Mock Exam #1 – CMA Part 2

Mock Exam #1 – CMA Part 2
Question 1: Birch Corporation had income available to common shareholders for the year of $101,504 and a simple capital structure. At the beginning of the year, there were 24,000 shares outstanding. On March 1, 5,400 new shares were issued for cash. On July 1, 6,600 new shares were issued for cash. On December 1, the company reacquired 960 Treasury shares.
Basic Earnings Per Share, rounded to the nearest cent, were a) $3.20
b) $3.45
c) $3.26
d) $2.90
Question 2: Which of the following ratios should be used in evaluating the effectiveness with which the company uses its assets?
Receivables Turnover Dividend Payout Ratio
a) No No
b) Yes Yes
c) Yes No
d) No Yes
Question 3: Are the following ratios useful in assessing the liquidity position of a company?
Current Return on Ratio Shareholders' Equity
a) No Yes
b) No No
c) Yes No
d) Yes Yes
Question 4: In a comparison of 20X9 with 20X8, Neir Co.'s inventory turnover ratio increased substantially, although sales and inventory amounts were essentially unchanged. Which of the following statements explains the increased inventory turnover ratio?
a) Accounts receivable turnover increased.
b) Gross profit percentage decreased.
c) Total asset turnover increased.
d) Cost of goods sold decreased.
Note: Present Value tables are provided on the final pages of this exam.
Mock Exam #1 – CMA Part 2
Question 5: A useful tool in financial statement analysis is the common-size financial statement. What does this tool enable the financial analyst to do?
a) Determine which companies in the same industry are at approximately the same stage of development.
b) Evaluate financial statements of companies within a given industry of approximately the same value.
c) Ascertain the relative potential of companies of similar size in different industries.
d) Compare the mix of assets, liabilities, capital, revenue, and expenses within a company over time or between companies within a given industry without respect to relative size.
Question 6: ABC Sales had the following gross profit calculation in its last accounting period:
Sales revenue
$150,000
Cost of sales
80,000
Gross profit
$ 70,000
Average inventory during that period was $10,000.
In the next accounting period, sales revenue is expected to increase by 50% and the rate of inventory turnover is expected to double. If average inventory remains at $10,000, the mark-up on cost will be:
a) 28.9%
b) 71.1%
c) 40.6%
d) 87.9%.
Question 7: Birch Corporation had income available to common shareholders for the year of $101,504 and a simple capital structure. At the beginning of the year, there were 24,000 shares outstanding. On March 1, 5,400 new shares were issued for cash. On June 30, the company issued a 20% stock dividend. On July 1, 6,600 new shares were issued for cash. On December 1, the company reacquired 960 Treasury shares.
Basic Earnings Per Share, rounded to the nearest cent, were a) $2.48
b) $2.29
c) $2.67
d) $2.71
Mock Exam #1 – CMA Part 2
Question 8: Gil Corp. has current assets of $90,000 and current liabilities of $180,000. Which of the following transactions would improve Gil's current ratio?
a) Paying $20,000 of short-term accounts payable.
b) Purchasing $50,000 of merchandise inventory with a short-term account payable.
c) Collecting $10,000 of short-term accounts receivable.
d) Refinancing a $30,000 long-term mortgage with a short-term note.
Question 9: In comparing the current ratios of two companies, why is it invalid to assume that the company with the higher current ratio is the better company?
a) A high current ratio may indicate inefficient use of some assets.
b) A high current ratio may indicate inadequate inventory on hand.
c) The current ratio includes assets other than cash.
d) The two companies may define working capital in different terms.
Question 10: At December 30, 20X0, Solomon Co. had a current ratio greater than 1:1 and a quick ratio less than 1:1. On December 31, 20X0, all cash was used to reduce accounts payable. How did these cash payments affect the ratios?
Current Ratio Quick Ratio
a) Decreased Decreased
b) Increased Decreased
c) Increased Increased
d) Decreased Increased
Question 11: Ray Corporation has long-term debt of $1,200,000 and equity of $1,000,000. The board of directors has set a goal of 1:1 for the company’s debt-equity ratio. Which of the following could the company employ to achieve this goal?
a) Issuing rights to purchase new common stock.
b) Paying a stock dividend to the existing shareholders.
c) Issuing new bonds.
d) Paying a dividend on its common stock.