1. Question ID: HTB 1.1.
010 (Topic: Statement of Cash Flows)
Three years ago, James Company purchased stock in Zebra Inc. at a cost of $100,000. The stock was sold for
$150,000 during the current fiscal year. The result of this transaction should be shown in the investing activities
section of James’s statement of cash flows as:
A. Zero
B. $50,000
C. $100,000wrong
D. $150,000correct
Correct Answer Explanation for D:
2. Question ID: HOF.002 (Topic: Recording Business Transactions)
Issuing capital stock in exchange for cash will have what effect on the financial statements of the company?
A. Liabilities will increase.
B. Assets will decrease.
C. Liabilities will [Link]
D. Assets will [Link]
Correct Answer Explanation for D:
3. Question ID: HOCK CMA P1.A.2.30004 (Topic: Revenue Recognition and Income Measurement)
What is the primary difference between net income and comprehensive income for a period?
A. Net income includes only cash transactions, while comprehensive income includes both cash and
non-cash transactions.
B. Net income is reported after taxes, whereas comprehensive income is reported before taxes.
C. The primary difference between net income and comprehensive income for a period is other
comprehensive income, which is the amount of change in the accumulated other comprehensive income
account during the [Link]
D. The primary difference between net income and comprehensive income for a period is the balance in
the accumulated other comprehensive income account.
Correct Answer Explanation for C:
4. Question ID: CMA 1293 P2 Q1 (Topic: Asset and Liability Valuation)
On the Statement of Financial Position, accounts receivable is valued at the
A. Original cost when the asset was [Link]
B. Estimated net realizable [Link]
C. Current market value.
D. Amount payable when due.
Correct Answer Explanation for B:
5. Question ID: HOF.091 (Topic: Performing the Year-End Close)
What happens to a permanent ledger account in the year-end close?
A. The balances of two permanent accounts, the Retained Earnings account and the Dividends account,
are changed in the year-end close, and the other permanent account balances do not change.
B. All permanent accounts are marked as closed and their balances are reset to zero as of the closing
date.
C. The Retained Earnings account is the only permanent account whose balance changes in the year-end
close, and the other permanent account balances do not [Link]
D. The Dividends account is the only permanent account whose balance changes in the year-end close,
and the other permanent account balances do not change.
Correct Answer Explanation for C:
6. Question ID: CMA 1283 3.11 (Topic: Internal Controls)
When an organization has strong internal control, management can expect various benefits. The benefit least
likely to occur is
A. Reduced cost of an external audit.
B. Availability of reliable data for decision-making purposes.
C. Some assurance of compliance with the Sarbanes-Oxley Act of [Link]
D. Elimination of employee [Link]
Correct Answer Explanation for D:
7. Question ID: ICMA 10.P2.057 (Topic: Activity Ratios)
Makay Corporation has decided to include certain financial ratios in its year-end annual report to shareholders.
Selected information relating to its most recent fiscal year is provided below.
Cash $ 10,000
Accounts receivable (end of year) 20,000
Accounts receivable (beginning of year) 24,000
Inventory (end of year) 30,000
Inventory (beginning of year) 26,000
Notes payable (due in 90 days) 25,000
Bonds payable (due in 10 years) 35,000
Net credit sales for year 220,000
Cost of goods sold 140,000
Makay's average inventory turnover for the year was
A. 4.7 [Link]
B. 5.0 [Link]
C. 7.9 times.
D. 5.4 times.
Correct Answer Explanation for B:
8. Question ID: HOF.040 (Topic: Debits, Credits, and T-Accounts)
A compound journal entry is
A. a journal entry that includes more than one transaction
B. a journal entry that includes debits to multiple ledger accounts and/or credits to multiple ledger
[Link]
C. a batch of transactionswrong
D. a journal entry where the debits and the credits are unequal
Correct Answer Explanation for B:
9. Question ID: IMAF.A043 (Topic: Internal Controls)
Which one of the following controls would best protect a company’s programs and databases from
unauthorized use?
A. Multiple levels of authentication used to verify the identity of a user seeking access. correct
B. Antivirus programs installed to constantly scan the company’s systems.
C. Passwords strengthened by requiring frequent changes and minimum lengths.
D. Proper segregation of duties enabled by separating access and processing rights.
Correct Answer Explanation for A:
10. Question ID: CMA 694 1.24 (Topic: Accounts Receivable and Payable Management)
Assume that each day a company writes and receives checks totaling $10,000. If it takes 2 days for the checks
to clear and be deducted from the company's account and only 1 day for the deposits to clear, what is the net
float?
A. $20,000wrong
B. $0
C. $10,000correct
D. $(10,000)
Correct Answer Explanation for C:
11. Question ID: ICMA 19.P2.079 (Topic: Managing a Company’s Daily Finances)
Which one of the following combined transactions would cause net working capital to decrease?
A. A $1 million decrease in cash, and a $1 million increase in [Link]
B. A $1 million decrease in cash, and a $1 million decrease in accounts payable.
C. A $1 million decrease in cash, and a $1 million increase in fixed [Link]
D. A $1 million increase in cash, and a $1 million increase in long-term debt.
Correct Answer Explanation for C:
12. Question ID: ICMA 10.P2.049 (Topic: Leverage Ratios)
The interest expense for a company is equal to its earnings before interest and taxes (EBIT). The company's tax
rate is 40%. The company's times-interest earned ratio is equal to
A. [Link]
B. 1.2.
C. 2.0.
D. [Link]
Correct Answer Explanation for D:
13. Question ID: HOF.015 (Topic: Accounting Terms and Definitions)
The definition of an expense is
A. A payment made to a vendor for inventory.
B. A cost of doing business.
C. An outflow or other using up of assets or the incurrence of liabilities resulting from delivering or
producing goods, providing services, or carrying out other [Link]
D. A reduction of a liability.
Correct Answer Explanation for C:
14. Question ID: ICMA 10.P2.023 (Topic: Liquidity Ratios)
Birch Products Inc. has the following current assets.
Cash £ 250,000
Marketable securities 100,000
Accounts receivable 800,000
Inventories 1,450,000
Total current assets £2,600,000
Correct Answer Explanation for A:
15. Question ID: ICMA 10.P2.034 (Topic: Liquidity Ratios)
All of the following are included when calculating the acid test ratio except
A. prepaid [Link]
B. six-month treasury bills.
C. 60-day certificates of deposit.
D. accounts receivable.
Correct Answer Explanation for A:
16. Question ID: HOF.056 (Topic: Comprehensive Income)
The income statement reports
A. The detail behind decreases in liabilities during the period.
B. The detail behind increases in assets during the period.
C. The net amount of all revenues, gains, expenses, and losses for the period.
D. The summarized revenues, gains, expenses, and losses for the period, other than the items recorded in
the Accumulated Other Comprehensive Income [Link]
Correct Answer Explanation for D:
17. Question ID: HOCK CMA P.1.A.1.02001 (Topic: Revenue Recognition and Income Measurement)
How are income taxes on discontinued operations reported in the financial statements?
A. Income taxes on discontinued operations are reported on the income statement along with income
from continuing [Link]
B. Income taxes on discontinued operations are reported on the income statement as an unusual expense.
C. Income taxes on discontinued operations are reported in accumulated other comprehensive income.
D. Income taxes are allocated on the income statement between income from continuing operations and
income from discontinued [Link]
Correct Answer Explanation for D:
18. Question ID: ICMA 1603.P2.006 (Topic: Profitability Ratios)
A company’s year-end selected financial data is shown below.
Year 2 Year 1
Current assets $250,000 $175,000
Total assets 600,000 500,000
Total liabilities 300,000 225,000
Net sales 200,000 150,000
Net income 75,000 60,000
The company’s rate of return on assets and rate of return on equity for Year 2 are
A. 36% and 25%, respectively.
B. 13% and 25%, respectively.
C. 12% and 22%, [Link]
D. 14% and 26%, [Link]
Correct Answer Explanation for D:
19. Question ID: ICMA 1603.P2.051 (Topic: Basic Financial Statement Analysis)
The dollar value of a company’s ending inventory on its balance sheet was $500,000, $600,000, and $400,000
for Years 1, 2, and 3, respectively. In preparing a horizontal analysis with Year 1 as the base year, the
percentage change shown for Year 3 would be
A. 20%.
B. (25%).
C. 80%.wrong
D. (20%).correct
Correct Answer Explanation for D:
20. Question ID: ICMA 1603.P2.011 (Topic: Inventory Management)
If a company implements a just-in-time inventory management program, it would expect that its inventory
turnover ratio will
A. decrease, and its days' sales in inventory will decrease.
B. increase, and its days' sales in inventory will [Link]
C. decrease, and its days' sales in inventory will increase.
D. increase, and its days' sales in inventory will increase.
Correct Answer Explanation for B:
21. Question ID: IMAF.056 (Topic: The Unadjusted Trial Balance)
What is the purpose of a trial balance?
A. To ensure that total debits equal total [Link]
B. To provide assurance that there was no fraud.
C. To determine whether a company had a profit or loss.
D. To confirm that all account balances are correct.
Correct Answer Explanation for A:
22. Question ID: I22 1.02 (Topic: Equity Transactions)
A publicly-traded corporation issues 10,000 shares of new common stock for $50 per share. The common stock
has a par value of $5 per share. Which one of the following statements is correct?
A. Additional paid-in capital increases by $500,000; no other accounts are affected.
B. Cash increases by $450,000; common stock increases by $50,000, and additional paid-in capital
increases by $500,[Link]
C. Cash increases by $500,000; common stock increases by $50,000; and additional paid-in capital
increase by $450,[Link]
D. Cash increases by $500,000, and common stock increases by $500,000.
Correct Answer Explanation for C:
23. Question ID: HOF.085 (Topic: Adjusted Trial Balance and Prepare Financial Statements)
At the end of a reporting period, estimating costs incurred through the closing date of the period and recording
them in the accounting system if invoices have not been received
A. is called accruing the expenses and is a necessary part of the accounting [Link]
B. may not be done because expenses cannot be recorded until the invoices are [Link]
C. is called deferring the expenses and is a necessary part of the accounting cycle.
D. may be done at management’s discretion if the expenses are material.
Correct Answer Explanation for A:
24. Question ID: HOF.031 (Topic: Debits, Credits, and T-Accounts)
T-accounts are used to
A. post accounting transactions.
B. analyze accounting [Link]
C. create financial statements.
D. audit financial [Link]
Correct Answer Explanation for B:
25. Question ID: HTB 1.1.011 (Topic: Statement of Cash Flows)
Kelli Company acquired land by assuming a mortgage for the full acquisition cost. This transaction should be
disclosed on Kelli’s statement of cash flows as a(n)
A. Investing [Link]
B. Operating activity.
C. Noncash financing and investing [Link]
D. Financing activity.
Correct Answer Explanation for C: