CMA Part 1
The financial statements included in the annual report to the shareholders are least useful to which one of the following?
a. Stockbrokers.
b. Bankers preparing to lend money.
c. Competing businesses.
d. Managers in charge of operating activities.
Correct Answer:
d. Managers in charge of operating activities
All of the following are affected when merchandise is purchased on credit EXCEPT
a. total current assets.
b. net working capital.
c. total current liabilities.
d. current ratio.
Correct Answer:
b. net working capital
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.
Correct Answer:
d. Operating, investing, financing.
The owner of a chain of grocery stores has bought a large supply of mangoes and paid for the fruit with cash. This purchase will adversely impact which one of the following?
a. Working capital.
b. Current ratio.
c. Quick or acid test ratio.
d. Price earnings ratio.
Correct Answer:
c. quick or acid test ratio.
When a fixed asset is sold for less than book value, which one of the following will decrease?
a. Total current assets.
b. Current ratio.
c. Net profit.
d. Net working capital
Correct Answer:
c. The sale of a fixed asset for less than book value will decrease net profit, as the loss on the sale will be recognized on the Income Statement.
All of the following are included when calculating the acid test ratio except
a. six-month treasury bills.
b. prepaid insurance.
c. accounts receivable.
d. 60-day certificates of deposit.
Correct Answer:
b. prepaid insurance
All of the following are elements of an income statement except
a. expenses.
b. shareholders’ equity.
c. gains and losses.
d. revenue.
Correct Answer:
b. shareholders' equity
Firms with high degrees of financial leverage would be best characterized as having
a. high debt-to-equity ratios.
b. zero coupon bonds in their capital structures.
c. low current ratios.
d. high fixed-charge coverage.
Correct Answer:
a. high debt-to-equity ratios
The model included the following equation, which was based on 32 monthly observations of sales and advertising expenses with a related coefficient of determination of .90.
S = $10,000 + $2.50A
S = sales A = advertising expenses
If Smith Company’s advertising expenses in one month amounted to $1,000, the related point estimate of sales would be
a. $11,250. b. $12,250. c. $2,500. d. $12,500.
Correct Answer:
b. $12,250
On its year-end financial statements, Caper Corporation showed sales of $3,000,000, net fixed assets of $1,300,000, and total assets of $2,000,000. The company’s fixed asset turnover is
a. 1.5 times. b. 43.3%. c. 2.3 times. d. 65%.
Correct Answer:
c. 2.3 times
A manufacturing company required 800 direct labor hours to produce the first lot of four units of a new motor. Management believes that a 90% learning curve will be experienced over the next four lots of production. How many direct labor hours will be required to manufacture the next 12 units?
a. 1,792.
b. 1,944.
c. 2,016.
d. 2,160.
Correct Answer:
a. 1,792
Douglas Company purchased 10,000 shares of its common stock at the beginning of the year for cash. This transaction will affect all of the following except the
a. earnings per share.
b. net profit margin.
c. current ratio.
d. debt-to-equity ratio.
Correct Answer:
b. net profit margin
Streeter Company produces plastic microwave turntables. Sales for the next year are expected to be 65,000 units in the first quarter, 72,000 units in the second quarter, 84,000 units in the third quarter, and 66,000 units in the fourth quarter. Streeter maintains a finished goods inventory at the end of each quarter equal to one half of the units expected to be sold in the next quarter. How many units should Streeter produce in the second quarter?
a. 72,000 units. b. 75,000 units. c. 78,000 units. d. 84,000 units.
Correct Answer:
c. 78,000 Units
The dividend yield ratio is calculated by which one of the following methods?
a. Dividends per share divided by market price per share.
b. Market price per share divided by dividends per share.
c. Earnings per share divided by dividends per share.
d. Dividends per share divided by earnings per share.
Correct Answer:
a. Dividends per share divided by market price per share
A company had a total labor variance of $15,000 favorable and a labor efficiency variance of $18,000 unfavorable. The labor price variance was
a. $3,000 favorable.
b. $3,000 unfavorable.
c. $33,000 favorable.
d. $33,000 unfavorable.
Correct Answer:
c. $33,000 favorable
Lancaster Inc. had net accounts receivable of $168,000 and $147,000 at the beginning and end of the year, respectively. The company’s net income for the year was $204,000 on $1,700,000 in total sales. Cash sales were 6% of total sales. Lancaster’s average accounts receivable turnover ratio for the year is
a. 9.51. b. 10.15. c. 10.79. d. 10.87.
Correct Answer:
b. 10.15
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
Cash receivable from the issue of common stock 800,000
Cash paid for dividends 80,000
Cash paid for the acquisition of land 1,500,000
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.
Correct Answer:
a. Kristina’s net cash flow from operating activities is $1,700,000.
For the most recent fiscal period, Oakland Inc. paid a regular quarterly dividend of $0.20 per share and had earnings of $3.20 per share. The market price of Oakland stock at the end of the period was $40.00 per share. Oakland’s dividend yield was
a. 0.50%. b. 1.00%. c. 6.25% d. 2.00%.
Correct Answer:
d. 2.00%
Ming Company has budgeted sales at 6,300 units for the next fiscal year, and desires to have 590 good units on hand at the end of that year. Beginning inventory is 470 units. Ming has found from past experience that 10% of all units produced do not pass final inspection, and must therefore be destroyed. How many units should Ming plan to produce in the next fiscal year?
a. 6,890. b. 7,062. c. 7,133. d. 7,186.
Correct Answer:
c. 7,133
Williams makes $35,000 a year as an accounting clerk. He decides to quit his job to enter an MBA program full-time. Assume Williams doesn’t work in the summer or hold any part-time jobs. His tuition, books, living expenses, and fees total $25,000 a year. Given this information, the annual total economic cost of Williams’ MBA studies is
a. $10,000. b. $35,000. c. $25,000. d. $60,000
Correct Answer:
d. $60,000