7/9/22, 3:19 PM CMA Exam Review - Part 1 - Assessment Review
Question 1
1.A.1.g
tb.cf.fsa.028_1805
LOS: 1.A.1.g
Lesson Reference: Statement of Cash Flows and Financial Statement Articulation
Difficulty: medium
Bloom Code: 4
In the Winterbottom Company, land decreased $75,000 because of a cash sale for $75,000, the equipment account increased $30,000 as a result of a cash
purchase, and Bonds Payable increased $100,000 from an issuance for cash at face value. What is the net cash provided by investing activities?
$75,000
$145,000
Your Answer
$70,000
Correct
$45,000
Rationale
$75,000
Investing activities consist of cash flows for the purchase and sale of long-term assets. The cash sale of land and cash purchase of equipment are
both components of investing activities. However, cash flow from investing activities would be $75,000 if the cash used to purchase equipment is
not included. Therefore, this is an incorrect answer.
Rationale
$145,000
Investing activities consist of cash flows for the purchase and sale of long-term assets. The cash sale of land and cash purchase of equipment are
both components of investing activities. However, the bond issuance is not an investing activity since bonds payable are long-term liabilities, not
long-term assets. The bond issuance would be placed in financing activities. Cash from investing activities would be $145,000 if the bond issuance is
mistakenly included in investing activities ($75,000 − $30,000 + $100,000). Therefore, this is an incorrect answer.
Rationale
$70,000
Investing activities consist of cash flows for the purchase and sale of long-term assets. The cash sale of land and cash purchase of equipment are
both components of investing activities. However, the bond issuance is not an investing activity since bonds payable are long-term liabilities, not
long-term assets. The bond issuance would be placed in financing activities. Cash from investing activities would be $70,000 if the bond issuance is
mistakenly included in investing activities and the land sale is mistakenly not included ($100,000 − $30,000). Therefore, this is an incorrect answer.
Rationale
$45,000
Investing activities consist of cash flows for the purchase and sale of long-term assets. The cash sale of land and cash purchase of equipment are
both components of investing activities. The net result is a cash inflow of $45,000 from investing activities ($75,000 − $30,000). Therefore, this is the
correct answer.
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,7/9/22, 3:19 PM CMA Exam Review - Part 1 - Assessment Review
Question 2
1.A.1.a
tb.fin.inc.001_1805
LOS: 1.A.1.a
Lesson Reference: Overview of Financial Statements and the Income Statement
Difficulty: medium
Bloom Code: 4
Which aspect of a firm's statement of cash flows most interests potential stockholders?
The firm's investments in new plant assets
Your Answer
Changes in the firm's inventory balance
The firm's gains and losses from selling plant assets
Correct
The firm's ability to pay dividends
Rationale
The firm's investments in new plant assets
Potential shareholders are generally most interested in a firm's ability to increase its stock price and pay dividends. While investment in new plant
assets may give some information about a firm's growth potential, it does not provide the most useful information to potential shareholders
because it does not involve dividends. Therefore, this is an incorrect answer.
Rationale
Changes in the firm's inventory balance
A change in a firm's inventory balance is important information. However, potential shareholders are more interested in cash flow generated.
Additionally, the change in inventory is better seen by looking at the balance sheet. Therefore, this is an incorrect answer.
Rationale
The firm's gains and losses from selling plant assets
Gains and losses from selling plant assets is important information. However, potential shareholders are more interested in cash flow generated.
Therefore, this is an incorrect answer.
Rationale
The firm's ability to pay dividends
Potential shareholders are generally interested in a firm's ability to increase its stock price and pay dividends. The statement of cash flows provides
information about cash generated (that can be used for future dividends) and cash used to pay dividends in the past. Therefore, this is the correct
answer.
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,7/9/22, 3:19 PM CMA Exam Review - Part 1 - Assessment Review
Question 3
1.A.2.w
tb.soc.013_1805
LOS: 1.A.2.w
Lesson Reference: Statement of Changes in Equity and the Balance Sheet
Difficulty: medium
Bloom Code: 4
Candela Company has retained earnings of $500,000, common stock of $400,000, and total common stockholders’ equity of $1,200,000. It has 200,000
shares of $2 par value common stock outstanding, which is currently selling for $5 per share. If Candela Company declares a 2-for-1 stock split on its
common stock, which of the following will occur?
Net income will increase by $1,000,000.
Your Answer
Retained earnings will decrease by $1,000,000.
Total paid-in capital will increase by $1,000,000.
Correct
There will be no effect on total common stockholders’ equity.
Rationale
Net income will increase by $1,000,000.
A stock split increases the number of shares of stock authorized, issued, and outstanding. However, it has no impact on net income. Therefore, this
is an incorrect answer. The $1,000,000 is calculated as 200,000 shares × $5 (price per share).
Rationale
Retained earnings will decrease by $1,000,000.
A stock split increases the number of shares of stock authorized, issued, and outstanding. However, it has no impact on retained earnings.
Therefore, this is an incorrect answer. The $1,000,000 is calculated as 200,000 shares × $5 (price per share).
Rationale
Total paid-in capital will increase by $1,000,000.
A stock split increases the number of shares of stock authorized, issued, and outstanding. However, it has no impact on total paid-in capital.
Therefore, this is an incorrect answer. The $1,000,000 is calculated as 200,000 shares × $5 (price per share).
Rationale
There will be no effect on total common stockholders’ equity.
A stock split increases the number of shares of stock authorized, issued, and outstanding. However, it has no impact on total paid-in capital,
retained earnings, or total common shareholders’ equity. Therefore, this is the correct answer. The $1,000,000 is calculated as 200,000 shares × $5
(price per share).
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, 7/9/22, 3:19 PM CMA Exam Review - Part 1 - Assessment Review
Question 4
1.A.1.c
aq.cf.fsa.001_1802
LOS: 1.A.1.c
Lesson Reference: Statement of Cash Flows and Financial Statement Articulation
Difficulty: easy
Bloom Code: 2
Why is it important for a financial analyst to scrutinize the statement of cash flows’ footnotes?
Correct
Footnotes provide significant information about noncash investing and financing activities, such as the issuing of stock for fixed assets.
Footnotes provide vital information about a company's liquidity position, trend in revenue from different demographic regions, and changes in capital
structure.
Footnotes detail the executive compensation details and shareholders' voting procedures and information.
Footnotes provide significant information about mergers and acquisitions a company is targeting in the current year.
Rationale
Footnotes provide significant information about noncash investing and financing activities, such as the issuing of stock for fixed assets.
This answer is correct. The statement of cash flows requires footnote disclosure of any significant noncash investing and financing activities, such
as the issuing of stock for fixed assets or the conversion of debt to equity.
Rationale
Footnotes provide vital information about a company's liquidity position, trend in revenue from different demographic regions, and
changes in capital structure.
This answer is incorrect. These items would most likely not be included in the notes to the statement of cash flows.
Rationale
Footnotes detail the executive compensation details and shareholders' voting procedures and information.
This answer is incorrect. This information would not be provided in the notes to the statement of cash flows.
Rationale
Footnotes provide significant information about mergers and acquisitions a company is targeting in the current year.
This answer is incorrect. This information would typically not be included in the notes to the statement of cash flows.
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Question 1
1.A.1.g
tb.cf.fsa.028_1805
LOS: 1.A.1.g
Lesson Reference: Statement of Cash Flows and Financial Statement Articulation
Difficulty: medium
Bloom Code: 4
In the Winterbottom Company, land decreased $75,000 because of a cash sale for $75,000, the equipment account increased $30,000 as a result of a cash
purchase, and Bonds Payable increased $100,000 from an issuance for cash at face value. What is the net cash provided by investing activities?
$75,000
$145,000
Your Answer
$70,000
Correct
$45,000
Rationale
$75,000
Investing activities consist of cash flows for the purchase and sale of long-term assets. The cash sale of land and cash purchase of equipment are
both components of investing activities. However, cash flow from investing activities would be $75,000 if the cash used to purchase equipment is
not included. Therefore, this is an incorrect answer.
Rationale
$145,000
Investing activities consist of cash flows for the purchase and sale of long-term assets. The cash sale of land and cash purchase of equipment are
both components of investing activities. However, the bond issuance is not an investing activity since bonds payable are long-term liabilities, not
long-term assets. The bond issuance would be placed in financing activities. Cash from investing activities would be $145,000 if the bond issuance is
mistakenly included in investing activities ($75,000 − $30,000 + $100,000). Therefore, this is an incorrect answer.
Rationale
$70,000
Investing activities consist of cash flows for the purchase and sale of long-term assets. The cash sale of land and cash purchase of equipment are
both components of investing activities. However, the bond issuance is not an investing activity since bonds payable are long-term liabilities, not
long-term assets. The bond issuance would be placed in financing activities. Cash from investing activities would be $70,000 if the bond issuance is
mistakenly included in investing activities and the land sale is mistakenly not included ($100,000 − $30,000). Therefore, this is an incorrect answer.
Rationale
$45,000
Investing activities consist of cash flows for the purchase and sale of long-term assets. The cash sale of land and cash purchase of equipment are
both components of investing activities. The net result is a cash inflow of $45,000 from investing activities ($75,000 − $30,000). Therefore, this is the
correct answer.
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,7/9/22, 3:19 PM CMA Exam Review - Part 1 - Assessment Review
Question 2
1.A.1.a
tb.fin.inc.001_1805
LOS: 1.A.1.a
Lesson Reference: Overview of Financial Statements and the Income Statement
Difficulty: medium
Bloom Code: 4
Which aspect of a firm's statement of cash flows most interests potential stockholders?
The firm's investments in new plant assets
Your Answer
Changes in the firm's inventory balance
The firm's gains and losses from selling plant assets
Correct
The firm's ability to pay dividends
Rationale
The firm's investments in new plant assets
Potential shareholders are generally most interested in a firm's ability to increase its stock price and pay dividends. While investment in new plant
assets may give some information about a firm's growth potential, it does not provide the most useful information to potential shareholders
because it does not involve dividends. Therefore, this is an incorrect answer.
Rationale
Changes in the firm's inventory balance
A change in a firm's inventory balance is important information. However, potential shareholders are more interested in cash flow generated.
Additionally, the change in inventory is better seen by looking at the balance sheet. Therefore, this is an incorrect answer.
Rationale
The firm's gains and losses from selling plant assets
Gains and losses from selling plant assets is important information. However, potential shareholders are more interested in cash flow generated.
Therefore, this is an incorrect answer.
Rationale
The firm's ability to pay dividends
Potential shareholders are generally interested in a firm's ability to increase its stock price and pay dividends. The statement of cash flows provides
information about cash generated (that can be used for future dividends) and cash used to pay dividends in the past. Therefore, this is the correct
answer.
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,7/9/22, 3:19 PM CMA Exam Review - Part 1 - Assessment Review
Question 3
1.A.2.w
tb.soc.013_1805
LOS: 1.A.2.w
Lesson Reference: Statement of Changes in Equity and the Balance Sheet
Difficulty: medium
Bloom Code: 4
Candela Company has retained earnings of $500,000, common stock of $400,000, and total common stockholders’ equity of $1,200,000. It has 200,000
shares of $2 par value common stock outstanding, which is currently selling for $5 per share. If Candela Company declares a 2-for-1 stock split on its
common stock, which of the following will occur?
Net income will increase by $1,000,000.
Your Answer
Retained earnings will decrease by $1,000,000.
Total paid-in capital will increase by $1,000,000.
Correct
There will be no effect on total common stockholders’ equity.
Rationale
Net income will increase by $1,000,000.
A stock split increases the number of shares of stock authorized, issued, and outstanding. However, it has no impact on net income. Therefore, this
is an incorrect answer. The $1,000,000 is calculated as 200,000 shares × $5 (price per share).
Rationale
Retained earnings will decrease by $1,000,000.
A stock split increases the number of shares of stock authorized, issued, and outstanding. However, it has no impact on retained earnings.
Therefore, this is an incorrect answer. The $1,000,000 is calculated as 200,000 shares × $5 (price per share).
Rationale
Total paid-in capital will increase by $1,000,000.
A stock split increases the number of shares of stock authorized, issued, and outstanding. However, it has no impact on total paid-in capital.
Therefore, this is an incorrect answer. The $1,000,000 is calculated as 200,000 shares × $5 (price per share).
Rationale
There will be no effect on total common stockholders’ equity.
A stock split increases the number of shares of stock authorized, issued, and outstanding. However, it has no impact on total paid-in capital,
retained earnings, or total common shareholders’ equity. Therefore, this is the correct answer. The $1,000,000 is calculated as 200,000 shares × $5
(price per share).
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, 7/9/22, 3:19 PM CMA Exam Review - Part 1 - Assessment Review
Question 4
1.A.1.c
aq.cf.fsa.001_1802
LOS: 1.A.1.c
Lesson Reference: Statement of Cash Flows and Financial Statement Articulation
Difficulty: easy
Bloom Code: 2
Why is it important for a financial analyst to scrutinize the statement of cash flows’ footnotes?
Correct
Footnotes provide significant information about noncash investing and financing activities, such as the issuing of stock for fixed assets.
Footnotes provide vital information about a company's liquidity position, trend in revenue from different demographic regions, and changes in capital
structure.
Footnotes detail the executive compensation details and shareholders' voting procedures and information.
Footnotes provide significant information about mergers and acquisitions a company is targeting in the current year.
Rationale
Footnotes provide significant information about noncash investing and financing activities, such as the issuing of stock for fixed assets.
This answer is correct. The statement of cash flows requires footnote disclosure of any significant noncash investing and financing activities, such
as the issuing of stock for fixed assets or the conversion of debt to equity.
Rationale
Footnotes provide vital information about a company's liquidity position, trend in revenue from different demographic regions, and
changes in capital structure.
This answer is incorrect. These items would most likely not be included in the notes to the statement of cash flows.
Rationale
Footnotes detail the executive compensation details and shareholders' voting procedures and information.
This answer is incorrect. This information would not be provided in the notes to the statement of cash flows.
Rationale
Footnotes provide significant information about mergers and acquisitions a company is targeting in the current year.
This answer is incorrect. This information would typically not be included in the notes to the statement of cash flows.
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