Mock Exam #1 – CMA Part 2

Mock Exam #1 – CMA Part 2
NOTE: Present value tables are provided on the final pages of this exam.
Question 1: Which of the following is true concerning the calculation of operating income?
a)
b)
c)
d)
Operating income is calculated as sales revenue minus cost of goods sold minus selling, general,
and administrative expenses, plus earned interest and dividend income.
Operating income is calculated as sales revenue minus cost of goods sold minus selling, general,
and administrative expenses, plus or minus other revenue and expenses.
Operating income is calculated as sales revenue minus cost of goods sold minus selling, general,
and administrative expenses, plus translation adjustments.
Operating income is calculated as sales revenue minus cost of goods sold minus selling, general,
and administrative expenses.
Question 2: Which of the following is the best description of the difference between operating income
and earnings before interest and taxes (EBIT).
a)
b)
EBIT includes the following items that are not included in operating income: non-operating gains
and losses such as gains/losses on acquisitions or investments, interest and dividendincome.
EBIT includes the following items that are not included in operating income: non-operating gains
and losses such as gains/losses on acquisitions or investments, interest and dividend income,
and pre-tax additions or deductions for discontinued operations.
c)
EBIT includes the following items that are not included in operating income: non-operating gains
and losses such as gains/losses on acquisitions or investments, interest and dividend income,
and financing charges.
d)
EBIT includes the following items that are not included in operating income: non-operating gains
and losses such as gains/losses on acquisitions or investments, interest and dividend income,
and provision for income taxes.
Question 3: One of the main difficulties in the comparison of financial statements between companies or
between periods for the same company is the difference in size. A method to deal with the size difference
is to
a)
b)
c)
d)
make adjustments to each item on the income statement and balance sheet based on industry
averages.
state each item on the income statement and balance sheet as a percentage of a targeted base
amount rather than as a numerical amount.
state each item on the income statement and balance sheet as a percentage of a relevant base
amount rather than as a numerical amount.
make adjustments to each item on the income statement and balance sheet based on
benchmarking.
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Mock Exam #1 – CMA Part 2
Question 4: Gamma-Ray Corporation’s summarized common-size income statements for its 20X5 actual
results and 20X6 planned results are shown below:
20X5
Actual
100%
50%
40%
10%
20X6
Planned
100%
50%
?
Sales
COGS
Selling & Admin
Operating income
?
Gamma-Ray believes that units sold will increase 5% in 20X6; however, there will be no price increase to
its customers and no anticipated cost increase from its vendors. Selling and administrative expenses are
anticipated to be 5% variable and 95% fixed. If all predictions materialize, Gamma-Ray should expect
operating income in 20X6 to
a)
b)
c)
d)
be greater than 13% but less than 14% of sales.
be greater than 14% of sales.
be less than 11% of sales.
be greater than 11% but less than 13% of sales.
Question 5: A management accountant has been asked to provide earnings forecasts for the next three
years. In order to complete this assignment, the management accountant would be least likely to
a)
b)
use common-size financial statements to estimate expenses as a percentage of net income.
examine the variability of the predicted outcomes by performing sensitivity and scenario
analysis.
c)
assume that the key financial ratios will remain unchanged for the forecasted period.
discuss the key assumptions with senior management.
d)
Question 6: In a comparison of 20X5 and 20X4, Neir Company’s accounts receivable turnover ratio
increased substantially, although sales and credit sales amounts were essentially unchanged. Which of
the following statements is the best explanation for the increase in the accounts receivable turnover
ratio?
a)
b)
c)
d)
The write-off of an uncollectable account.
A change in credit policy to shorten the period for the cash discount.
A significant cash sales volume increase near the end of the accounting period.
A change in credit policy to lengthen the period of the cash discount.
Question 7: A firm has a dividend payout ratio of 40%, a net profit margin of 10%, an asset turnover
ratio of 0.9, and a financial leverage ratio of 1.2. Based on this information, the firm’s sustainable growth
rate is closest to
a)
b)
5.4%
7.2%
c) 10.8%
d) 6.5%
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