7/19/22, 3:20 PM CMA Exam Review - Part 1 - Assessment Review
Question 1
1.A.2.n
tb.lta.009_0720
LOS: 1.A.2.n
Lesson Reference: Long-term Assets
Difficulty: hard
Bloom Code: 4
Once a recoverability test has been performed, how is loss of impairment calculated differently if the asset has a resale value vs. if it does not have a
resale value?
The loss of impairment for the asset with a resale value would be calculated based on the difference between the book value and the present value of
the future cash flows; the loss of impairment for the asset without a resale value would be calculated based on the difference between the book value
and the undiscounted value of the future cash flows.
Your Answer
The loss of impairment for the asset with a resale value would be calculated based on the difference between the book value and the resale value; the
loss of impairment for the asset without a resale value would be calculated based on the difference between the book value and the undiscounted
value of the future cash flows.
The loss of impairment for the asset with a resale value would be calculated based on the difference between the book value and the undiscounted
value of the future cash flows; the loss of impairment for the asset without a resale value would be calculated based on the difference between the
book value and the present value of the future cash flows.
Correct
The loss of impairment for the asset with a resale value would be calculated based on the difference between the book value and the resale value; the
loss of impairment for the asset without a resale value would be calculated based on the difference between the book value and the present value of
the future cash flows.
Rationale
The loss of impairment for the asset with a resale value would be calculated based on the difference between the book value and the
present value of the future cash flows; the loss of impairment for the asset without a resale value would be calculated based on the
difference between the book value and the undiscounted value of the future cash flows.
Resale value is considered to be a relatively objective measure of an asset's fair value. If an impaired asset has a resale value, then it should be used
to calculate the impairment loss. Using discounted future cash flows is less objective then using the resale value to estimate fair value. It should
only be used when no other alternative exists. The loss is based on the difference between the resale value and its book (carrying) value. If there is
no resale value, then the company must estimate fair value. The best way to estimate it (absent resale value) is to take the present value of
expected future cash flows from the asset. Using undiscounted cash flows overestimates the fair value since the time value of money is not taken
into consideration. The present value of expected future cash flows is compared to book value when determining the impairment loss. Therefore,
this is an incorrect answer.
Rationale
The loss of impairment for the asset with a resale value would be calculated based on the difference between the book value and the
resale value; the loss of impairment for the asset without a resale value would be calculated based on the difference between the book
value and the undiscounted value of the future cash flows.
Resale value is considered to be a relatively objective measure of an asset's fair value. If an impaired asset has a resale value, then it should be used
to calculate the impairment loss. The loss is based on the difference between the resale value and its book (carrying) value. If there is no resale
value, then the company must estimate fair value. The best way to estimate it (absent resale value) is to take the present value of expected future
cash flows from the asset. Using undiscounted cash flows overestimates the fair value since the time value of money is not taken into
consideration. The present value of expected future cash flows is compared to book value when determining the impairment loss. Therefore, this is
an incorrect answer.
Rationale
The loss of impairment for the asset with a resale value would be calculated based on the difference between the book value and the
undiscounted value of the future cash flows; the loss of impairment for the asset without a resale value would be calculated based on the
difference between the book value and the present value of the future cash flows.
Resale value is considered to be a relatively objective measure of an asset's fair value. If there is no resale value, then the company must estimate
fair value. The best way to estimate it (absent resale value) is to take the present value of expected future cash flows from the asset. This value is
compared to book value when determining the impairment loss. If an impaired asset has a resale value, then it should be used to calculate the
impairment loss. Using undiscounted cash flows overestimates the fair value since the time value of money is not taken into consideration. The loss
is based on the difference between the resale value and its book (carrying) value. Therefore, this is an incorrect answer.
Rationale
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,7/19/22, 3:20 PM CMA Exam Review - Part 1 - Assessment Review
The loss of impairment for the asset with a resale value would be calculated based on the difference between the book value and the
resale value; the loss of impairment for the asset without a resale value would be calculated based on the difference between the book
value and the present value of the future cash flows.
Resale value is considered to be a relatively objective measure of an asset's fair value. If an impaired asset has a resale value, then it should be used
to calculate the impairment loss. The loss is based on the difference between the resale value and its book (carrying) value. If there is no resale
value, then the company must estimate fair value. The best way to estimate it (absent resale value) is to take the present value of expected future
cash flows from the asset. This value is compared to book value when determining the impairment loss. Therefore, this is the correct answer.
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,7/19/22, 3:20 PM CMA Exam Review - Part 1 - Assessment Review
Question 2
1.A.2.l
MQ2926
LOS: 1.A.2.l
Lesson Reference: Long-term Assets
Difficulty: medium
Bloom Code: 4
In January Year 1 Colonial Company purchased equipment for $120,000, to be used in its manufacturing operations. The equipment was estimated to
have a useful life of 8 years, with salvage value estimated at $12,000. Colonial considered various methods of depreciation and selected the sum-of-the-
years' digits method. On December 31, Year 2, the related allowance for accumulated depreciation should have a balance:
$20,000 greater than under the straight-line method.
$2,500 less than under the double-declining balance method.
Correct
$18,000 greater than under the straight-line method.
$2,250 less than under the double-declining balance method.
Rationale
$20,000 greater than under the straight-line method.
This answer is incorrect. The calculation for this answer failed to take salvage value into consideration for both sum of the years' digits and straight-
line method.
Rationale
$2,500 less than under the double-declining balance method.
This answer is incorrect. The calculation for this answer failed to take salvage value into consideration for sum of the year's digits.
Rationale
$18,000 greater than under the straight-line method.
SYD depreciation = (# of years remaining sum of the year's digits) × (cost − salvage value)
Year 1: (8 ÷ 36) × ($120,000 − $12,000) = $24,000
Year 2: (7 ÷ 36) × ($120,000 − $12,000) = $21,000
SYD accumulated depreciation: $45,000
Straight-line depreciation = (cost − salvage value) ÷ useful life
Straight-line: ($120,000 − $12,000) ÷ 8 = $13,500 depreciation per year
Straight-line accumulated depreciation: $27,000
DDB depreciation = (2 ÷ useful life) × book value
Year 1: (2 ÷ 8) × $120,000 = $30,000
Year 2: (2 ÷ 8) × ($120,000 − $30,000) = $22,500
DDB accumulated depreciation: $52,500
Difference between SYD and straight-line: $45,000 − $27,000 = $18,000
Difference between SYD and DDB: $45,000 − $52,500 = −$7,500
Rationale
$2,250 less than under the double-declining balance method.
This answer is incorrect. The calculation for this answer took salvage value into account for double declining, which is incorrect.
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, 7/19/22, 3:20 PM CMA Exam Review - Part 1 - Assessment Review
Question 3
1.A.2.k
aq.inv.oe.004_1802
LOS: 1.A.2.k
Lesson Reference: Accounting for Investments in Other Entities
Difficulty: medium
Bloom Code: 3
Calvin Software has invested in the equity stock of BioTech Corp. Its holdings consisted of 35% of the voting stock. The CFO suggests acquiring more
stock of BioTech Corp. Based on the information, which of the following is most likely true?
Correct
Additional acquisitions beyond 15% will require Calvin Software to issue consolidated financial statements.
Your Answer
Calvin's total value will decrease as incidental costs of acquisition must be subtracted when holdings exceed 35%.
The circumstances leading to the decision to acquire additional shares shall be disclosed in the notes to the financial statements.
Any new acquisition of shares up to an additional 20% should be classified as trading.
Rationale
Additional acquisitions beyond 15% will require Calvin Software to issue consolidated financial statements.
This answer is correct. When an investor acquires an interest in the investee, the acquired percentage of voting stock determines the method of
accounting. If the holdings are greater than 50%, the investor company needs to issue consolidated financial statements.
Rationale
Calvin's total value will decrease as incidental costs of acquisition must be subtracted when holdings exceed 35%.
This answer is incorrect. Acquisition costs are typically expensed, and have nothing to do with a 35% threshold.
Rationale
The circumstances leading to the decision to acquire additional shares shall be disclosed in the notes to the financial statements.
This answer is incorrect. The circumstances leading to the decision to acquire additional shares are not required to be disclosed.
Rationale
Any new acquisition of shares up to an additional 20% should be classified as trading.
This answer is incorrect. The classification of the stock should be based on the entire ownership when determining the level of influence or control,
which in turn dictates the appropriate accounting for the investment.
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Question 1
1.A.2.n
tb.lta.009_0720
LOS: 1.A.2.n
Lesson Reference: Long-term Assets
Difficulty: hard
Bloom Code: 4
Once a recoverability test has been performed, how is loss of impairment calculated differently if the asset has a resale value vs. if it does not have a
resale value?
The loss of impairment for the asset with a resale value would be calculated based on the difference between the book value and the present value of
the future cash flows; the loss of impairment for the asset without a resale value would be calculated based on the difference between the book value
and the undiscounted value of the future cash flows.
Your Answer
The loss of impairment for the asset with a resale value would be calculated based on the difference between the book value and the resale value; the
loss of impairment for the asset without a resale value would be calculated based on the difference between the book value and the undiscounted
value of the future cash flows.
The loss of impairment for the asset with a resale value would be calculated based on the difference between the book value and the undiscounted
value of the future cash flows; the loss of impairment for the asset without a resale value would be calculated based on the difference between the
book value and the present value of the future cash flows.
Correct
The loss of impairment for the asset with a resale value would be calculated based on the difference between the book value and the resale value; the
loss of impairment for the asset without a resale value would be calculated based on the difference between the book value and the present value of
the future cash flows.
Rationale
The loss of impairment for the asset with a resale value would be calculated based on the difference between the book value and the
present value of the future cash flows; the loss of impairment for the asset without a resale value would be calculated based on the
difference between the book value and the undiscounted value of the future cash flows.
Resale value is considered to be a relatively objective measure of an asset's fair value. If an impaired asset has a resale value, then it should be used
to calculate the impairment loss. Using discounted future cash flows is less objective then using the resale value to estimate fair value. It should
only be used when no other alternative exists. The loss is based on the difference between the resale value and its book (carrying) value. If there is
no resale value, then the company must estimate fair value. The best way to estimate it (absent resale value) is to take the present value of
expected future cash flows from the asset. Using undiscounted cash flows overestimates the fair value since the time value of money is not taken
into consideration. The present value of expected future cash flows is compared to book value when determining the impairment loss. Therefore,
this is an incorrect answer.
Rationale
The loss of impairment for the asset with a resale value would be calculated based on the difference between the book value and the
resale value; the loss of impairment for the asset without a resale value would be calculated based on the difference between the book
value and the undiscounted value of the future cash flows.
Resale value is considered to be a relatively objective measure of an asset's fair value. If an impaired asset has a resale value, then it should be used
to calculate the impairment loss. The loss is based on the difference between the resale value and its book (carrying) value. If there is no resale
value, then the company must estimate fair value. The best way to estimate it (absent resale value) is to take the present value of expected future
cash flows from the asset. Using undiscounted cash flows overestimates the fair value since the time value of money is not taken into
consideration. The present value of expected future cash flows is compared to book value when determining the impairment loss. Therefore, this is
an incorrect answer.
Rationale
The loss of impairment for the asset with a resale value would be calculated based on the difference between the book value and the
undiscounted value of the future cash flows; the loss of impairment for the asset without a resale value would be calculated based on the
difference between the book value and the present value of the future cash flows.
Resale value is considered to be a relatively objective measure of an asset's fair value. If there is no resale value, then the company must estimate
fair value. The best way to estimate it (absent resale value) is to take the present value of expected future cash flows from the asset. This value is
compared to book value when determining the impairment loss. If an impaired asset has a resale value, then it should be used to calculate the
impairment loss. Using undiscounted cash flows overestimates the fair value since the time value of money is not taken into consideration. The loss
is based on the difference between the resale value and its book (carrying) value. Therefore, this is an incorrect answer.
Rationale
https://app.efficientlearning.com/pv5/v8/5/app/cma/part1_2020.html?#assessmentReview 1/57
,7/19/22, 3:20 PM CMA Exam Review - Part 1 - Assessment Review
The loss of impairment for the asset with a resale value would be calculated based on the difference between the book value and the
resale value; the loss of impairment for the asset without a resale value would be calculated based on the difference between the book
value and the present value of the future cash flows.
Resale value is considered to be a relatively objective measure of an asset's fair value. If an impaired asset has a resale value, then it should be used
to calculate the impairment loss. The loss is based on the difference between the resale value and its book (carrying) value. If there is no resale
value, then the company must estimate fair value. The best way to estimate it (absent resale value) is to take the present value of expected future
cash flows from the asset. This value is compared to book value when determining the impairment loss. Therefore, this is the correct answer.
https://app.efficientlearning.com/pv5/v8/5/app/cma/part1_2020.html?#assessmentReview 2/57
,7/19/22, 3:20 PM CMA Exam Review - Part 1 - Assessment Review
Question 2
1.A.2.l
MQ2926
LOS: 1.A.2.l
Lesson Reference: Long-term Assets
Difficulty: medium
Bloom Code: 4
In January Year 1 Colonial Company purchased equipment for $120,000, to be used in its manufacturing operations. The equipment was estimated to
have a useful life of 8 years, with salvage value estimated at $12,000. Colonial considered various methods of depreciation and selected the sum-of-the-
years' digits method. On December 31, Year 2, the related allowance for accumulated depreciation should have a balance:
$20,000 greater than under the straight-line method.
$2,500 less than under the double-declining balance method.
Correct
$18,000 greater than under the straight-line method.
$2,250 less than under the double-declining balance method.
Rationale
$20,000 greater than under the straight-line method.
This answer is incorrect. The calculation for this answer failed to take salvage value into consideration for both sum of the years' digits and straight-
line method.
Rationale
$2,500 less than under the double-declining balance method.
This answer is incorrect. The calculation for this answer failed to take salvage value into consideration for sum of the year's digits.
Rationale
$18,000 greater than under the straight-line method.
SYD depreciation = (# of years remaining sum of the year's digits) × (cost − salvage value)
Year 1: (8 ÷ 36) × ($120,000 − $12,000) = $24,000
Year 2: (7 ÷ 36) × ($120,000 − $12,000) = $21,000
SYD accumulated depreciation: $45,000
Straight-line depreciation = (cost − salvage value) ÷ useful life
Straight-line: ($120,000 − $12,000) ÷ 8 = $13,500 depreciation per year
Straight-line accumulated depreciation: $27,000
DDB depreciation = (2 ÷ useful life) × book value
Year 1: (2 ÷ 8) × $120,000 = $30,000
Year 2: (2 ÷ 8) × ($120,000 − $30,000) = $22,500
DDB accumulated depreciation: $52,500
Difference between SYD and straight-line: $45,000 − $27,000 = $18,000
Difference between SYD and DDB: $45,000 − $52,500 = −$7,500
Rationale
$2,250 less than under the double-declining balance method.
This answer is incorrect. The calculation for this answer took salvage value into account for double declining, which is incorrect.
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, 7/19/22, 3:20 PM CMA Exam Review - Part 1 - Assessment Review
Question 3
1.A.2.k
aq.inv.oe.004_1802
LOS: 1.A.2.k
Lesson Reference: Accounting for Investments in Other Entities
Difficulty: medium
Bloom Code: 3
Calvin Software has invested in the equity stock of BioTech Corp. Its holdings consisted of 35% of the voting stock. The CFO suggests acquiring more
stock of BioTech Corp. Based on the information, which of the following is most likely true?
Correct
Additional acquisitions beyond 15% will require Calvin Software to issue consolidated financial statements.
Your Answer
Calvin's total value will decrease as incidental costs of acquisition must be subtracted when holdings exceed 35%.
The circumstances leading to the decision to acquire additional shares shall be disclosed in the notes to the financial statements.
Any new acquisition of shares up to an additional 20% should be classified as trading.
Rationale
Additional acquisitions beyond 15% will require Calvin Software to issue consolidated financial statements.
This answer is correct. When an investor acquires an interest in the investee, the acquired percentage of voting stock determines the method of
accounting. If the holdings are greater than 50%, the investor company needs to issue consolidated financial statements.
Rationale
Calvin's total value will decrease as incidental costs of acquisition must be subtracted when holdings exceed 35%.
This answer is incorrect. Acquisition costs are typically expensed, and have nothing to do with a 35% threshold.
Rationale
The circumstances leading to the decision to acquire additional shares shall be disclosed in the notes to the financial statements.
This answer is incorrect. The circumstances leading to the decision to acquire additional shares are not required to be disclosed.
Rationale
Any new acquisition of shares up to an additional 20% should be classified as trading.
This answer is incorrect. The classification of the stock should be based on the entire ownership when determining the level of influence or control,
which in turn dictates the appropriate accounting for the investment.
https://app.efficientlearning.com/pv5/v8/5/app/cma/part1_2020.html?#assessmentReview 4/57
