Certified Management Accountant (CMA) Part 1 Exam 2026:
Professional Certification Practice Test — Financial Planning,
Budgeting, Performance Management, Cost Management, Internal
Controls & Analytics — 190 Multiple-Choice Questions with Answers
& Detailed Rationales
SECTION A: EXTERNAL FINANCIAL REPORTING DECISIONS (Questions 1–35)
Question 1
A company's balance sheet reports total assets of $850,000, total liabilities of $320,000, and
common stock of $200,000. What is the amount of retained earnings?
A. $330,000
B. $530,000
C. $280,000
D. $350,000
Correct Answer: A
Explanation: Retained earnings = Total assets − Total liabilities − Common stock = $850,000 −
$320,000 − $200,000 = $330,000. This reflects the basic accounting equation.
Question 2
Under IFRS, which of the following items must be presented as a separate line item on the
statement of financial position?
A. Inventory
,B. Property, plant, and equipment
C. Trade receivables
D. All of the above are required line items
Correct Answer: B
Explanation: IFRS requires separate presentation of property, plant, and equipment.
Inventory and trade receivables are typically presented but not specifically mandated as
separate line items under IAS 1.
Question 3
A company uses the LIFO inventory method during a period of rising prices. Compared to
FIFO, which of the following is true?
A. LIFO reports higher net income and higher ending inventory
B. LIFO reports lower net income and lower ending inventory
C. LIFO reports higher net income and lower ending inventory
D. LIFO reports lower net income and higher ending inventory
Correct Answer: B
Explanation: During rising prices, LIFO matches higher current costs against revenue,
resulting in lower net income and lower ending inventory valuation compared to FIFO.
Question 4
A firm issues a 5-year bond with a face value of $1,000,000 at a discount. Which statement
accurately describes the financial statement impact over the bond's life?
,A. Interest expense decreases each period under the effective interest method
B. The carrying value of the bond increases toward face value
C. Cash interest paid exceeds interest expense each period
D. The discount is amortized using the straight-line method only
Correct Answer: B
Explanation: When bonds are issued at a discount, the carrying value accretes upward to
face value over time using the effective interest method, with interest expense exceeding
cash interest paid.
Question 5
A company leases equipment for 5 years with a useful life of 6 years. The present value of
lease payments equals 92% of the asset's fair value. Under IFRS 16, how should this lease be
classified?
A. Operating lease with no balance sheet recognition
B. Finance lease only if title transfers
C. Right-of-use asset and lease liability recognized
D. Short-term lease exemption applies
Correct Answer: C
Explanation: Under IFRS 16, lessees recognize a right-of-use asset and lease liability for
nearly all leases, regardless of classification, unless short-term or low-value exemptions
apply.
Question 6
, Which of the following best describes the concept of "faithful representation" in financial
reporting?
A. Information that is free from material error and bias
B. Information that influences user decisions
C. Information that is available in a timely manner
D. Information that is comparable across entities
Correct Answer: A
Explanation: Faithful representation means information is complete, neutral, and free from
material error, accurately depicting the economic substance of transactions.
Question 7
A company reports net sales of $2,400,000, cost of goods sold of $1,440,000, and average
inventory of $180,000. What is the inventory turnover ratio?
A. 6.0 times
B. 8.0 times
C. 10.0 times
D. 13.3 times
Correct Answer: B
Explanation: Inventory turnover = COGS ÷ Average inventory = $1,440,000 ÷ $180,000 = 8.0
times. This measures how efficiently inventory is managed.
Professional Certification Practice Test — Financial Planning,
Budgeting, Performance Management, Cost Management, Internal
Controls & Analytics — 190 Multiple-Choice Questions with Answers
& Detailed Rationales
SECTION A: EXTERNAL FINANCIAL REPORTING DECISIONS (Questions 1–35)
Question 1
A company's balance sheet reports total assets of $850,000, total liabilities of $320,000, and
common stock of $200,000. What is the amount of retained earnings?
A. $330,000
B. $530,000
C. $280,000
D. $350,000
Correct Answer: A
Explanation: Retained earnings = Total assets − Total liabilities − Common stock = $850,000 −
$320,000 − $200,000 = $330,000. This reflects the basic accounting equation.
Question 2
Under IFRS, which of the following items must be presented as a separate line item on the
statement of financial position?
A. Inventory
,B. Property, plant, and equipment
C. Trade receivables
D. All of the above are required line items
Correct Answer: B
Explanation: IFRS requires separate presentation of property, plant, and equipment.
Inventory and trade receivables are typically presented but not specifically mandated as
separate line items under IAS 1.
Question 3
A company uses the LIFO inventory method during a period of rising prices. Compared to
FIFO, which of the following is true?
A. LIFO reports higher net income and higher ending inventory
B. LIFO reports lower net income and lower ending inventory
C. LIFO reports higher net income and lower ending inventory
D. LIFO reports lower net income and higher ending inventory
Correct Answer: B
Explanation: During rising prices, LIFO matches higher current costs against revenue,
resulting in lower net income and lower ending inventory valuation compared to FIFO.
Question 4
A firm issues a 5-year bond with a face value of $1,000,000 at a discount. Which statement
accurately describes the financial statement impact over the bond's life?
,A. Interest expense decreases each period under the effective interest method
B. The carrying value of the bond increases toward face value
C. Cash interest paid exceeds interest expense each period
D. The discount is amortized using the straight-line method only
Correct Answer: B
Explanation: When bonds are issued at a discount, the carrying value accretes upward to
face value over time using the effective interest method, with interest expense exceeding
cash interest paid.
Question 5
A company leases equipment for 5 years with a useful life of 6 years. The present value of
lease payments equals 92% of the asset's fair value. Under IFRS 16, how should this lease be
classified?
A. Operating lease with no balance sheet recognition
B. Finance lease only if title transfers
C. Right-of-use asset and lease liability recognized
D. Short-term lease exemption applies
Correct Answer: C
Explanation: Under IFRS 16, lessees recognize a right-of-use asset and lease liability for
nearly all leases, regardless of classification, unless short-term or low-value exemptions
apply.
Question 6
, Which of the following best describes the concept of "faithful representation" in financial
reporting?
A. Information that is free from material error and bias
B. Information that influences user decisions
C. Information that is available in a timely manner
D. Information that is comparable across entities
Correct Answer: A
Explanation: Faithful representation means information is complete, neutral, and free from
material error, accurately depicting the economic substance of transactions.
Question 7
A company reports net sales of $2,400,000, cost of goods sold of $1,440,000, and average
inventory of $180,000. What is the inventory turnover ratio?
A. 6.0 times
B. 8.0 times
C. 10.0 times
D. 13.3 times
Correct Answer: B
Explanation: Inventory turnover = COGS ÷ Average inventory = $1,440,000 ÷ $180,000 = 8.0
times. This measures how efficiently inventory is managed.
