Cma Part 1.docx

CMA Part 1 External Financial Reporting Decisions 1. Long-term debt should be included in the current section of the financial position if a. It is to be converted into common stocks before maturity. b. It matures within the year and will be retired through the use of current assets. c. Management plans to refinance it within the year. d. A bond retirement fund has been set up for use in its scheduled retirement during the next year. 2. A statement of financial position provides a basis for all of the following except a. Computing rates of return. b. Evaluating capital structure. c. Assessing liquidity and financial flexibility. d. Determining profitability and assessing past performance for a specific period. 3. The financial statement that provides a summary of the firm’s operations for a period of time is the a. Income statement. b. Statement of financial position. c. Statement of shareholder’s equity. d. Statement of retained earnings. 4. Dividends paid to company shareholders would be shown on the statement of cash flows as a. Operating cash inflows. b. Operating cash outflows. c. Cash flows from investing activities. d. Cash flows from financing activities. 5. The presentation of the major classes of operating cash receipts (such as receipts from customers) less the major classes of operating cash disbursements (such as cash paid for merchandise) is best described as the a. Direct method of calculating net cash provided or used by operating activities. b. Cash method of determining income in conformity with generally accepted accounting principles. c. Format of the statement of cash flows. d. Indirect method of calculating net cash provided or used by operating activities. 6. The most commonly used method for calculating and reporting a company’s net cash flow from operating activities on its statement of cash flows is the a. Direct method. b. Indirect method. c. Single-step method. d. Multiple-step method. 7. A statement of cash flows prepared using the indirect method would have cash activities listed in which one of the following orders? a. Financing, investing, operating. b. Investing, financing, operating. c. Operating, financing, investing. d. Operating, investing, financing. 8. For the fiscal year just ended, Doran Electronics had the following results. Net Income Depreciation expense Increase in accounts payable Increase in accounts receivable Increase in deferred income tax liability

920,000 110,000 45,000 73,000 16,000

Doran’s net cash flow from operating activities is a. 928,000 b. 986,000 c. 1,018,000 d. 1,074,000 9. Three years ago, James Company purchased stock in Zebra Inc. at a cost of 100,000. This 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’ statement of cash flow as a. Zero b. 50,000 c. 100,000 d. 150,000 10. Helicon accrued a gain from the sale of equipment for cash. The gain should be reported in the statement of cash flows using the indirect method in: a. Investment activities as a reduction of the cash inflow from the sale. b. Investment activities as a cash outflow. c. Operating activities as a deduction from income. d. Operating activities as an addition to income. 11. The following information was taken from the accounting records of Johnson Corporation for the year ended December 31: Proceeds from issuance of preferred stock 8,000,000 Dividends paid non preferred stock 800,00 Bonds payable converted to common stock 4,000,000 Payment for purchase of machinery 1,000,000 Proceeds from sale of plant building 2,400,000 2% stock dividend on common stock 600,000 Gain on sale of plant building 400,000 The net cash flows from investing and financing activities that should be presented on Johnson’s statement of cash flows for the year ended December 31 are, respectively: a. 1,400,000 and 7,200,000 b. 1,400,000 and 7,800,000 c. 1,800,000 and 7,800,000 d. 1,800,000 and 7,200,000 12. Chelny Co. uses the indirect method in its statement of cash flows. The amortization of a patent should be presented as a(n): a. Cash flow from investing activity. b. Cash flow from financing activity. c. Deduction from net income. d. Addition to net income. 13. Selected financial information for Kristina Company for the year just ended is shown below. Net income 2,000,000 Increase in accounts receivable 300,000 Decrease in inventory 100,000 Increase in accounts payable 200,000 Depreciation expense 400,000 Gain on sale of available-for-sale securities 700,000 Cash receivable from the issue of common stock 800,000 Cash paid for dividends 80,000

Cash paid for the acquisition of land Cash received from the sale of available-for-sale securities

1,500,000 2,800,000

Assuming the indirect method is used, Kristina’s cash flow from operating activities for the year is a. 1,700,000 b. 2,000,000 c. 2,400,000 d. 3,100,000 14. Bertram Company had a balance of 100,000 in retained earnings at the beginning of the year and 125,000 at the end of the year. Net income for this time period was 40,000. Bertram’s statement of financial position indicated that dividends and a stock dividend were declared. The amount of the stock dividend was 8,000. When preparing its statement of cash flows for the year, Bertram should show cash paid for dividend as a. 20,000 b. 15,000 c. 12,000 d. 5,000 15. Kelli Company acquired land by assuming a mortgage for the full acquisition cost. This transaction should be disclosed on Kelli’s Statement of Cash Flow as a(n) a. Financing activity. b. Investing activity. c. Operating activity. d. Noncash financing and investing activity. 16. The net income for Hudson Co. was 3 million for the year ended December 31. Additional information is as follows: Depreciation on fixed assets 1,500,000 Gain from the cash sale of land 200,000 Increase in accounts payable 300,000 Dividends paid on preferred stock 400,000 The net cash provided by operating activities in the statement of cash flows for the year ended December 31 should be: a. 4,200,000 b. 4,500,000 c. 4,600,000 d. 4,800,000 On November 15, 20X0, Senger Sewing Machine Corp. purchased a 300,000 U.S. Treasury bond with a maturity date of January 31, 20X1. On December 31, 20X0, Senger still owned the Treasury bond. The company also had the following other balances on December 31, 20X0: Checking account, ABC National Bank 50,000 Money market account, ABC National Bank 100,000 U.S. Treasury bill purchased Nov. 1, 20X0, maturing Feb. 28, 20X0 500,000 Senger treats all highly liquid investments with maturities of three months or less when purchased as cash equivalents. 17. What amount should Senger report as cash and cash equivalents on its December 31, 20X0 statement of financial position (balance sheet)? a. 150,000 b. 650,000 c. 450,000

d. 950,000 18. On senger’s statement of cash flows for December 31,20X0, how should the U.S. Treasury bond be reported? a. It should not be included. b. As a cash outflow from investing activities. c. As a cash outflow from lending activities. d. As a part of the cash and cash equivalents ending balance. 19. An accountant with Nasbo Enterprises Inc. has gathered the following information in order to prepare the statement of cash flows for the current year. Net income of 456,900 includes a deduction of 45,600 for depreciation expense. The company issued 300,000 of dividends this year and purchased one new building for 275,000. The balance sheets from the current period and prior period included the following balances. Prior Year Current Year Accounts receivable, net 56,860 45,300 Accounts payable 12,900 10,745 Inventory 186,700 194,320 Using the indirect method, what is the amount of cash provided by operating activities? a. 202,500 b. 405,205 c. 504,285 d. 521,405 20. Comprehensive income is best described as a. Net income excluding extraordinary gains and losses. b. The change in net assets for the period including by owners and distributions to owners. c. Total revenue minus expenses. d. The change in net assets for the period excluding owner transactions. Recognition, Measurement, Valuation and Disclosure 21. Johnson Company uses the allowance method to account for uncollectible accounts receivable. After recording the estimate of uncollectible accounts expense for the current year, Johnson decided to write off in the current year the 10,000 account of a customer who had filed for bankruptcy. What effect does this write-off have on the company’s net income and total current assets, respectively? Net Income Total Current Assets a. Decrease Decrease b. No effect Decrease c. Decrease No effect d. No effect No effect 22. Fidler Company has estimated its bad debt expense by using 1% of net sales. However, the company is contemplating aging its accounts receivable and using this as a basis for estimating its bad debts, as it is believed that this will provide better estimate of the uncollectible accounts. The following aging schedule was prepared as of November 30 of the current year, the end of the fiscal year. % Estimated Age of Account Amount To Be Uncollectible Under 60 days 730,000 1% 61-90 days 40,000 6% 91-120 days 18,000 9% Over 120 days 72,000 25%

Net sales for the year were 4,200,000. There is a debit balance of 14,000 in the allowance for uncollectible accounts made on November 30 of the current year will be for a. 56,000 b. 43,320 c. 29,320 d. 15,320 23. Based on the industry average, Davis Corporation estimates that its bad debts should average 3% of credit sales. The balance in the Allowance for Uncollectible Accounts at the beginning of Year 3 was 140,000. During Year 3, credit sales totaled 10,000,000, accounts of 100,000 were deemed to be uncollectible, and payment was received on a 20,000 account that had previously been written off as uncollectible. The entry to record bad debt expense at the end of Year 3 would include a credit to the Allowance for Uncollectible Accounts of a. 300,000 b. 260,000 c. 240,000 d. 160,000 24. The following information is available for a small retailer: Beginning Balances: Accounts Receivable 10,000 Allowance for uncollectible accounts (750) Accounts Receivable, net 9,250 Transactions during the period: Credit Sales 60,000 Collections on credit sales 55,000 During the period, Accounts Receivable totaling 1,000 were written off as uncollectible. This brought the balance in the Allowance account to a debit balance of 250. Required: Calculate the ending balance in the Allowance account and the amount that is charged to Bad Debt Expense using the following methods: a. Percentage of Sales - Assume that 3% of credit sales is the estimated bad debt expense. 1800;1550 b. Percentage of Outstanding Receivables - Assume that 6% of the outstanding receivables are estimated to be uncollectible. 840;1090 25. Woody Company sold 150,000 of its accounts receivable without recourse. The purchaser assessed a finance charge of 5%. Woody should record a. Interest expense of 7,500. b. A credit to liability on transferred accounts receivable of 150,000. c. A credit to accounts receivable of 150,000. d. A debit to cash of 150,000. 26. A firm often factors its accounts receivable. The finance company requires an 8% reserve and charges a 1.5% commission on the amount of the receivable. The remaining amount to be advanced is further reduced by an annual interest charge of 16%. What proceeds (rounded to the nearest dollar) will the firm receive from the finance company at the time a 110,000 account, which is due in 60 days, is turned over to the finance company? a. 81,950 b. 83,630 c. 96,895 d. 99,550 27. The advantage of the last-in, first-out inventory method is based on the assumption that a. the most recently incurred costs should be allocated to the cost of goods sold. b. costs should be charged to revenue in the order in which they are incurred. c. costs should be charged to cost of goods sold at average cost.

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d. current costs should be based on representative or normal conditions of efficiency and volume of operations. In a period of rising prices, which one of the following inventory methods usually provides the best matching of expenses against revenues? a. Weighted average b. First-in, first-out c. Last-in, first-out d. Specific identification Which one of the following actions would result in a decrease in income? a. Liquidating last-in, first-out layers of inventory when prices have been increasing. b. Changing from first-in, first-out to last-in, first-out inventory method when prices are decreasing. c. Accelerating purchases at the end of the year when using the last-in, first-out inventory method in times of rising prices. d. Changing the number of last-in, first-out pools. In periods of rising costs, which one of the following inventory cash flow assumptions will result in higher cost of sales? a. First-in, first-out b. Last-in, first-out c. Weighted average d. Moving average The inventory method that will yield the same inventory value and cost of goods sold whether a perpetual or periodic system is used is a. average cost b. first-in, first out. c. last-in, first-out. d. either first-in, first-out or last-in, first-out. Holly Company’s inventory is overstated at December 31 of this year. The result will be a. understated income this year. b. understated retained earnings this year. c. understated retained earnings next year. d. understated income next year. Which one of the following errors will result in the overstatement of net income? a. Overstatement of beginning inventory b. Overstatement of ending inventory c. Overstatement of goodwill amortization d. Overstatement of bad debt expense The following information is for the next four questions: Addison Hardware began the month of November with 150 large brass switch plates on hand at a cost of 4.00 each. These switch plates sell for 7.00 each. The following schedule presents the sales and purchases of this item during the month of November. Date of Quantity Unit Units Transaction Received Cost Sold November 5 100 November 7 200 4.20 November 9 150 November 11 200 4.40 November 17 220 November 22 250 4.80 November 29 100

34. If Addison uses FIFO inventory pricing, the value of the inventory on November 30 would be: a. 936 b. 1,012 c. 1,046 d. 1,104 35. If Addison uses weighted average periodic inventory pricing, the gross profit for November will be: a. 1,482 b. 1,516 c. 1,528 d. 1,574 36. If Addison uses periodic LIFO inventory pricing, the cost of goods sold for November will be: a. 2,416 b. 2,442 c. 2,474 d. 2,584 37. If Addison uses perpetual LIFO inventory pricing, the value of the inventory at November 30 will be: a. 936 b. 1,012 c. 1,046 d. 1,076 38.