Part 1 : FIRST Comprehensive Exam - Section A

Question 1 - CMA 1295 P2 Q24 - Accounts Receivable and Inventory

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 debit to cash of $150,000.
C. A credit to accounts receivable of $150,000.
D. A credit to liability on transferred accounts receivable of $150,000.

Question 2 - CIA 0594 P4 Q26 - Revenue Recognition

The percentage-of-completion and the completed-contract methods of accounting for long-term construction projects
in progress differ in that

A. It is only under the percentage-of-completion method that progress billings are accumulated in a contra-inventory
account called billings on construction in progress.
B. It is only under the percentage-of-completion method that gross profit earned to date is accumulated in the
construction in progress inventory account.
C. It is only under the completed-contract method that accumulated construction costs are included in a construction in
progress inventory account.
D. Only the percentage-of-completion method recognizes all revenues and gross profit on the contract when the
contract is completed.

Question 3 - CMA 1287 P4 Q19 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

Nella Corporation computes depreciation to the nearest whole month. A new piece of equipment was placed in
operation on July 1, 20X1. It was expected to produce 400,000 units of product in its estimated useful life of eight
years. Total cost was $300,000; salvage value was estimated to be $30,000. Nella employs a calendar year for
financial reporting purposes. Actual production for the past 3 years was as follows.

Year 1 - 34,000 units

Year 2 - 62,500 units
Year 3 - 58,400 units

If Nella uses the sum-of-the-years'-digits method of depreciation, the amount of depreciation computed for this
equipment for book purposes in 20X3 would be

A. $48,750
B. $45,000
C. $18,750
D. $52,500

Question 4 - CIA 0596 P4 Q2 - Revenue Recognition

A company sells goods on an installment basis. The table below includes information about the level of installment
sales, the cost of the goods sold on installment, and the cash receipts on installment sales for year 1 through year 3.
All cash receipt amounts shown are net of any interest charges.
Year 1 Year 2 Year 3

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 Part 1 : FIRST Comprehensive Exam - Section A

Installment sales $10,000 $5,000 $20,000

Cost of installment sales 6,000 4,000 10,000
Cash receipts on year 1 sales $2,000 $4,000 $4,000
Cash receipts on year 2 sales 1,000 2,000
Cash receipts on year 3 sales 4,000

The amount of gross profit the company will recognize in year 1 on year 1 installment sales is:

A. $4,000
B. $2,000
C. $3,200
D. $800

Question 5 - CMA 1292 2.23 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

A company should apply the equity method of accounting for an investment whenever it can exercise significant
influence over the investee. Usually, the minimum level of ownership at which an investor can exercise significant
influence is

A. 10% ownership.
B. 50% ownership.
C. 20% ownership.
D. 25% ownership.

Question 6 - CIA 1193 P4 Q45 - Owners' Equity

At December 31, a company has total assets at book value of $300,000. Liabilities are $120,000. Also, on December
31, the stock is selling at $20 per share, and there are 10,000 shares outstanding. As a result, the company should
take the difference between the carrying amount and market value of the stock and

A. not capitalize any asset, record any revenue, or change equity at this time.
B. capitalize as an asset (and amortize over 5 years), with the offset to equity.
C. capitalize as an asset (and amortize over the estimated useful life not to exceed 40 years), with the offset to equity.
D. capitalize as an asset (and amortize over the estimated useful life), with the offset to revenue.

Question 7 - CIA 0590 P4 Q26 - Revenue Recognition

The ABC Company operates a catering service that specializes in business luncheons for large corporations. ABC
requires customers to place their orders 2 weeks in advance of the scheduled events. ABC bills its customers on the
tenth day of the month following the date of service and requires that payment be made within 30 days of the billing
date. Conceptually, ABC should recognize revenue from its catering services at the date when a

A. Luncheon is served.
B. Customer places an order.
C. Customer's payment is received.
D. Billing is mailed.

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 Part 1 : FIRST Comprehensive Exam - Section A

Question 8 - CIA 1193 P4 Q30 - Revenue Recognition

A company that sprays chemicals in residences to eliminate or prevent infestation of insects requires that customers
prepay for 3 months' service at the beginning of each new quarter. Select the term that appropriately describes this
situation from the viewpoint of the exterminating company.

A. Earned revenue.
B. Unearned revenue.
C. Prepaid expense.
D. Accrued revenue.

Question 9 - ICMA 10.P2.093 - Financial Statements

During the year, Deltech Inc. acquired a long-term productive asset for $5,000 and also borrowed $10,000 from a local
bank. These transactions should be reported on Deltech’s Statement of Cash Flows as

A. Inflows from Investing Activities, $10,000; Outflows for Financing Activities, $5,000.
B. Outflows for Investing Activities, $5,000; Inflows from Financing Activities, $10,000.
C. Outflows for Financing Activities, $5,000; Inflows from Investing Activities, $10,000.
D. Outflows for Operating Activities, $5,000; Inflows from Financing Activities, $10,000.

Question 10 - CMA 0695 P2 Q13 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

On September 1, 20X3, for $4,000,000 cash and $2,000,000 notes payable, Norbend Corporation acquired the net
assets of Crisholm Company, which had a fair value of $5,496,000 on that date. During the December 31, 20X5
year-end audit after all adjusting entries have been made, the goodwill is determined to be worthless. The amount of
the write-off as of December 31, 20X5 should be

A. $504,000
B. $474,600
C. $478,800
D. $466,200

Question 11 - ICMA 10.P2.009 - Financial Statements

All of the following are elements of an income statement except

A. expenses.
B. shareholders' equity.
C. gains and losses.
D. revenue.

Question 12 - CMA1287 P2 Q17 - Accounts Receivable and Inventory

Nasus Company began the month of November with 150 units of Model-XL brass hinges on hand at a cost of $2.00
each. These hinges sell for $3.50 each. The following schedule presents the additional activity in this inventory item

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 Part 1 : FIRST Comprehensive Exam - Section A

during November.
Quantity
November Received Unit Price Units Sold
4 100
6 200 $2.10
8 150
10 200 2.20
16 220
21 250 2.40
28 100

If Nasus uses perpetual moving average inventory pricing, the sale of 220 items on November 16 would be recorded at
a unit cost of:

A. $2.16
B. $2.20
C. $2.08
D. $2.10

Question 13 - CIA 1196 P4 Q12 - Revenue Recognition

A company began work on a long-term construction contract in 20X1. The contract price was $3,000,000. Year-end
information related to the contract is as follows:

20X1 20X2 20X3

Estimated total cost $2,000,000 $2,000,000 $2,000,000
Cost incurred 700,000 900,000 400,000
Billings 800,000 1,200,000 1,000,000
Collections 600,000 1,200,000 1,200,000

If the company uses the completed-contract method of accounting for this contract, the gross profit to be recognized in
20X3 is:

A. $200,000
B. $800,000
C. $1,000,000
D. $600,000

Question 14 - CMA 1285 P4 Q12 - Revenue Recognition

Genova Corporation sold equipment for $200,000 on November 11. The book value of the equipment on the date of
sale was $80,000. The buyer paid $20,000 to Genova on the date of sale and the balance was due in three equal
annual installments beginning on December 1. The buyer made the scheduled payment to Genova on December 1.
Genova uses the calendar year for reporting purposes.

If Genova uses the installment sales method for internal reporting purposes, the gross profit that Genova would realize
in the current year on the sale of the equipment is:

A. $80,000.
B. $0.
C. $48,000.

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 Part 1 : FIRST Comprehensive Exam - Section A

D. $120,000.

Question 15 - CMA 1286 P4 Q8 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

The factors primarily relied upon to determine the economic life of an asset are

A. Tax regulations and SEC (Security Exchange Commission) guidelines.

B. Passage of time, asset usage, and obsolescence.
C. Tax regulations and asset usage.
D. SEC (Security Exchange Commission) guidelines and asset usage.

Question 16 - CMA 1294 P2 Q8 - Accounts Receivable and Inventory

Devereaux Inc. uses a perpetual inventory system and had the following inventory inflows and outflows during the
month of November.
November Activity
1 Balance 200 units at $20 per unit
10 Purchases 160 units at $20 per unit
18 Sales 180 units
20 Purchases 140 units at $24 per unit
27 Sales 100 units

If Devereaux Inc. uses the moving average cost method, the value of its inventory at November 30 would be

A. $4,960
B. $4,400
C. $4,785
D. $4,480

Question 17 - CMA 1289 P4 Q21 - Accounts Receivable and Inventory

Brighton Corporation uses the allowance method of accounting for bad debts on its internal reports and has used a
historical rate of 1.5% of credit sales to estimate its bad debt expense. The aging schedule of Brighton's accounts
receivable at November 30, 20X4, based upon past collection experience is presented as follows.
Days Probability
Outstanding Amount of Collection
0-30 days $640,000 0.98
31-60 days 180,000 0.92
61-90 days 95,000 0.75
over 90 days 40,000 0.60
$955,000

Total sales for the 20X3-X4 fiscal year were $6,500,000, of which 85% were on credit. The allowance for uncollectible
accounts had a credit balance of $76,500 on December 1, 20X3, and a debit balance of $3,400 on November 30,
20X4, before any entry to record bad debt expense for the 20X3-X4 fiscal year.

If Brighton Corporation continues to determine its bad debt expense by using the historical percentage of credit sales,
the bad debt expense for the 20X3-X4 fiscal year would be:

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 Part 1 : FIRST Comprehensive Exam - Section A

A. $70,350
B. $66,950
C. $86,275
D. $82,875

Question 18 - CMA 0694 P2 Q21 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

To comply with SFAS 2, Accounting for Research and Development Costs, expenditures for equipment for research
and development

A. May be expensed in the period incurred or capitalized if the probability of future benefits can readily be determined.
B. Must be capitalized in the period incurred and amortized over the estimated life of the asset.
C. Must be expensed in the period incurred, unless the equipment is able to be used for other projects outside R&D.
D. Must be expensed in the period incurred, unless the costs are for testing a prototype.

Question 19 - ICMA 08.P2.297 - Liabilities and Taxes

A tax rate other than the current tax rate may be used to calculate the deferred income tax amounton the statement of
financial position if a(n)

A. election has been made to apply past tax rates.

B. future tax rate has been enacted into law.
C. future tax rate change is considered more likely than not to occur.
D. net operating loss carryback exists.

Question 20 - CIA 594 P4 Q73 - Liabilities and Taxes

Temporary and permanent differences between taxable income and pre-tax financial income differ in that:

A. Only permanent differences have deferred tax consequences.

B. Temporary differences include items that enter into pre-tax financial income but never into taxable income.
C. Temporary differences do not give rise to future taxable or deductible amounts.
D. Only temporary differences have deferred tax consequences.

Question 21 - CMA 695 P1 Q13 - Owners' Equity

The equity section of Smith Corporation's statement of financial position is presented below.
Preferred stock, $100 par $12,000,000
Common stock, $5 par 10,000,000
Paid-in capital in excess of par 18,000,000
Retained earnings 9,000,000
Net worth $49,000,000

The common shareholders of Smith Corporation have preemptive rights. If Smith Corporation issues 400,000
additional shares of common stock at $6 per share, a current holder of 20,000 shares of Smith Corporation's common
stock must be given the option to buy

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 Part 1 : FIRST Comprehensive Exam - Section A

A. 3,774 additional shares.

B. 3,333 additional shares.
C. 4,000 additional shares.
D. 1,000 additional shares.

Question 22 - CMA 696 P2 Q4 - Accounts Receivable and Inventory

All sales and purchases for the year at Ross Corporation are credit transactions. Ross shipped goods via FOB
shipping point. In error, the goods were not recorded as a sale and were included in ending inventory. Which one of the
following statements is correct?

A. Accounts receivable was understated, inventory was not affected, sales were understated, and cost of goods sold
was understated.
B. Accounts receivable was understated, inventory was overstated, sales were understated, and cost of goods sold
was understated.
C. Accounts receivable was not affected, inventory was overstated, sales were understated, and cost of goods sold
was understated.
D. Accounts receivable was understated, inventory was overstated, sales were understated, and cost of goods sold
was overstated.

Question 23 - ICMA 10.P2.016 - Financial Statements

All of the following are limitations to the information provided on the statement of financial position except the

A. omission of items that are of financial value to the business such as the worth of the employees.
B. judgments and estimates used regarding the collectibility, salability, and longevity of assets.
C. quality of the earnings reported for the enterprise.
D. lack of current valuation for most assets and liabilities.

Question 24 - CMA 1292 P2 Q7 H2 - Owners' Equity

On December 1, Charles Company's board of directors declared a cash dividend of $1.00 per share on the 50,000
shares of common stock outstanding. The company also has 5,000 shares of treasury stock. Shareholders of record
on December 15 are eligible for the dividend, which is to be paid on January 1. On December 1, the company should

A. Make no accounting entry.

B. Debit retained earnings for $55,000.
C. Debit retained earnings for $50,000 and paid-in capital for $5,000.
D. Debit retained earnings for $50,000.

Question 25 - CIA 1195 P4 Q47 - Owners' Equity

Which of the following is usually not a feature of cumulative preferred stock?

A. Has voting rights.

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 Part 1 : FIRST Comprehensive Exam - Section A

B. Has the right to receive dividends in arrears before common stock dividends can be paid.
C. Has priority over common stock with regard to assets.
D. Has priority over common stock with regard to earnings.

Question 26 - CIA 0592 P4 Q35 - Financial Statements

A financial statement includes all of the following items: net income, depreciation, operating activities, and financing
activities. What financial statement is this?

A. Income statement.
B. Statement of changes in stockholders' equity.
C. Balance sheet.
D. Statement of cash flows.

Question 27 - CMA 1295 P2 Q26 - Accounts Receivable and Inventory

Tony's AutoParts Store is a small retailer. Tony Brown owns the business and has purchased a microcomputer system
equipped with bar coding devices. Tony Brown uses the first-in, first-out (FIFO) method to value inventory and is
concerned about the impact on inventory valuation of a switch from a periodic inventory system to a perpetual inventory
system. Which one of the following statements is correct?

A. The impact cannot be calculated.

B. Inventory will be valued higher under a perpetual inventory system.
C. Inventory and cost of goods sold will be the same whether or not a perpetual or periodic inventory system is used.
D. Inventory will be valued lower under a perpetual inventory system.

Question 28 - CMA 0693 P2 Q13 - Financial Statements

With respect to the content and form of the statement of cash flows,

A. accounting standards covering the statement of cash flows encourage the use of the indirect method.
B. the direct method of reporting cash flows from operating activities includes disclosing the major classes of gross
cash receipts and gross cash payments.
C. the reconciliation of the net income to net operating cash flow need not be presented when using the direct method.
D. the indirect method adjusts ending retained earnings to reconcile it to net cash flows from operations.

Question 29 - ICMA 10.P2.092 - Financial Statements

Larry Mitchell, Bailey Company's controller, is gathering data for the Statement of Cash Flows for the most recent year
end. Mitchell is planning to use the direct method to prepare this statement, and has made the following list of cash
inflows for the period.
Collections of $100,000 for goods sold to customers.
Securities purchased for investment purposes with an original cost of $100,000 sold for $125,000.
Proceeds from the issuance of additional company stock totaling $10,000.

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 Part 1 : FIRST Comprehensive Exam - Section A

The correct amount to be shown as cash inflows from operating activities is

A. $225,000.
B. $235,000.
C. $135,000.
D. $100,000.

Question 30 - CMA 1293 2.4 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

An investment in available-for-sale securities is valued on the Statement of Financial Position at the

A. Par or stated value of the securities.

B. Accumulated income less accumulated dividends since acquisition.
C. Fair value.
D. Cost to acquire the asset.

Question 31 - CMA Sample Question - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

Pearl Corporation acquired manufacturing machinery on January 1 for $9,000. During the year, the machine produced
1,000 units, of which 600 were sold. There was no work-in-process inventory at the beginning or at the end of the year.
Installation charges of $300 and delivery charges of $200 were also incurred. The machine is expected to have a
useful life of five years with an estimated salvage value of $1,500. Pearl uses the straight-line depreciation method.
The original cost of the machinery to be recorded in Pearl's books is

A. $9,300
B. $9,500
C. $9,000
D. $9,200

Question 32 - CMA 1293 2.3 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

An investment in trading securities is valued on the Statement of Financial Position at the

A. Cost to acquire the asset.

B. Fair value.
C. Accumulated income minus accumulated dividends since acquisition.
D. Lower of cost or market.

Question 33 - CIA 590 IV.32 - Financial Statements

The major distinction between the multiple-step and single-step income statement formats is the separation of

A. cost of goods sold expense and administrative expenses.

B. operating and non-operating data.
C. the effect on income taxes of extraordinary items and the effect on income taxes of profit or loss from ordinary
activities.

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 Part 1 : FIRST Comprehensive Exam - Section A

D. income tax expense and administrative expenses.

Question 34 - HOCK LR P2E 1 - Financial Statements

The balance sheet (or statement of financial position) helps users to assess the liquidity, financial flexibility, solvency
and risk of a company. A company with financial flexibility has the ability to

A. decide whether to settle a liability or write it off.

B. meet its financial obligations as they come due.
C. choose the valuation methods it will use to report its assets.
D. respond to unexpected needs and opportunities.

Question 35 - CIA 595 P4 Q30 - Owners' Equity

Which of the following types of dividends do not reduce equity in the corporation?

A. Property dividends.
B. Cash dividends.
C. Liquidating dividends.
D. Stock dividends and split-ups in the form of a dividend.

Question 36 - CIA 594 P4 Q21 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

The correct form of the journal entry recorded upon the sale of a plant asset sold for an amount of cash in excess of its
net book value is as follows:

A. Dr Cash; Dr Accumulated depreciation - machinery; Dr Gain on disposal of machinery; Cr Machinery

B. Dr Cash; Dr Accumulated depreciation; Cr Machinery; Cr Gain on disposal of machinery
C. Dr Cash; Dr Machinery; Cr Accumulated depreciation - machinery; Cr Gain on disposal of machinery
D. No journal entry is required.

Question 37 - CIA 592 P4 Q39 - Owners' Equity

The following excerpt was taken from a company's financial statements:

". . . 10% convertible participating . . . $10,000,000."

What is most likely being referred to?

A. Common stock.
B. Preferred stock.
C. Bonds.
D. Stock options.

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 Part 1 : FIRST Comprehensive Exam - Section A

Question 38 - CIA 1196 P4 Q30 - Revenue Recognition

A vendor sells specialty inks on consignment to a manufacturer of colored paper at a price of $200 per barrel. Payment
is made to the vendor in the month the manufacturer uses the barrels in production. The vendor records revenues
when the barrels are shipped and makes no adjusting entries to record unearned revenues until the December 31 st
closing of the books. At the end of July, the manufacturer had 40 barrels of ink on consignment. During August, the
vendor consigned 50 barrels and received payment for 30 barrels. Another five barrels were returned to the vendor by
the manufacturer for credit. At the end of August, what is the amount of unearned revenue contained in the vendor's
accounts receivable from the manufacturer?

A. $3,000
B. $11,000
C. $4,000
D. 12,000

Question 39 - CMA 697 P2 Q20 - Accounts Receivable and Inventory

Jensen Company uses a perpetual inventory system. The following purchases and sales were made during the month
of May:

May Activity Description

1 Balance 100 units at $10 per unit
9 Purchase 200 units at $10 per unit
16 Sale 190 units
21 Purchase 150 units at $12 per unit
29 Sale 120 units

If Jensen Company uses the perpetual last-in, first-out (LIFO) method of inventory valuation, the May 31 inventory
would be

A. $1,493
B. $1,400
C. $1,562
D. $1,460

Question 40 - CMA 1293 P2 Q2 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

Prepaid expenses are valued on the Statement of Financial Position at the

A. Cost to acquire the asset.

B. Cost less expired or used portion.
C. Face amount collectible at maturity.
D. Cost to acquire minus accumulated amortization.

Question 41 - CMA 1292 P2 Q8 H2 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

Since Year 1, Ames Steel Company has replaced all of its major manufacturing equipment and now has the following
equipment recorded in the appropriate accounts. Ames uses a calendar year as its fiscal year.

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 Part 1 : FIRST Comprehensive Exam - Section A

A forge purchased January 1, Year 1 for $100,000. Installation costs were $20,000, and the forge has an
estimated 5-year life with a salvage value of $10,000.
A grinding machine costing $45,000 purchased January 1, Year 2. The machine has an estimated 5-year life
with a salvage value of $5,000.
A lathe purchased January 1, Year 4 for $60,000. The lathe has an estimated 5-year life with a salvage value of
$7,000.

Using the sum-of-the-years'-digits method, Ames' Year 4 depreciation expense (rounded to the nearest dollar) is

A. $40,334
B. $40,600
C. $40,848
D. $36,464

Question 42 - CMA 1296 P2 Q11 - Revenue Recognition

Revenues of an entity are generally measured by the exchange values of the assets or liabilities involved. Recognition
of revenue does not occur until the

A. Entity has substantially accomplished what it agreed to do.

B. Revenue is realized and earned.
C. Entity has signed a binding contract.
D. Revenue is realized and collected.

Question 43 - CMA 696 P2 Q12 - Accounts Receivable and Inventory

Thomas Engine Company is a wholesaler of marine engine parts. The activity of carburetor 2642J during the month of
March is presented below.
No. of Unit Sales
March Units Cost Price
1 Inventory 3,200 $64.30 $86.50
4 Purchase 3,400 64.75 87.00
14 Sales 3,600 87.25
25 Purchase 3,500 66.00 87.25
28 Sales 3,450 88.00

If Thomas uses a first-in, first-out perpetual inventory system, the total cost of the inventory for carburetor 2642J at
March 31 is

A. $201,300
B. $197,488
C. $196,115
D. $263,825

Question 44 - CMA 690 4.27 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

When a fixed plant asset with a 5-year estimated useful life is sold during the second year, how would the use of an
accelerated depreciation method instead of the straight-line method affect the gain or loss on the sale of the fixed plant

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 Part 1 : FIRST Comprehensive Exam - Section A

asset?

A. A gain would decrease, and a loss would decrease.

B. A gain would decrease, and a loss would increase.
C. A gain would increase, and a loss would decrease.
D. A gain would increase, and a loss would increase.

Question 45 - HOCK MP2 AF14 - Financial Statements

The historical cost convention

A. values all assets at their cost to the business, without any adjustment for depreciation.
B. fails to take into account changing price levels over time.
C. has been replaced in accounting records by a system of current cost accounting.
D. records only past transactions.

Question 46 - CMA 0696 P2 Q2 - Revenue Recognition

Diamond Clover Construction Inc. uses the percentage-of-completion method of accounting. In year 1, the company
began work on job #4115, with a contract price of $5,000,000. Other data are shown below.

Year 1 Year 2
Costs incurred during the year $ 900,000 $2,350,000
Estimated costs to complete 2,700,000 0
Billings during the year 1,000,000 4,000,000
Collections during the year 700,000 4,300,000

If Diamond Clover Construction Inc. were to use the completed-contract method of accounting, the total amount to be
recognized as income in year 2 would be:

A. $700,000
B. $1,750,000
C. $2,650,000
D. $1,400,000

Question 47 - CMA 1295 P2 Q7 - Liabilities and Taxes

Jason Company's fiscal year ended on November 30 of the current year. Jason has an irrevocable contract to replace
its mainframe computer system on December 15 of the current year, at a net cost of $750,000, reflecting the trade-in
of the old hardware for $10,000, the fair market value. The net book value of the old hardware on November 30 of the
current year is $27,000. On its November 30 Statement of Financial Position for the current year, Jason should report
the value of the old computer equipment as

A. $750,000
B. $760,000
C. $10,000
D. $27,000

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 Part 1 : FIRST Comprehensive Exam - Section A

Question 48 - CIA 0590 P4 Q31 - Revenue Recognition

DEF is the consignee for 1,000 units of product X for ABC Company. ABC should recognize the revenue from these
1,000 units when

A. DEF sells the goods and informs ABC of the sale.

B. The agreement between DEF and ABC is signed.
C. ABC ships the goods to DEF.
D. DEF receives the goods from ABC.

Question 49 - ICMA 08.P2.392 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

Alton Corporation purchased 100% of the shares of Jones Corporation for $600,000. Financial information for Jones
Corporation is provided below.

The amount of goodwill resulting from this purchase, if any, would be

Jones Corporation
($000)
Book Fair Mar-
Value ket Value
Cash $ 50 $ 50
Accounts receivable 100 100
Inventory 150 100
Total current assets $300 $250
Property, plant & equipment (net) 500 600
Total assets $800 $850

Current liabilities $150 $150

Long-term debt 200 200
Total liabilities $350 $350

Common stock $150 $150

Paid-in capital 80 80
Retained earnings 220
Total shareholders' equity $450
Total liabilities & shareholders' equity $800

The amount of goodwill resulting from this purchase, if any, would be

A. $150,000.
B. Zero.
C. $200,000.
D. $100,000.

Question 50 - ICMA 10.P2.011 - Financial Statements

All of the following are classifications on the Statement of Cash Flows except

A. equity activities.

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 Part 1 : FIRST Comprehensive Exam - Section A

B. operating activities.
C. investing activities.
D. financing activities.

Question 51 - CMA 1289 P4 Q15 - Owners' Equity

Excerpts from the statement of financial position for Landau Corporation as of September 30 of the current year are
presented as follows.
Cash $ 950,000
Accounts receivable (net) 1,675,000
Inventories 2,806,000
Total current assets $5,431,000
Accounts payable $1,004,000
Accrued liabilities 785,000
Total current liabilities $1,789,000

The board of directors of Landau Corporation met on October 4 of the current year and declared the regular quarterly
cash dividend amounting to $750,000 ($0.60 per share). The dividend is payable on October 25 of the current year to
all shareholders of record as of October 12 of the current year.

Assume that the only transactions to affect Landau Corporation during October of the current year are the dividend
transactions and that the closing entries have been made.

Landau Corporation's total equity was

A. Unchanged by either the dividend declaration or the dividend payment.

B. Decreased by the dividend declaration and unchanged by the dividend payment.
C. Decreased by the dividend declaration and increased by the dividend payment.
D. Unchanged by the dividend declaration and decreased by the dividend payment.

Question 52 - CIA 1194 P4 Q69 - Liabilities and Taxes

A company has purchased an asset with a 10-year useful life. It will use an accelerated depreciation method for tax
purposes. For reporting purposes, it will use straight-line depreciation because this method believed to reflect better the
usage of the asset over its economic life.

During the 10-year life of the asset, the company will report as deferred tax an amount that

A. Decreases and then increases.

B. Increases and then decreases.
C. Increases steadily for the 10 years.
D. Is constant.

Question 53 - CMA 0693 2.17 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

A decline in the value of an available-for-sale security below cost that is deemed to be other than temporary should

A. Be treated as an unrealized loss and included in the equity section of the balance sheet as a separate item.
B. Be accumulated in a valuation allowance resulting from the passage of time.

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 Part 1 : FIRST Comprehensive Exam - Section A

C. Be treated as a realized loss and included in the determination of net income for the period.
D. Not be realized until the security is sold.

Question 54 - CMA 0688 P3 Q25 - Liabilities and Taxes

In Year 1, the Voorhees Corporation introduced a new line of computer products that carry a 2-year warranty against
defects in workmanship. The company estimates that the total warranty cost will be 10% of sales, with 40% of the
expenditures occurring during the first year and 60% during the second year. Sales and actual warranty expenditures
for Year 1 and Year 2 were as follows:
Actual Warranty
Year Sales Expenditures
1 $300,000 $12,000
2 400,000 30,000

At the end of Year 2, the balance in the estimated accrued warranty liability account will be:

A. $28,000
B. $46,000
C. $58,000
D. $24,000

Question 55 - CMA 688 P4 Q19 - Owners' Equity

Which one of the following items most likely increases earnings per share (EPS) of a corporation?

A. Declaration of a stock split.

B. A reduction in the amount of cash dividends paid to common shareholders.
C. Purchase of treasury stock.
D. Declaration of a stock dividend.

Question 56 - CMA 1293 P2 Q30 - Financial Statements

When using the indirect method to prepare a statement of cash flows, net cash flows from operating activities are
determined by adding back or deducting from net income those items included in net income that had no effect on
cash. Which one of the following items should be deducted from net income when determining net cash flows from
operating activities?

A. A loss on the sale of plant assets.

B. An increase in accrued liabilities.
C. Amortization of bond premiums.
D. A decrease in accounts receivable.

Question 57 - CMA 0691 P2 Q14 - Revenue Recognition

On September 1, 20X4, Beach Construction Company entered into a $10 million contract with City University to build a
five-story parking garage. On that date, Beach's estimated total cost of constructing the building was $8 million. The

(c) HOCK international, page 16

 Part 1 : FIRST Comprehensive Exam - Section A

estimated completion date for the garage was August 20X6. Beach accounts for long-term construction contracts using
the percentage-of-completion method. Beach's fiscal year ends May 31. Data regarding the contract are as follows.
At May 31 (in thousands of dollars)
20X5 20X6
Actual costs incurred to date $2,000 $6,750
Estimated costs to complete 6,000 2,250
Progress billings to date 1,800 6,000
Cash collected to date 1,450 5,500

The current assets reported on Beach Construction Company's May 31, 20X6 statement of financial position as a
result of this contract would be

A. Accounts receivable of $500,000, and inventory of $6,750,000.

B. Accounts receivable of $6,000,000, and inventory of $1,500,000.
C. Accounts receivable of $500,000, and inventory of $1,500,000.
D. Accounts receivable of $6,000,000, and inventory of $6,750,000.

Question 58 - CMA 1286 P4 Q12 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

Costs that are capitalized with regard to a patent include

A. Incidental costs of obtaining the patent, costs of successful and unsuccessful patent infringement suits, and the
value of any signed patent licensing agreement.
B. Legal fees of obtaining the patent, incidental costs of obtaining the patent, and research and development costs
incurred on the invention that is patented.
C. Legal fees of obtaining the patent, costs of successful patent infringement suits, and research and development
costs incurred on the invention that is patented.
D. Legal fees of obtaining the patent, incidental costs of obtaining the patent, and costs of successful patent
infringement suits.

Question 59 - CMA 696 P2 Q14 - Accounts Receivable and Inventory

Thomas Engine Company is a wholesaler of marine engine parts. The activity of carburetor 2642J during the month of
March is presented below.

No. of Unit Sales

March Units Cost Price
1 Inventory 3,200 $64.30 $86.50
4 Purchase 3,400 64.75 87.00
14 Sales 3,600 87.25
25 Purchase 3,500 66.00 87.25
28 Sales 3,450 88.00

If Thomas uses a last-in, first-out perpetual inventory system, the total cost of the inventory for carburetor 2642J at
March 31 is

A. $197,488
B. $263,863
C. $196,200
D. $268,400

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 Part 1 : FIRST Comprehensive Exam - Section A

Question 60 - CMA 1290 P2 Q6 - Accounts Receivable and Inventory

Madison Corporation uses the allowance method to value its accounts receivable and is making the annual
adjustments at fiscal year end, November 30. The proportion of uncollectible accounts is estimated based on past
experience, which indicates 1.5% of net credit sales will be uncollectible. Total sales for the year were $2,000,000 of
which $200,000 were cash transactions. Madison has determined that the Norris Corporation accounts receivable
balance of $10,000 is uncollectible and will write off this account before year-end adjustments are made. Listed below
are Madison's account balances at November 30 prior to any adjustments and the $10,000 write-off.
Sales $2,000,000
Accounts receivable 750,000
Sales discounts (125,000)
Allowance for doubtful accounts (16,500)
Sales returns and allowances (175,000)
Bad debt expense 0

After a suggestion from the company's external auditors, Madison wishes to value its accounts receivable using the
balance sheet approach instead. The chart below presents the aging of the accounts receivable subsidiary ledger
accounts at November 30, not including the account to be written off.
Balance <60 61-90 91-120 >120
Account Due days days days days
Arcadia $ 50,000 $ 50,000
Dawson 128,000 90,000 $ 38,000
Gracelon 327,000 250,000 77,000
Prentiss 25,000 $25,000
Strauss 210,000 210,000

Total $740,000 $390,000 $115,000 $210,000 $25,000

% uncollectible 1% 5% 15% 40%

The final entry to the related accounts is

A. Debit allowance for doubtful accounts for $44,650 and credit bad debt expense for $44,650.
B. Debit allowance for doubtful accounts for $34,650 and credit sales for $34,650.
C. Credit accounts receivable for $34,650 and debit bad debt expense for $34,650.
D. Credit allowance for doubtful accounts for $44,650 and debit bad debt expense for $44,650.

Question 61 - CMA 1293 P2 Q29 - Financial Statements

With respect to the statement of cash flows, the FASB Accounting Standards Codification classifies cash receipts and
cash payments as arising from operating, investing, and financing activities. All of the following should be classified as
investing activities except

A. cash outflows to purchase manufacturing equipment.

B. cash inflows from the sale of bonds of other entities.
C. cash inflows from the sale of a manufacturing plant.
D. cash outflows to lenders for interest.

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 Part 1 : FIRST Comprehensive Exam - Section A

Question 62 - CMA 1288 P4 Q19 - Financial Statements

Which of the following items is specifically included in the statement of cash flows?

A. Operating and nonoperating cash flow information.

B. Purchasing a building by giving a mortgage to the seller.
C. Acquiring an asset through a capital lease.
D. Conversion of debt to equity.

Question 63 - CIA 1196 P4 Q11 - Revenue Recognition

A company began work on a long-term construction contract in 20X1. The contract price was $3,000,000. Year-end
information related to the contract is as follows:
20X1 20X2 20X3
Estimated total cost $2,000,000 $2,000,000 $2,000,000
Cost incurred 700,000 900,000 400,000
Billings 800,000 1,200,000 1,000,000
Collections 600,000 1,200,000 1,200,000

If the company uses the percentage-of-completion method of accounting for this contract, the gross profit to be
recognized in 20X1 is:

A. $100,000
B. $350,000
C. $200,000
D. ($100,000)

Question 64 - CMA 1286 P4 Q10 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

The Pryor Company uses the straight-line depreciation method based on the composite depreciation rate and the
composite economic life for depreciating its machinery and equipment. An advantage of using the composite
depreciation basis is that

A. Depreciation expense in the early years of the assets' lives is higher than if the individual assets were depreciated.
B. Depreciation expense is matched more accurately with the revenue stream generated by the use of the assets.
C. Salvage value for assets in the composite group is ignored.
D. When an asset is retired from use or is sold, no gain or loss will be recognized in the accounting records.

Question 65 - CIA 1192 P4 Q26 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

A newly acquired plant asset is to be depreciated over its useful life. The best rationale for this process is the

A. Matching assumption.
B. Monetary unit assumption.
C. Revenue recognition assumption.
D. Materiality assumption.

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 Part 1 : FIRST Comprehensive Exam - Section A

Question 66 - CIA 591 IV.34 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

When the equity method is used to account for the investment in an associate, the recording of the receipt of a cash
distribution from the investee will result in

A. An increase in a special equity account.

B. An increase in a liability account.
C. The recognition of investment income.
D. A reduction in the investment balance.

Question 67 - CMA 1294 P2 Q18 - Financial Statements

When using the indirect method to prepare the statement of cash flows, the impairment of goodwill should be
presented as a(n)

A. deduction from net income.

B. investing and financing activity not affecting cash.
C. addition to net income.
D. cash flow from investing activities.

Question 68 - CMA 1295 P2 Q2 - Financial Statements

Royce Company had the following transactions during the fiscal year ended December 31, 20X1:
Accounts receivable decreased from $115,000 on December 31, 20X0 to $100,000 on December 31, 20X1.
Royce's board of directors declared dividends on December 31, 20X1 of $0.05 per share on the 2.8 million
shares outstanding, payable to shareholders of record on January 31, 20X2. The company did not declare or
pay dividends for fiscal 20X0.
Sold a truck with a net book value of $7,000 for $5,000 cash, reporting a loss of $2,000.
Paid interest to bondholders of $780,000.
The cash balance was $106,000 on December 31, 20X0 and $284,000 on December 31, 20X1.

Royce Company uses the direct method to prepare its statement of cash flows at December 31, 20X1. The interest
paid to bondholders is reported in the

A. Investing section, as a use or outflow of cash.

B. operating section, as a use or outflow of cash.
C. Debt section, as a use or outflow of cash.
D. financing section, as a use or outflow of cash.

Question 69 - CMA 689 P4 Q6 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

Depreciation of plant assets refers to

A. Accounting for costs to reflect the change in general price levels.

B. Allocating the cost of the asset to the periods of use.
C. Accumulating a fund for the replacement of the asset.
D. Asset valuation for statement of financial position purposes.

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 Part 1 : FIRST Comprehensive Exam - Section A

Question 70 - CMA 1289 P4 Q16 - Owners' Equity

Excerpts from the statement of financial position for Landau Corporation as of September 30 of the current year are
presented as follows.
Cash $ 950,000
Accounts receivable (net) 1,675,000
Inventories 2,806,000
Total current assets $5,431,000
Accounts payable $1,004,000
Accrued liabilities 785,000
Total current liabilities $1,789,000

The board of directors of Landau Corporation met on October 4 of the current year and declared the regular quarterly
cash dividend amounting to $750,000 ($0.60 per share). The dividend is payable on October 25 of the current year to
all shareholders of record as of October 12 of the current year.

Assume that the only transactions to affect Landau Corporation during October of the current year are the dividend
transactions and that the closing entries have been made.

If the dividend declared by Landau Corporation had been a 10% stock dividend instead of a cash dividend, Landau's
current liabilities would have been

A. Increased by the dividend declaration and unchanged by the dividend distribution.

B. Unchanged by either the dividend declaration or the dividend distribution.
C. Unchanged by the dividend declaration and decreased by the dividend distribution.
D. Unchanged by the dividend declaration and increased by the dividend distribution.

Question 71 - CIA 596 P4 Q75 - Liabilities and Taxes

Which one of the following statements describes the asset-liability method of accounting for deferred income taxes?

A. The appropriate tax rate to be reported on the income statement is the tax actually levied in that year, meaning no
deferred taxes would be reported.
B. The amount of deferred income tax is based on tax rates in effect when temporary differences originate.
C. The amount of deferred income tax is based on the tax rates expected to be in effect during the periods in which the
temporary differences reverse.
D. The tax effects of temporary differences are not reported separately but are reported as adjustments to the amounts
of specific assets and liabilities and the related revenues and expenses.

Question 72 - HOCK MP2 AF18 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

An employee of M, a public company, developed a new product that has just been patented. The development costs of
this product were negligible, but the patent rights are almost certainly worth many millions of dollars. Which accounting
concept would prevent the company from recognizing the value of this patent as a non-current asset in its balance
sheet?

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 Part 1 : FIRST Comprehensive Exam - Section A

A. Conservatism
B. Materiality
C. Historical cost
D. Going concern

Question 73 - CMA 0685 P4 Q33 - Revenue Recognition

Citizen Metals Corporation produces precious metals from its mining activities. The selling price for its product is
reasonably assured, the units are interchangeable, and the costs of selling and distributing the product are
insignificant. In order for Citizen to recognize revenue as early in the revenue cycle as is permitted by generally
accepted accounting principles, the revenue recognition method that Citizen should use is the

A. Cost recovery method.

B. Percentage-of-completion method.
C. Completion of production method.
D. Cash method.

Question 74 - CMA 1289 P4 Q22 - Accounts Receivable and Inventory

Brighton Corporation uses the allowance method of accounting for bad debts on its internal reports and has used a
historical rate of 1.5% of credit sales to estimate its bad debt expense. The aging schedule of Brighton's accounts
receivable at November 30, 20X4, based upon past collection experience is presented as follows.
Days Probability
Outstanding Amount of Collection
0-30 days $640,000 0.98
31-60 days 180,000 0.92
61-90 days 95,000 0.75
over 90 days 40,000 0.60
$955,000

Total sales for the 20X3-X4 fiscal year were $6,500,000, of which 85% were on credit. The allowance for uncollectible
accounts had a credit balance of $76,500 on December 1, 20X3, and a debit balance of $3,400 on November 30,
20X4, before any entry to record bad debt expense for the 20X3-X4 fiscal year.

If Brighton Corporation determines its bad debt expense by using the aging schedule of its accounts receivable, the
bad debt expense for the 20X3-X4 fiscal year would be

A. $66,950
B. $79,475
C. $82,875
D. $70,350

Question 75 - CMA 0695 P2 Q14 - Revenue Recognition

After a successful drive aimed at members of a specific national association, Gorham Publishing Company received a
total of $90,000 for three-year subscriptions to a monthly publication beginning April 1, 20X5 and recorded this amount
in the unearned revenue account. Assuming Gorham only records adjustments at the end of the calendar year, the
adjusting entry required to reflect the proper balances in the accounts at December 31, 20X5, would be to:

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 Part 1 : FIRST Comprehensive Exam - Section A

A. Debit subscription revenue for $67,500 and credit unearned revenue for $67,500.
B. Debit unearned revenue for $30,000 and credit subscription revenue for $30,000.
C. Debit unearned revenue for $22,500 and credit subscription revenue for $22,500.
D. Debit unearned revenue for $67,500 and credit subscription revenue for $67,500.

Question 76 - CMA 1292 P2 Q4 - Accounts Receivable and Inventory

Bad debt expense must be estimated to satisfy the matching principle when expenses are recorded in the same
periods as the related revenues. In estimating the provision for doubtful accounts for a period, companies accrue

A. A percentage of total sales.

B. Either an amount based on a percentage of credit sales or an amount based on a percentage of accounts
receivable after adjusting for any balance in the allowance for doubtful accounts.
C. A percentage of accounts receivable transactions for the period.
D. Either an amount based on a percentage of total sales or an amount based on a percentage of accounts receivable
after adjusting for any balance in the allowance for doubtful accounts.

Question 77 - CMA 1284 P4 Q27 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

The following information is available for Paragon as of November 30, 20X5.

Property, plant and equipment

Land $27,500
Building $36,000
Accumulated depreciation (13,500)

Paragon's building is being depreciated using the straight-line method. The building has a 20-year estimated useful life
and an estimated salvage value of $6,000. The number of years the building has been depreciated by Paragon as of
November 30, 20X5 is

A. 9.0 years.
B. 7.5 years.
C. 15.0 years.
D. 12.5 years.

Question 78 - CMA 1288 P4 Q24 - Revenue Recognition

When the right of return exists, all of the following criteria must be met before revenue is recognized except that the

A. Amount of future returns can be reasonably estimated.

B. Buyer's obligation to the seller must be liquidated within 150 days from the date of the sale.
C. Buyer is obligated to pay the seller and the obligation is not contingent on the resale of the product.
D. Seller's price to the buyer is substantially fixed at the date of the sale.

Question 79 - CMA 1293 P2 Q9 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

(c) HOCK international, page 23

 Part 1 : FIRST Comprehensive Exam - Section A

Nichols Corporation renewed an insurance policy for three years beginning September 1, Year 1, and recorded the
$81,000 premium in the Prepaid Insurance account. The $81,000 premium represents an increase of $23,400 from the
$57,600 premium charged three years ago. Assuming Nichols only records its insurance adjustments at the end of the
calendar year, the adjusting entry required to reflect the proper balances in the insurance accounts at December 31,
Year 1, Nichols' year end, would be to

A. Debit Insurance Expense for $72,000 and credit Prepaid Insurance for $72,000.
B. Debit Prepaid Insurance for $9,000 and credit Insurance Expense for $9,000.
C. Debit Insurance Expense for $21,800 and credit Prepaid Insurance for $21,800.
D. Debit Insurance Expense for $9,000 and credit Prepaid Insurance for $9,000.

Question 80 - CMA 689 P1 Q7 - Owners' Equity

A stock dividend

A. decreases future earnings per share.

B. decreases the size of the firm.
C. increases the debt-to-equity ratio of a firm.
D. increases shareholders' wealth.

Question 81 - CIA 1192 P4 Q27 - Revenue Recognition

A company provides fertilization, insect control, and disease control services for a variety of trees, plants, and shrubs
on a contract basis. For $50 per month, the company will visit the subscriber's premises and apply appropriate
mixtures. If the subscriber has any problems between the regularly scheduled application dates, the company's
personnel will promptly make additional service calls to correct the situation. Some subscribers elect to pay for an
entire year because the company offers an annual price of $540 if paid in advance. For a subscriber who pays the
annual fee in advance, the company should recognize the related revenue:

A. At the end of the fiscal year.

B. Evenly over the year as the services are performed.
C. When the cash is collected.
D. At the end of the contract year after all of the services have been performed.

Question 82 - CMA 0691 P2 Q13 - Revenue Recognition

On September 1, 20X4, Beach Construction Company entered into a $10 million contract with City University to build a
five-story parking garage. On that date, Beach's estimated total cost of constructing the building was $8 million. The
estimated completion date for the garage was August 20X6. Beach accounts for long-term construction contracts using
the percentage-of-completion method. Beach's fiscal year ends May 31. Data regarding the contract are as follows.
At May 31 (in thousands of dollars)
20X5 20X6
Actual costs incurred to date $2,000 $6,750
Estimated costs to complete 6,000 2,250
Progress billings to date 1,800 6,000
Cash collected to date 1,450 5,500

The gross profit recognized for the fiscal year ended May 31, 20X6 from this contract would be

(c) HOCK international, page 24

 Part 1 : FIRST Comprehensive Exam - Section A

A. $250,000
B. $750,000
C. $1,000,000
D. $500,000

Question 83 - CMA 1296 P2 Q22 - Financial Statements

Which one of the following transactions should be classified as a financing activity in a statement of cash flows?

A. Sale of trademarks.
B. Payment of interest on a mortgage note.
C. Purchase of equipment.
D. Purchase of treasury stock.

Question 84 - CMA 696 P2 Q20 - Accounts Receivable and Inventory

Devereaux Inc. uses a perpetual inventory system and had the following inventory inflows and outflows during the
month of November.

November Activity
1 Balance 200 units at $20 per unit
10 Purchases 160 units at $20 per unit
18 Sales 180 units
20 Purchases 140 units at $24 per unit
27 Sales 100 units

If Devereaux Inc. uses the last-in, first-out method, the value of its inventory at November 30 would be

A. $4,400
B. $4,785
C. $4,560
D. $4,480

Question 85 - CIA 594 P4 Q20 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

A company has just purchased a machine for $100,000 that has a five-year estimated useful life and a zero estimated
salvage value. It is expected to be used to produce 250,000 units of output, and 75,000 of those units are expected to
be produced in the first year. Which of the following depreciation methods will result in the greatest amount of
depreciation expense for this machine in its first year?

A. Activity method based on units of production.

B. Sum of the years' digits.
C. Double declining balance method.
D. Straight line.

(c) HOCK international, page 25

 Part 1 : FIRST Comprehensive Exam - Section A

Question 86 - CMA 1292 P2 Q7 H1 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

Since Year 1, Ames Steel Company has replaced all of its major manufacturing equipment and now has the following
equipment recorded in the appropriate accounts. Ames uses a calendar year as its fiscal year.
A forge purchased January 1, Year 1 for $100,000. Installation costs were $20,000, and the forge has an
estimated 5-year life with a salvage value of $10,000.
A grinding machine costing $45,000 purchased January 1, Year 2. The machine has an estimated 5-year life
with a salvage value of $5,000.
A lathe purchased January 1, Year 4 for $60,000. The lathe has an estimated 5-year life with a salvage value of
$7,000.

Using the double-declining-balance method, Ames' Year 4 depreciation expense is

A. $40,334
B. $36,464
C. $45,000
D. $40,848

Question 87 - CMA 1288 P4 Q15 - Investments, PP&E (Fixed Assets), and Intangible and Other Assets

Lambert Company acquired a machine on October 1 that was placed in service on November 30. The cost of the
machine was $63,000, of which $20,000 was given as a down payment. The remainder was borrowed at 12% annual
interest. Additional costs included $2,500 for shipping, $4,000 for installation, $3,000 for testing, and $1,290 of interest
on the borrowed funds. How much should be reported for this acquisition in the machine account on Lambert
Company's statement of financial position as of November 30?

A. $72,500
B. $69,500
C. $73,790
D. $63,000

Question 88 - CMA 1291 P2 Q28 - Liabilities and Taxes

Beginning January 1, Year 1, Center Company offered a 3-year warranty from date of sale on any of its products sold
after January 1, Year 1. The warranty offer was part of a program to increase sales. Meeting the terms of the warranty
was expected to cost Center 4% of sales. Sales made under warranty in Year 1 totaled $9,000,000, and one-fifth of the
units sold were returned. These units were repaired or replaced at a cost of $65,000. The amount of warranty expense
that should appear on Center's Year 1 income statement is

A. $65,000
B. $137,000
C. $360,000
D. $71,000

Question 89 - ICMA 10.P2.019 - Financial Statements

When a fixed asset is sold for less than book value, which one of the following will decrease?

A. Current ratio.

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 Part 1 : FIRST Comprehensive Exam - Section A

B. Total current assets.

C. Net profit.
D. Net working capital.

Question 90 - CMA 1292 P2 Q8 H1 - Accounts Receivable and Inventory

In accounting for inventories, generally accepted accounting principles require departure from the historical cost
principle when the utility of inventory has fallen below cost. This rule is known as "lower of cost or market." Market as
usually defined here means

A. Original cost plus normal profit margin.

B. Original cost minus cost to dispose.
C. Original cost minus allowance for obsolescence.
D. Replacement cost of the inventory.

Question 91 - CMA 1292 P2 Q28 - Accounts Receivable and Inventory

Addison Hardware began the month of November with 150 large brass switchplates on hand at a cost of $4.00 each.
These switchplates sell for $7.00 each. The following schedule presents the sales and purchases of this item during
the month of November.

Quantity
November Received Unit Cost Units Sold
5 100
7 200 $4.20
9 150
11 200 $4.40
17 220
22 250 $4.80
29 100

If Addison uses periodic LIFO inventory pricing, the cost of goods sold for November will be

A. $2,584.
B. $2,442.
C. $2,416.
D. $2,474.

Question 92 - CMA 694 P2 Q6 - Accounts Receivable and Inventory

During the year 1 year-end physical inventory count at Tequesta Corporation, $40,000 worth of inventory was counted
twice. Assuming that the year 2 year-end inventory was correct, the result of the year 1 error was that

A. Year 1 income was overstated, and year 2 ending inventory was overstated.
B. Year 1 retained earnings was understated, and year 2 ending inventory was correct.
C. Year 1 cost of goods sold was understated, and year 2 retained earnings was correct.
D. Year 1 cost of goods sold was overstated, and year 2 income was understated.

(c) HOCK international, page 27

 Part 1 : FIRST Comprehensive Exam - Section A

Question 93 - CMA 1295 P2 Q1 - Financial Statements

Depreciation expense is added to net income under the indirect method of preparing a statement of cash flows in order
to

A. reverse noncash charges deducted from net income.

B. calculate net book value.
C. report all assets at gross book value.
D. ensure depreciation has been properly reported.

Question 94 - CMA 693 P1 Q7 - Owners' Equity

When a company desires to increase the market value per share of common stock, the company will

A. Sell preferred stock.

B. Implement a reverse stock split.
C. Split the stock.
D. Sell treasury stock.

Question 95 - CIA 0596 P4 Q1 - Revenue Recognition

A company sells goods on an installment basis. The table below includes information about the level of installment
sales, the cost of the goods sold on installment, and the cash receipts on installment sales for year 1 through year 3.
All cash receipt amounts shown are net of any interest charges.
Year 1 Year 2 Year 3
Installment sales $10,000 $5,000 $20,000
Cost of installment sales 6,000 4,000 10,000
Cash receipts on year 1 sales $2,000 $4,000 $4,000
Cash receipts on year 2 sales 1,000 2,000
Cash receipts on year 3 sales 4,000

The company has a rate of gross profit on year 2 installment sales of:

A. 40%
B. 50%
C. 20%
D. 80%

Question 96 - CMA 1289 P4 Q13 - Owners' Equity

Excerpts from the statement of financial position for Landau Corporation as of September 30 of the current year are
presented as follows.
Cash $ 950,000
Accounts receivable (net) 1,675,000
Inventories 2,806,000
Total current assets $5,431,000

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 Part 1 : FIRST Comprehensive Exam - Section A

Accounts payable $1,004,000

Accrued liabilities 785,000
Total current liabilities $1,789,000

The board of directors of Landau Corporation met on October 4 of the current year and declared the regular quarterly
cash dividend amounting to $750,000 ($0.60 per share). The dividend is payable on October 25 of the current year to
all shareholders of record as of October 12 of the current year.

Assume that the only transactions to affect Landau Corporation during October of the current year are the dividend
transactions and that the closing entries have been made.

Landau Corporation's working capital was

A. Unchanged by either the dividend declaration or the dividend payment.

B. Decreased by the dividend declaration and increased by the dividend payment.
C. Unchanged by the dividend declaration and decreased by the dividend payment.
D. Decreased by the dividend declaration and unchanged by the dividend payment.

Question 97 - CMA 1289 P4 Q23 - Accounts Receivable and Inventory

Brighton Corporation uses the allowance method of accounting for bad debts on its internal reports and has used a
historical rate of 1.5% of credit sales to estimate its bad debt expense. The aging schedule of Brighton's accounts
receivable at November 30, 20X4, based upon past collection experience is presented as follows.
Days Probability
Outstanding Amount of Collection
0-30 days $640,000 0.98
31-60 days 180,000 0.92
61-90 days 95,000 0.75
over 90 days 40,000 0.60
$955,000

Total sales for the 20X3-X4 fiscal year were $6,500,000, of which 85% were on credit. The allowance for uncollectible
accounts had a credit balance of $76,500 on December 1, 20X3, and a debit balance of $3,400 on November 30,
20X4, before any entry to record bad debt expense for the 20X3-X4 fiscal year.

The amount of the accounts receivable written off by Brighton Corporation during the 20X3-X4 fiscal year is

A. $79,475
B. $79,900
C. $76,500
D. $73,100

Question 98 - CMA 1296 P2 Q21 - Financial Statements

All of the following should be classified under the operating section in a statement of cash flows except a

A. purchase of land and building in exchange for a long-term note.

B. decrease in inventory.
C. decrease in prepaid insurance.
D. depreciation expense.

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 Part 1 : FIRST Comprehensive Exam - Section A

Question 99 - CMA 1292 P2 Q14 - Revenue Recognition

Allan Construction signed a $48,000,000 contract on September 1, 20X4 with the City of Springfield to construct a
tunnel under the Maple River. On that date, the estimated cost to complete the tunnel, which was to be completed by
June 20X7, was $36,000,000. Allan's fiscal year ends November 30, and the company uses the
percentage-of-completion method of revenue recognition.

Data regarding the tunnel contract, which was begun December 1, 20X4, are as follows.
At November 30 (in thousands)
20X5 20X6
Actual costs to date $12,000 $30,000
Estimated costs to complete 24,000 10,000
Progress billings to date 10,000 28,000
Cash collected to date 8,000 24,000

The gross profit or loss recognized in the fiscal year ended November 30, 20X5 from the tunnel contract is:

A. $3,000,000 gross profit.

B. $6,000,000 gross profit.
C. $4,000,000 gross profit.
D. $12,000,000 gross profit.

Question 100 - CMA 0696 P2 Q1 - Revenue Recognition

Diamond Clover Construction Inc. uses the percentage-of-completion method of accounting. In year 1, the company
began work on job #4115, with a contract price of $5,000,000. Other data are shown below.
Year 1 Year 2
Costs incurred during the year $ 900,000 $2,350,000
Estimated costs to complete 2,700,000 0
Billings during the year 1,000,000 4,000,000
Collections during the year 700,000 4,300,000

The amount of total gross profit to be recognized in year 1 is:

A. $700,000
B. $1,400,000
C. $350,000
D. $766,667

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