Free CMA Part 2 Knowledge Quiz by HOCK

Free CMA Part 2 Knowledge Quiz by HOCK

Get a personalized assessment of your CMA exam readiness and see where you stand!

Answer 30 questions covering key topics and receive instant feedback on your performance. Whether you are just starting studying or want to assess your knowledge, this quiz is a great way to estimate your exam readiness.

Step 1 of 6

16%

Gordon has had the following financial results for the last four years.

	Year 1	Year 2	Year 3	Year 4
Sales	$1,250,000	$1,300,000	$1,359,000	$1,400,000
Cost of goods sold	750,000	785,000	825,000	850,000
Gross profit	$ 500,000	$ 515,000	$ 534,000	$ 550,000

Inflation factor	1.00	1.03	1.07	1.10

Gordon has analyzed these results using vertical common-size analysis to determine trends. The performance of Gordon can best be characterized by which one of the following statements?

The common-size gross profit percentage has decreased as a result of an increasing common-size trend in cost of goods sold.

The common-size trend in sales is increasing and is resulting in an increasing trend in the common-size gross profit margin.

The common-size trend in cost of goods sold is decreasing which is resulting in an increasing trend in the common-size gross profit margin.

The increased trend in the common-size gross profit percentage is the result of both the increasing trend in sales and the decreasing trend in cost of goods sold.

The following data pertains to Maskar Company, Inc. for the year just ended.

Degree of operating leverage = 3
Degree of financial leverage = 4
Current earnings per share = $5.00
Sales = $4,000,000
Earnings before interest and taxes (EBIT) = $600,000

If company sales are expected to increase by $80,000 next year, what is your forecast of Maskar's EBIT for next year?

$636,000

$648,000

$672,000

$744,000

The following information was obtained from a company’s financial statements.

	Beginning of the Year		End of the Year
Accounts receivable		2,140		3,060
Accounts payable		3,320		3,680

Total sales for the year were $85,900, of which $62,400 were credit sales. The cost of goods sold was $24,500. The company's payable turnover was

6.7 times

7.0 times

16.9 times

17.8 times

At year-end, Appleseed Company reported net income of $588,000. The company has 10,000 shares of $100 par value, 6% preferred stock and 120,000 shares of $10 par value common stock outstanding and 5,000 shares of common stock in treasury. There are no dividend payments in arrears, and the market price per common share at the end of the year was $40. Appleseed's price-earnings ratio is

9.47

9.09

8.50

8.16

Collins Company reported net income of $350,000 for the year. The company had 10,000 shares of $100 par value, non-cumulative, 6% preferred stock and 100,000 shares of $10 par value common stock outstanding. There were also 5,000 shares of common stock in treasury during the year. Collins declared and paid all preferred dividends as well as a $1 per share dividend on common stock. Collins' basic earnings per share of common stock for the year was

$3.50

$3.33

$2.90

$2.76

A company could negatively affect its earnings quality if it frequently

constructed plants in various parts of the country.

invested long-term in an erratic stock or bond market.

materially changed accounting estimates.

offered significant sales discounts.

The stock of Company Z has a beta coefficient of 2.0 and an expected return of 16% using the capital asset pricing model (CAPM). The stock of Company X has a beta coefficient that is equal to 0.80. The risk-free rate of interest is 4%. The expected return on Company X stock using the CAPM is

6.4%

8.0%

8.8%

9.6%

Dorsy Manufacturing plans to issue mortgage bonds subject to an indenture.

I.	Receiving the trustee's permission prior to selling the property.
II.	Maintain the property in good operating condition.
III.	Insuring plant and equipment at certain minimum levels.
IV.	Including a negative pledge clause.

Which of the above restrictions or requirements are likely to be contained in the indenture?

I and IV only.

II and III only.

I, III, and IV only.

I, II, III and IV.

Morton Starley Investment Banking is working with the management of Kell Inc. in order to take the company public in an initial public offering. Selected information for the year just ended for Kell is as follows.

Long-term debt (8% interest rate)	$10,000,000
Common equity:
Common stock, par value $1 per share	3,000,000
Additional paid-in capital	24,000,000
Retained earnings	6,000,000
Total assets	55,000,000
Net income	3,750,000
Dividend (annual)	1,500,000

If public companies in Kell’s industry are trading at a market to book ratio of 1.5, what is the estimated value per share of Kell?

$13.50

$16.50

$21.50

$27.50

How is a futures contract closed out?

On the maturity date, the underlying asset is purchased and delivery taken, or sold and delivery made, by the holder of the contract.

Buyers and sellers usually offset their positions on or before the delivery date.

The contract is returned to the party it was purchased from.

The contract expires on the maturity date, and there is no need to do anything to close it out.

Joint Products Inc., a corporation with a 40% marginal tax rate, plans to issue $1,000,000 of 8% preferred stock in exchange for $1,000,000 of its 8% bonds currently outstanding. The firm’s total liabilities and equity are equal to $10,000,000. The effect of this exchange on the firm’s weighted average cost of capital is likely to be

no change, since it involves equal amounts of capital in the exchange and both instruments have the same rate.

a decrease, since a portion of the debt payments are tax deductible.

a decrease, since preferred stock payments do not need to be made each year, whereas debt payments must be made.

an increase, since a portion of the debt payments are tax deductible.

Clear Displays Inc. manufactures display screens for mobile devices and is looking to expand their business through acquisition. Clear Displays has a weighted average cost of capital of 10%. They are evaluating the opportunity to acquire one of their competitors, Bright Screens Inc. Cash flows for Bright Screens are forecasted to be $110,000 in each of the next four years, and net income for Bright Screens is forecasted to be $90,000 in each of the next four years. The projected terminal value for Bright Screens at the end of that four-year period is $1,250,000. Utilizing the discounted cash flow method, the valuation for Bright Screens is expected to be

$1,139,050

$1,202,439

$1,535,300

$1,598,700

Country A's currency would tend to appreciate relative to Country B's currency when

Country A has a higher rate of inflation than Country B.

Country B has real interest rates that are greater than real interest rates in Country A.

Country A has a slower rate of growth in income that causes its imports to lag behind its exports.

Country B switches to a more restrictive monetary policy.

A company has a machine with an operating capacity of 400 machine hours per month. The company can produce Product X or Product Y with the machine. Further information is shown below.

	X	Y
Machine hours to produce one unit	15	10
Maximum sales units per month	30	60

Selling price per unit	$600	$500
Contribution margin per unit	200	150

The company currently produces and sells 10 units of X and 15 units of Y per month. Assume that the operating capacity of the machine could be increased from 400 to 500 machine hours per month. Which new combination of monthly production and sales of X and Y is feasible and would generate the highest operating profit?

X = 15 and Y = 20

X = 0 and Y = 50

X = 10 and Y = 40

X = 18 and Y = 23

All of the following are assumptions of cost-volume-profit analysis except

total fixed costs do not change with a change in volume.

revenues change proportionately with volume.

sales mix for multi-product situations do not vary with volume changes.

variable costs per unit change proportionately with volume.

A company currently manufactures subcomponent XT9, a part in the company’s main product ZL10. Management has found an outside supplier that could sell the company 100,000 XT9 subcomponents next year for $45 each. The company’s production of XT9 costs per unit are shown below.

Direct materials		$17.00
Direct labor		16.00
Variable manufacturing overhead		4.50
Fixed manufacturing overhead		6.00
Total cost per unit		$43.50

If the subcomponent is purchased from the outside supplier, all variable production costs would be eliminated and 70% of the fixed production costs would be eliminated. Management has found that the space used for the XT9 subcomponent could be used to produce a new product that would generate $300,000 in net operating income each year. If the company purchases XT9 from the outside supplier, operating income would decrease by

$30,000.

$270,000.

$330,000.

$630,000.

National Technology Corporation manufactures integrated computer components. Its unit cost structure, based upon a volume of 300,000 units, is as follows.

	Variable Costs	Fixed Costs	Total Costs
Direct material	$ 3.50		$ 3.50
Direct labor	9.00		9.00
Packaging	2.00		2.00
Manufacturing O/H	3.00	$ 6.50	9.50
Marketing costs	2.50	8.00	10.50
Administrative costs	4.00	4.50	8.50
Total costs	$24.00	$19.00	$43.00

A foreign company recently approached National with an order of 50,000 units of a specially designed component at $35 per unit. The order will require specialized procurement costs of $150,000 and only one-half of the variable costs associated with the administrative area will be needed. Otherwise, cost behavior will remain the same.

Adequate capacity is available to handle this request. What is the relevant unit cost to be considered by National in making a decision on this offer?

$22.00

$24.00

$43.00

$25.00

Which one of the following is the least relevant factor to consider when determining the target cost for a new product line?

The market prices of competitive products.

The selling price of existing product lines.

The desired profit that the company wants to achieve.

Possible new manufacturing technologies that can achieve higher productivity.

Superior Tables is a table manufacturer. The company is considering eliminating the Easy Living product line because of losses over the past year. Results for the year just ended for the Easy Living product line are as follows.

Sales (20,000 units)	$	6,000,000
Variable manufacturing costs		2,700,000
Fixed manufacturing costs		2,400,000
Administrative costs		2,000,000
Operating loss	$	(1,100,000)

None of the fixed manufacturing costs can be eliminated, but 25% of the administrative costs are variable and can be eliminated if the product line is eliminated. Based on the information above, should the Easy Living product line be eliminated?

No, because eliminating the product line would only save $500,000 of administrative costs still resulting in an overall loss.

No, because eliminating the product line would increase the operating loss by ($2,800,000).

Yes, because eliminating the product line would increase the operating income by $1,100,000.

Yes, because eliminating the product line would increase the operating income by $1,500,000 from the saved administrative costs.

Parker Company pays each member of its sales staff a salary as well as a commission on each unit sold. For the coming year, Parker plans to increase all salaries by 5% and to keep unchanged the commission paid on each unit sold. Because of increased demand, Parker expects the volume of sales to increase by 10%. How will the total cost of sales salaries and commissions change for the coming year?

Increase by 5% or less.

Increase by 10%.

Increase by more than 10%.

Increase by more than 5% but less than 10%.

With respect to a given risk, an expected loss is

a loss that management knows will occur.

the amount that management thinks could be lost to the risk in a very bad year.

an amount that management expects to be lost per year on average over a period of several years.

the amount expected to be lost every year to that risk.

The COSO enterprise risk management (ERM) framework focuses on

integrating risk management with strategy.

systematically classifying all risks to the organization.

understanding the responsibilities of management accountants in ERM projects.

identifying an organization’s risk management philosophy and risk appetite.

What is a systemically important financial institution (SIFI) and why is it significant in the context of global finance?

It is a financial institution whose failure could trigger a financial crisis, requiring additional capital requirements to mitigate systemic risk.

It is a financial institution that holds a significant portion of a country's foreign exchange reserves, affecting currency stability.

It is a financial institution that specializes in providing credit to small and medium-sized enterprises, crucial for economic growth.

It is a financial institution designated by the World Bank as essential for funding international development projects.

Andyco is considering the acquisition of scanning equipment to mechanize its procurement process. The equipment will require extensive testing and debugging, as well as user training prior to its operational use. Projected after-tax cash flows are shown below.

Time Period Year	After-Tax Cash Inflow/(Outflow)
0	$(550,000)
1	(500,000)
2	450,000
3	350,000
4	250,000
5	150,000

Management anticipates the equipment will be sold at the beginning of year 6 for $50,000 when its book value is zero. Andyco's internal hurdle and effective tax rates are 14% and 40%, respectively. The project's payback period will be

2.3 years.

3.0 years.

3.5 years.

4.0 years.

A company assesses investment projects solely by using the payback method. The investment committee decided that an acceptable project must have a payback period of no more than four years. The company recently analyzed two projects based on the following information.

	Project A		Project B
	Annual cash flow	Cumulative discounted cash flows	Annual cash flow	Cumulative discounted cash flows
Year 0	($2,000,000)	($2,000,000)	($1,000,000)	($1,000,000)
Year 1	$150,000	($1,863,650)	$100,000	($909,100)
Year 2	$200,000	($1,698,450)	$250,000	($702,600)
Year 3	$450,000	($1,360,500)	$250,000	($514,850)
Year 4	$1,200,000	($540,900)	$400,000	($241,650)
Year 5	$1,500,000	$390,600	$800,000	$255,150

The company can choose only one of these investments. How does this analysis illustrate a disadvantage of the payback method compared with the net present value (NPV) method?

As both are acceptable under the payback method, management may be indifferent despite project A’s higher NPV.

Although project A has an acceptable payback period of three years, its NPV is negative.

Both are unacceptable despite having a positive NPV due to cash flow after the cutoff.

Project B is not acceptable due to its five-year payback period, despite its positive NPV.

Calvin Inc. is considering the purchase of a new state-of-the-art machine to replace its hand-operated machine. Calvin's effective tax rate is 40%, and its cost of capital is 12%. Data regarding the existing and new machines are presented below.

	Existing Machine	New Machine
Original cost	$50,000	$90,000
Installation cost	0	4,000
Freight and insurance	0	6,000
Expected end salvage value	0	0
Depreciation method	straight-line	straight-line
Expected useful life	10 years	5 years

The existing machine has been in service for seven years and could be sold currently for $25,000. If the new machine is purchased, Calvin expects to realize a $30,000 pretax annual reduction in labor costs.

If the new machine is purchased, what is the net amount of the initial cash outflow at Time 0 for net present value calculation purposes?

$65,000

$75,000

$79,000

$100,000

Which of the following steps is most critical for converting an ethics policy from words on paper into action within an organization?

Mandating that senior management attend ethics training sessions.

Incorporating ethics into the organization's hiring decisions and employee evaluations.

Ensuring that the ethics policy is reviewed annually by the board of directors.

Limiting ethics discussions to the compliance department meetings.

Boundaries for behavior that should not be violated, such as human rights, freedom of speech, and fundamentals of justice, are known as

principles.

values.

norms.

ethics.

Which one of the following does not represent one of the three main conceptual spheres of sustainability?

Economic

Environmental

Ethical

Social

The CEO and founder of a small IT services company assigned ambitious sales goals to the sales consultants and told them that the bottom 20% of performers would be terminated at the end of the year. Sales revenues for the year increased dramatically. Outstanding accounts receivable also increased dramatically, above what would be expected from the increased sales. When the CEO attempted to contact the customers whose balances were delinquent, he was unable to contact them. Upon investigation, the CEO discovered that the sales consultants had been creating false sales documents and submitting the documents to the order entry clerk for invoicing. The order entry clerk was covering up for the sales consultants by shredding the invoices after posting them in the accounting system so that they would not become returned mail and arouse suspicions.

This is an example of

fraudulent financial reporting.

aggressive accounting.

puffery.

financial misconduct.

Get Your Results

By submitting the quiz, you agree to receive personalized study recommendations, tips, and promotional offers from HOCK.

Name(Required)

First Last

Phone (Optional)

Email(Required)

Enter Email Confirm Email

Country(Required)

Country

Posted in Exam Prep and Study Tips

← Free CMA Part 1 Knowledge Quiz by HOCKFree CIA Part 1 Knowledge Quiz by HOCK →