. The error will affect the financial statements in which of the following ways? A. The income for this year will be overstated. B. The income for this year will be unaffected. C. The cost of sales for this year will be overstated. D. The income for last year is overstated. Since the inventory item had been incorrectly valued at $22 instead of $30 at the end of the previous year, the current-year cost would have been lower by $8, resulting in higher (overstated) net income for the year. Income for the prior year was correspondingly understated. Question 7: 1A1-LS30 When using the statement of cash flows to evaluate a company's continuing solvency, the most important factor to consider is the cash: *Source: Retired ICMA CMA Exam Questions. A. flows from (used for) investing activities. B. balance at the end of the period. C. flows from (used for) operating activities. D. flows from (used for) financing activities. When using the statement of cash flows to evaluate a company's continuing solvency, the most important factor to consider is the cash flows from (used for) operating activities since over time, cash flow from operations has to cover everything. Question 8: 1A1-CQ08 Pierre Company had the following transactions during the fiscal year ending December 31, year 3: • Sold a delivery van with a net book value of $5,000 for $6,000 cash, reporting a gain of $1,000. • Paid interest to bondholders for the amount of $275,000. • Declared dividends on December 31, year 3, of $.08 per share on the 1.3 million shares outstanding, payable to shareholders of record on January 31, year 4. No dividends were declared or paid in prior years. • Accounts receivable decreased from $70,000 on December 31, year 2 to $60,000 on December 31, year 3. • Accounts payable increased from $40,000 on December 31, year 2 to $45,000 on December 31, year 3. • The cash balance was $150,000 on December 31, year 2, and $177,500 on December 31, year 3 Pierre Company prepared its statement of cash flows using the direct method on December 31, year 3. The interest paid to bondholders is reported: A. As an outflow of cash in the investing activities section. B. As an outflow of cash in the operating activities section. C. As an outflow of cash in the financing activities section. D. As an outflow of cash in the debt servicing activities section. This is a payment of interest on a debt obligation, the payment of interest to bondholders is considered a cash outflow from an operating activity. Question 9: 1A1-W009 Suzanne Rogers, a financial analyst, is analyzing Capital One's stock. She is more interested in estimating the cash flows it can generate. From the financial analyst's perspective, which of the following balance sheet reporting is best suited to avoid adjustments? A. Inventory reported at current market value; fixed assets reported at historical cost. B. Inventory reported at replacement cost; fixed assets reported at market value. C. Inventory reported at historical cost; fixed assets reported at market value. D. Inventory reported at historical cost; fixed assets reported at fair value. The current market value of inventory closely reflects the value at which it can be sold. Fixed assets reported at historical cost will help to estimate depreciation expense correctly to estimate the tax shield from depreciation. Question 10: 1A1-CQ12 At the end of the current fiscal year, XL Company reported net income of $40,000. In addition, the following information is available. Using the indirect method, what amount should be reported as cash flow from financing activities on XL's Statement of Cash Flows for the current fiscal year? A. ($6,500). B. ($9,500). C. ($39,500). D. ($20,500). The cash flow provided from financing activities is computed by taking the Increase in notes payable of $1,500, adding the increase in additional paid- in capital of $3,000, less the decrease in long-term debt of $12,000, plus the increase in common stock of $1,000, less the entire amount of the cash dividends paid (not the increase/decrease from prior year) of $33,000. Question 11: 1A1-LS31 A statement of financial position provides a basis for all of the following except: *Source: Retired ICMA CMA Exam Questions. A. evaluating capital structure. B. assessing liquidity and financial flexibility. C. determining profitability and assessing past performance. D. computing rates of return. A statement of financial position provides a basis for computing rates of return, evaluating capital structures, and assessing liquidity and financial flexibility. The income statement determines profitability and assesses past performance. Question 12: 1A1-W020 Juan Baker Inc. filed a suit against Foster Desserts in the second quarter of the current year and claimed damages worth $15,000. There was also a pending litigation against Juan Baker Inc. for $12,000 to its suppliers for supplying lower-quality goods. The company was expecting to win the suit against Foster Desserts. For presenting the financial statements for the year, Juan Baker's accountant realized a net gain of $3,000 as other comprehensive income. As per U.S. GAAP, how should this information be presented? A. The accountant should recognize contingent liability of $12,000 and disclose contingent gains of $15,000 as footnotes. B. This information should not be presented as part of financial statements but should be disclosed in footnotes to financial statements. C. The accountant should realize net gain of $3,000 as part of gains from extraordinary items. D. This information should not be presented in financial statements but should be disclosed in the directors' responsibility statement. Accounting recognition is not given to gain contingencies to avoid the premature recognition of income before its realization. However, loss contingencies must be recognized when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable. Question 13: 1A1-CQ07 Which of the following financial statement changes would best represent the impact of incurring and paying interest on a note payable for the period: A. Effect on Equity Section of the Balance Sheet: No effect Statement of Cash Flows Direct Method: Outflow from Operating Activities. B. Effect on Equity Section of the Balance Sheet: Decrease Statement of Cash Flows Direct Method: Outflow from Operating Activities. C. Effect on Equity Section of the Balance Sheet: No effect Statement of Cash Flows Direct Method: Outflow from Financing Activities. D. Effect on Equity Section of the Balance Sheet: Decrease Statement of Cash Flows Direct Method: Outflow from Financing Activities. Interest incurred during the reporting period on a note payable is considered an “interest expense” on the income statement which reduces net income, and in turn, decreases the equity section of the balance sheet. Interest expense paid is considered an operating activity as it is used to pay for the day-to-day operating activities of the organization. Therefore, for statement of cash flow purposes, interest expense paid would be classified as an outflow from operating activities. Question 14: 1A1-W019 Perry Avon Corp. is engaged in the manufacture of cargo ships. The company wants to avail itself of a long-term loan from Wealth Bank and has provided the following information. The current assets, as per last year's balance sheet, include inventory of cargo ships of $2,250,000 and $300,000 of accounts receivable. The amount of inventory includes cargo ships lying in stock for 18 months, and the amount of accounts receivable includes accounts due for 90 days. The company grants a credit period of 60 days to its customers. The bank manager decided to grant the loan, as the current ratio of the company was 9.44. As per the bank's credit policy, a company is eligible to avail itself of loans if its current ratio is more than 2.5. However, the bank's credit analyst disapproved the manager's decision, as he recalculated the current ratio to be 1.11 based on some adjustments. Which of the following, if true, will support the credit analyst's decision? A. The credit analyst did not consider the accounts receivable for the calculation of current ratio as they should be classified as bad debts. B. The current liabilities were inflated due to the principal payment of loans in the previous year. The bank manager ignored this fact. C. The credit analyst did not consider the impact of an increase in inventory and accounts receivable due to inventory worth $10,000 purchased on credit. D. The credit analyst feels that the company's liquidity is overstated because of the inclusion of cargo ships as current assets. The inventory of cargo ships has been lying in stock for 18 months. Therefore, considering the value of inventory in the calculation of current ratio will not provide a true picture of the company's liquidity. Question 15: 2A4-CQ19 Selected financial information for Kristina Company for the year just ended is shown below. Kristina's cash flow from investing activities for the year is: *Source: Retired ICMA CMA Exam Questions. A. $1,220,000. B. $1,300,000. C. $(1,500,000). D. $2,800,000. The cash flow from investing activities is calculated as cash received from the sale of available-for-sale Securities minus cash paid for the acquisition of land or $2,800,000 − 1,500,000= $1,300,000. Question 16: 2A4-CQ22 Selected financial information for Kristina Company for the year just ended is shown below. Assuming the indirect method is used, Kristina's cash flow from operating activities for the year is: *Source: Retired ICMA CMA Exam Questions. A. $1,700,000. B. $2,400,000. C. $2,000,000. D. $3,100,000. Net income 2,000,000 + depreciation 400,000 − increase in accounts receivable 300,000 + decrease in inventory 100,000 + increase in accounts Question 17: 1A1-LS33 All of the following are elements of an income statement except: *Source: Retired ICMA CMA Exam Questions. A. gains and losses. B. shareholders' equity. C. expenses. D. revenue. Shareholders' equity does not appear on an income statement. It appears on the balance sheet. Revenue, expenses, gains and losses all appear on an income statement. Question 18: 1A1-W025 While approving the financial statements for the current year, the management accountant of Rachael Groups discovered that sales were overstated. Which of the following is the most likely reason for the overstatement? A. Sales returns recorded are more than actual returns. B. Abnormal losses are not accounted for. C. General sales tax collected from customers was not accounted for. D. The last in, first out method is used for valuation of inventory. Usually sales tax is included in the selling price of a product. The sales account should be adjusted for the amount of sales tax collected, and it should be recorded as a liability. Question 19: 2A4-CQ16 Carlson Company has the following payments recorded for the current period. The total amount of the above items to be shown in the Operating Activities Section of Carlson's Cash Flow Statement should be: *Source: Retired ICMA CMA Exam Questions. A. $150,000. B. $250,000. C. $750,000. D. $350,000. Interest paid on bank loans are considered an operating activity. Operating cash flows include interest and dividends received and interest and income taxes paid as well as normal operating inflows and outflows. Dividends paid are a financial activities. Purchase of equipment is an investing activity. Question 20: 1A1-W008 Which of the following is a reason why a company provides prior years' financial information along with the current year's information? A. Doing this helps the users of financial statements in measuring the reliability of information provided in the financial statements. B. Doing this allows management accountants to determine the trend in an increase in resource requirement for future periods. C. Doing this allows analysts to easily compare past performance to present performance and determine its future success. D. This form of presentation of financial statements helps in prioritizing one type of revenue or gain over another to avoid classification problems. Most entities provide prior years' financial statement information alongside the current year's information for comparison as this allows analysts to easily compare past performance to present performance and make a determination of future success. Question 21: 1A1-W016 The following information is extracted from the financial statements of BrentPage. Net income $25,000 Depreciation on equipment 2,000 Dividend income 3,500 Interest income 3,000 Increase in current assets 5,400