CMA Part 1 – Financial Planning, Performance and Control Answers to Examination Practice Questions Section A: External Financial Reporting Decisions 1.
Correct answer d. The annual report to shareholders is prepared in accordance with generally accepted accounting principles and is designed to provide information that is pertinent to investors and other external users. Managers responsible for operating activities use internal reports designed to provide information about various aspects of internal functions that measure the effectiveness and efficiency of operations.
2.
Correct answer b. Decreases in current liabilities such as accounts payable and income taxes payable are deducted from net income when determining cash flow indicating that cash was used to decrease the balances in these accounts.
3.
Correct answer a. Firms are required to present reconciliations of the beginning and ending balances of their shareholder accounts; this is accomplished by presenting a Statement of Shareholders’ Equity.
4.
Correct answer b. A company’s solvency is best represented by the amount of cash that can be generated internally rather than having to borrow from outside sources. This is shown on the Cash Flow Statement as flows from operating activities.
5.
Correct answer d. The Income Statement is used to determine a firm’s profitability and past performance can be evaluated using prior period income statements. All of the other characteristics listed can be determined from the Statement of Financial Position.
6.
Correct answer a. The purpose of the Income Statement is to provide a summary of a firm’s operating activities for a period of time.
7.
Correct answer c. Bertram’s Cash Paid for Dividends is $12,000 as calculated below.
8.
$100,000 + $40,000 - $8,000 + $5,000 – X = $125,000 $137,000 – X = $125,000 X = $12,000 Correct answer b. Shareholders’ Equity is presented on the Statement of Financial Position (Balance Sheet) while all the other elements listed are components of the Income Statement.
9.
Correct answer d. The payment of dividends is a financing activity and should be presented as a cash outflow in that section of the Cash Flow Statement.
10.
Correct answer b. The Cash Flow Statement does not have an “equity activities” section; equity transactions are presented as financing activities.
11.
Correct answer b. Available-for-sale securities are considered an investment, and therefore the sale would be presented as an investing activity on the statement of cash flows.
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