2011 Sample Entrance Examination

Transcription

2011 Sample
Entrance Examination
Revised August 1, 2011
(Time Allowed: 4 hours)
Notes:
i)
All answers must be indicated on the scannable multiple-choice answer sheet.
Work done on the question paper and examination foolscap will NOT be marked.
ii)
Included in the examination envelope is a supplement consisting of formulae and
tables. It is a standard supplement that may be useful for answering questions on
this paper.
iii)
Examination materials must NOT BE REMOVED from the examination
writing centre. All examination materials (i.e. answer sheet, used and unused
foolscap sheets, envelope, supplement and question paper) must be submitted
to the presiding officer before you leave the examination room.
© 2011 The Society of Management Accountants of Canada. All rights reserved.
®/™ Registered Trade-Marks/Trade-Marks are owned by The Society of Management Accountants of Canada.
No part of this document may be reproduced in any form without the permission of the copyright holder.
2011 Sample Entrance Exam
TABLE OF CONTENTS
Examination:
Instructions ......................................................................................... 1
Questions ............................................................................................ 3
Solution:
Summary .......................................................................................... 36
Solutions ........................................................................................... 37
Supplement of Formulae and Tables ..................................................... 67
* This supplement is provided to all candidates with the examination.
© 2011 The Society of Management Accountants of Canada. All rights reserved.
®/™ Registered Trade-Marks/Trade-Marks are owned by The Society of Management Accountants of Canada.
No part of this document may be reproduced in any form without the permission of the copyright holder.
INSTRUCTIONS:
Use the multiple-choice answer sheet provided to record your answers to the questions.
Be sure to enter your four-digit envelope number on the multiple-choice answer sheet.
Select the BEST answer for each of the following 101 questions and record your
answer on the multiple-choice answer sheet by blackening the appropriate answer
space (i.e. oval) with a soft lead (HB) pencil. Answer all questions. Mark ONLY ONE
ANSWER for each question.
Sample Question:
189.
(-) Market research and public relations costs are
a)
b)
c)
d)
engineered variable costs.
discretionary variable costs.
committed fixed costs.
discretionary fixed costs.
Assuming you select choice d) for your answer, you should blacken the “d” space on
line 189 in the “ANSWERS” area of the multiple-choice answer sheet as shown below:
189
a
b
c
d
Question Weighting
Your performance will be based on the total weighted value of the questions answered
correctly. Note that all questions are assigned the same weight, except for those
specified with a plus (+) sign (i.e. has a higher weight) or minus (-) sign (i.e. has a lower
weight). In the above example, there is a minus (-) sign at the beginning of the question,
signifying that the question has a lower weighted value than the average question.
Singular Versus Plural Phrasing
For simplicity of wording, all questions are phrased as though there is a single correct
answer, even when there are multiple correct answers. For example, the correct answer
to a question that is worded, “Which of the following is...,” may be the choice that refers
to two or more of the other choices, e.g. “Both a) and b) above.”
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Page 1
Calculator Policy and Supplement
The following models of calculators are authorized for use on the Entrance Examination:
Texas Instruments
Hewlett Packard
Sharp
TI BA II Plus (including the Professional model)
HP 10bII (or HP 10Bii)
EL-738C (EL-738)
The supplement accompanying the Entrance Examination contains present value
tables.
Page 2
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Strategic Management
1.
If economies of scale are an industry’s primary entry barrier, a new entrant’s major risk
is its inability to:
a)
b)
c)
d)
2.
Conducting an analysis of a company’s financial ratios is beneficial because it:
a)
b)
c)
d)
3.
forward integration strategy.
diversification strategy.
horizontal integration strategy.
backward integration strategy.
JB Ltd. is a mid-sized company that produces light bulbs which are distributed in
Canada. Which of the following sources of differentiation would be most desirable for
JB Ltd. to preserve a long-term competitive advantage?
a)
b)
c)
d)
6.
there are many substitutes for the item supplied.
there are many buyers in the market.
the number of suppliers decreases.
buyers cannot integrate backward along the value chain.
A company that currently competes in a single industry is seeking to reduce its
dependency on that industry by expanding into other industries. This company is
using a:
a)
b)
c)
d)
5.
is a central component of value-chain analysis.
identifies external opportunities for the company to pursue.
uncovers critical industry trends.
provides insights into a company’s financial position.
The bargaining power of suppliers decreases when:
a)
b)
c)
d)
4.
get buyers to switch to its products.
access superior sources of raw materials for its products.
match the pace of innovation of its established rivals.
produce in sufficient volume to match the cost advantages of established industry
competitors.
Reducing its price point below the competition.
Expanding its distribution to Europe.
Providing superior customer service to its retailers.
Updating its packaging to stand out from the market.
(-) The levelling and initial decrease in sales growth of a product takes place in which
stage of the product life cycle?
a)
b)
c)
d)
The decline stage.
The maturity stage.
The growth stage.
The product development stage.
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Page 3
7.
Speed of product development in uncertain, competitive environments characterizes
today’s competitive landscape. Which of the following organizational structures best
helps a company accelerate the product development process in order to address
rapid technological change?
a)
b)
c)
d)
8.
WH Retail has come to an agreement with one of its suppliers, UT Ltd. to open a new,
independent retail operation called WHUT Stores which would sell only UT products.
Both companies have invested equal amounts of start-up capital, and both companies
share revenues, costs and control of this new store. This is best described as:
a)
b)
c)
d)
9.
Multidivisional
Matrix
Functional
Geographic
an organic growth strategy.
a joint venture.
a strategic alliance.
an acquisition by WH Retail.
When conducting a SWOT analysis, which of the following is NOT an example of an
external threat?
a)
b)
c)
d)
Increasing intensity of competition in the industry.
Reduction in the number of suppliers.
Diminishing production process when compared to competitors.
Decreasing consumer confidence in the economy.
Risk Management and Governance
10.
When considering the effectiveness of a system of internal control, it should be
recognized that inherent limitations do exist. Which of the following is an example of
an inherent limitation in a system of internal control?
a) The effectiveness of procedures depends on the segregation of employee duties.
b) Procedures are designed to assure the execution and recording of transactions in
accordance with management’s authorization.
c) In the performance of most control procedures, there are possibilities of errors
arising from mistakes in judgement.
d) Procedures for handling large numbers of transactions are processed by electronic
data processing equipment.
11.
(-) The primary responsibility for preventing fraud in an organization lies with:
a)
b)
c)
d)
Page 4
management.
the internal auditor.
security personnel.
the audit committee of the board of directors.
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12.
Internal control consists of the overall plan of organization and the procedures that are
mainly concerned with:
a)
b)
c)
d)
13.
The audit committee of a public company helps facilitate good corporate governance
by:
a)
b)
c)
d)
14.
safeguarding the assets and providing reliable financial records.
promoting organizational efficiency and policy adherence.
optimizing the use of resources.
all of the above.
being comprised of management and staff.
evaluating the risk for fraud.
allowing management to select and hire the external auditor.
managing all financial processes of the company.
The returns of various companies over a 5-year period are as follows:
Year
6
7
8
9
10
Company M
(1%)
1%
3%
8%
10%
Company N
(2%)
(10%)
(6%)
4%
8%
Company O
6%
7%
5%
1%
8%
Company P
10%
(6%)
(5%)
6%
(1%)
Based only on this historical information, which of the following statements is most
correct?
a)
b)
c)
d)
15.
Company M has the least amount of risk.
Company N has the greatest amount of risk.
Company O has the least amount of risk.
Both b) and c) above.
The responsibility of a Board of Directors at a publicly-traded company does NOT
include:
a)
b)
c)
d)
providing expert advice to management.
representing the shareholders’ best interests.
participating in operations management.
overseeing strategic management.
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Page 5
16.
The external auditor uses the audit risk model in determining the nature, timing and
extent of audit procedures. The audit risk model:
a) indicates that audit risk is only a function of inherent risk.
b) defines audit risk as a threshold the auditor is willing to accept that the financial
statements may be materially misstated at the start of the audit engagement.
c) indicates the extent to which audit procedures would decline when the auditor
detects an improvement in internal controls.
d) suggests that inherent risk can only be assessed after extensive testing of
transactions.
17.
PDM Ltd. is a rapidly-growing chain of drug stores in Manitoba. PDM has 11 stores in
5 cities and plans to open 8 new stores in the next 2 years. The Vice-President of
Information Technology reported to the CEO that the present information system is not
adequate to handle the planned growth next year. At the present time, PDM uses
software that is specifically designed for retail drug stores.
To achieve successful development of the new information system, management
should respond to the situation by:
a) issuing requests for proposals from at least three software vendors.
b) assigning the internal auditor to lead the project because she will ensure adequate
controls are included in the new system.
c) selecting a steering committee from the top levels of management, including
senior management from each of the user groups.
d) adding more hardware to increase system capacity.
18.
Which of the following is LEAST LIKELY to be detected by an internal control
system?
a)
b)
c)
d)
19.
Which of the following is NOT a component of internal control?
a)
b)
c)
d)
Page 6
Fraudulent actions by a group of employees
Duplicate payments to suppliers
Deviations from written procedures
Unauthorized disbursements
The control environment
Information and communication
Risk assessment
Process appraisal
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Performance Management
20.
(-) Which of the following best describes the function of an enterprise resource
planning (ERP) system?
a) Integrate the information systems of all functional areas of the organization.
b) Manage the flows of products, services and information among organizations.
c) Provide access to data and analysis tools for making complex, non-routine
decisions.
d) Present structured, summarized information about aspects of business important
to executives.
21.
RSA Inc. manufactures a single product using an activity-based costing system. The
distribution of resources used in Year 2 across the cost pools are as follows:
Manufacturing overhead
Selling and administration
Total activity
Order size
80%
10%
500,000 units
Order
Processing
10%
60%
500 orders
Customer
Support
10%
30%
60 customers
The company has the following indirect costs for Year 2:
Selling and administration
Total indirect costs
$600,000
285,000
$885,000
A customer placed 15 orders in Year 2. How much overhead would have been
charged to this customer during Year 2 for order processing?
a)
b)
c)
d)
22.
$462
$6,930
$26,550
$1,800
(-) In preparing the budget for the upcoming year, a manufacturer of consumer
products has budgeted $100,000 for advertising a particular product. This cost would
be classified as:
a)
b)
c)
d)
a direct product cost.
a discretionary period cost.
a sunk fixed cost.
an indirect conversion cost.
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Page 7
The following information pertains to questions 23 to 24.
Acme Beds Inc. produces two models of beds: Regular and Majestic. Budget and actual data
are as follows:
Selling price per unit
Sales volume in units
Variable costs per unit
Sales revenue
Variable costs
Contribution margin
Fixed costs
Operating income
Budget
Regular
Majestic
$300
$800
4,500
5,500
$220
$590
Master Budget
$5,750,000
4,235,000
1,515,000
882,500
$ 632,500
Market Data:
Expected total market sale of beds
Actual total market sales of beds
23.
Actual
Regular
Majestic
$325
$700
7,200
4,800
$238
$583
Actual
$5,700,000
4,512,000
1,188,000
919,500
$ 268,500
500,000 beds
666,667 beds
The sales price variance is:
a) $437,500 unfavourable.
b) $300,000 unfavourable.
c) $50,000 unfavourable.
d) $660,000 unfavourable.
24.
(+) The industry volume (market size) variance is (to the nearest hundred dollars):
a)
b)
c)
d)
Page 8
$202,000 unfavourable.
$505,000 favourable.
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The following information pertains to questions 25 and 26.
MC Ltd. manufactures two widgets, Standard and Supreme. Direct material is the only variable
manufacturing cost because the production process is fully automated. The only variable selling
cost is a 5% commission on the selling price.
All other manufacturing, selling, general and administrative costs are fixed and the production
capacity is limited to 235,000 machine hours. Budgeted information for Year 12:
Budgeted sales (units)
Regular selling price
Direct materials
Machine time per unit
Standard
100,000
$300
$100
1 hour
Supreme
90,000
$450
$160
1.4 hours
Manufacturing costs, other than direct materials, budgeted for Year 12 are $1,590,000 and are
allocated to Standard and Supreme based on units. Selling, general and administrative costs,
other than commission, budgeted for Year 12 are $3,895,000 and are allocated to Standard and
Supreme based on sales revenue.
25.
Buyer Ltd. has approached MC Ltd. and would like to purchase 10,000 customized
units of the Supreme widget for $440 each. Because of capacity concerns, possible
opportunity costs, and a one-time setup cost of $100,000, the manager of sales is
willing to cut the commission from the regular 5% to 3% on this special order.
The opportunity cost in accepting the special order is:
a)
$955,510.
b)
$925,000.
c) $1,000,000.
d) $1,035,880.
26.
If MC Ltd. accepts the special order, its income will increase by:
a)
b)
c)
d)
$2,568,000.
$1,743,000.
$1,775,000.
$1,643,000.
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Page 9
27.
NNK Manufacturing has two production departments, Cutting and Assembly and three
support departments Custodial, Administration and IT. The company allocates variable
costs on the basis of actual usage. For March, the costs and distribution of usage of
services are as follows:
Variable costs
Custodial (m2)
Administration
(hours)
IT (hours)
Custodial
$70,000
100
10
Admin
$120,000
200
200
IT
$180,000
100
Cutting
$540,000
800
Assembly
$320,000
1,000
200
700
400
600
300
When applying the step-down method, the highest percentage of services provided to
other service departments is the criterion used in setting the sequence for cost
allocation.
For March, the service costs allocated to the Cutting and Assembly departments in the
first step of the step-down method of cost allocation are (rounded to the nearest ten
dollars):
a)
b)
c)
d)
28.
and Assembly: $45,000.
Which of the following describes the core concept of kaizen budgeting?
a)
b)
c)
d)
Page 10
Cutting: $52,500;
Cutting: $79,120;
Cutting: $26,670;
Cutting: $113,020;
Expenditures are budgeted on a program basis.
Budgets are initiated on an incremental basis.
Continuous improvement is built into the budget figures.
Budgets are focused on the costs of the activities needed to produce and market
the organization’s products and services.
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29.
(+) ZZ Co. has two production departments, A and B, and two service departments,
information technology (IT) and maintenance. The service department costs are
allocated to departments based on number of computer hours used for IT and the
department size in square metres for maintenance.
Department
A
B
IT
Maintenance
Computer Hours
2,000
1,500
300
200
Total
4,000
Square Metres
2,200
4,000
400
200
6,800
Direct Costs
$ 925,000
600,000
80,000
30,000
$1,635,000
Assuming ZZ Co. uses the direct allocation method, what is the total cost of
Department A after allocating the service department costs (rounded to the nearest
dollar)?
a) $1,048,167
b)
$981,359
c)
$974,706
d)
$978,243
30.
Given the following information for the manufacturing operations of REW Ltd. what is
the cost of goods manufactured for Year 5?
Direct materials
Work in process
Finished goods
Opening Inventory
January 1, Year 5
$260,000
$95,000
$350,000
Direct materials purchased
Direct labour payroll
Direct labour hours
Factory overhead rate per direct labour hour
a)
b)
c)
d)
Ending Inventory
December 31, Year 5
$235,000
$75,000
$360,000
$350,000
$160,000
6,500
$10.00
$600,000
$555,000
$620,000
$595,000
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Page 11
RG Ltd. is a manufacturer that makes printers, the T5X and T5XLL. Operating data for the
printers for Year 5 is as follows:
Budgeted sales (units)
Expected selling price per unit
Direct materials
Direct labour ($10 per DLH)
Variable overhead ($30 per MCH)
Fixed overhead ($30 per MCH)
Standard cost per unit
T5X
50,000
$80
T5XLL
30,000
$120
T5X
$10
$10
$15
$15
$50
T5XLL
$25
$15
$15
$15
$70
Manufacturing overhead is allocated to the products based on machine hours (MCH), and an
annual practical capacity of 55,000 machine hours is used in setting the fixed overhead rate.
Variable selling and administrative costs are 5% of the selling price and the total fixed selling
and administrative costs budgeted for the year are $900,000.
31.
(+) With the given budgeted sales mix in units, the total break-even sales for Year 5
are:
a)
b)
c)
d)
32.
If there were no flexible budget cost variances, and sales in Year 5 were 48,500 units
of T5X at $80 each and 32,000 units of T5XLL at $110 each, then analysis of the
sales volume variance shows income is higher by:
a)
b)
c)
d)
Page 12
53,403 units.
48,572 units.
77,863 units.
25,500 units.
$61,500.
$56,500.
$99,000.
$62,500.
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33.
A manufacturer had the following budgeted and actual production and overhead data:
Budgeted
Allocation base
Machine hours
Direct labour hours
Department 1
Machine hours
15,000
20,000
$620,000
Actual
Machine hours
Direct labour hours
Department 1
15,900
20,120
$640,500
How much was manufacturing overhead overallocated or underallocated (applied)?
a)
b)
c)
d)
34.
$16,700 overallocated
$16,780 underallocated
$55,594 underallocated
$58,930 overallocated
VT Inc. sells telephones for $50 per unit. Variable costs are $20.00 per unit and fixed
costs are $590,000. How many units of product must be sold to realize a profit of 20%
of sales (rounded up to the nearest 10 units)?
a)
b)
c)
d)
19,970
14,750
59,000
29,500
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Page 13
A manufacturer processes 100,000 kg of direct materials to produce three products: Product
X, Product Y, and Product Z. Products Y and Z can be further processed into specialized
products, Y1 and Z1. There is a loss of 10% in output units between Y1 and Y and a loss of
20% in output units between Z1 and Z. The following information is for Year 4:
Product X
Product Y (Y1)
Product Z (Z1)
Production (kg)
at Split-Off
15,000
45,000
40,000
Selling Price
at Split-Off
$70
$80
$90
Further
Processing Costs
Selling Price of
Final Product
$10/kg produced
$30/kg produced
$120
$140
There were no beginning work-in-process inventories, and all production runs were completed
at the end of Year 4. The total costs incurred in the joint manufacturing process were
$1,000,000.
35.
(+) Which of the following statements is correct?
a) Product Y should be processed further into Product Y1, and Product Z should not
be processed further into Product Z1.
b) Products Y and Z should not be processed further into Products Y1 and Z1.
c) Product Y should not be processed further into Product Y1, and Product Z should
be processed further into Product Z1.
d) Products Y and Z should both be processed further into Products Y1 and Z1.
36.
Using the relative sale value at split-off method, the joint costs allocated to Products X,
Y and Z are (rounding to the nearest dollar):
a) Product X: $291,667;
b) Product X: $127,273;
c) Product X: $101,058;
d) Product X: $150,000;
-------------------------------37.
validity of the assumptions of regression analysis.
irrelevant high-low outliers.
goodness of fit.
significance of regression coefficient.
Which of the following statements best describes a product in the mature stage of the
product life cycle?
a)
b)
c)
d)
Page 14
Product Z: $375,000.
When simple linear regression analysis is applied in estimating cost behaviour, all of
the following are criteria used to evaluate the estimated regression model EXCEPT:
a)
b)
c)
d)
38.
Product Y: $333,333;
Sales and costs are increasing, and profits are declining.
Sales are increasing at a diminishing rate, and competitors are plentiful.
Sales, profits and competition are decreasing.
Sales are increasing, costs are decreasing, and competition is increasing.
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39.
ABC Ltd. produces widgets and expected sales are as follows:
Month
April
May
June
July
Units
5,000
7,500
8,000
6,000
The company generally maintains an ending finished goods inventory volume of 15%
of the next month’s sales volume and it keeps no work-in-process inventory. The
widget sells for $120 and the standard cost of production is $80 per unit.
What will be the budgeted cost of goods manufactured for June?
a)
b)
c)
d)
40.
$616,000
$712,000
$544,000
$640,000
Which one of the following statements about the cost hierarchies of activity-based
costing is correct?
a) Engineering costs incurred to change product designs is a facility-sustaining cost.
b) If the cost of an activity increases with each hour of machine time, it is an inputlevel cost.
c) The cost of resources used each time in setting up the machine for a production
run is a batch-level cost.
d) The compensation for a quality engineer, who is responsible for continuous quality
improvement projects implemented in the plant, is a product-sustaining cost.
41.
The budgeted total fixed and variable costs of the machine insertion activity centre for
XYZ Corp. in Year 8 is $530,000, assuming an activity level of 50,000 parts inserted.
Cost behaviour analysis indicates that the variable cost per part inserted is $2.20 and
that fixed costs remain the same within the relevant range of 48,000 to 52,000 parts
inserted. Activity analysis indicates that the cost driver for the machine insertion
activity is the number of parts inserted.
In preparing a flexible budget for Year 8 at an activity level of 51,000 parts inserted,
what would be the budgeted total costs of the machine insertion activity (rounded to
the nearest hundred dollars)?
a)
b)
c)
d)
$642,200
$540,600
$532,200
$530,000
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Page 15
42.
Identifying the activities that are essential to a process is a component of which of the
following steps of business process reengineering?
a)
b)
c)
d)
43.
Understand the current process.
Identify a process for reengineering.
Create a new process design.
Evaluate enablers for reengineering.
JYD Inc. is introducing a new product next year. Costs pertaining to this product are
budgeted as follows:
Variable manufacturing costs per unit
Variable selling expenses per unit
Variable administration expenses per unit
Fixed manufacturing costs
Fixed selling expenses
Fixed administration expenses
$89.00
$22.50
$10.90
$870,000
$545,000
$275,000
The marketing department estimates the following sales at various selling prices:
Price
$180
$170
$160
$150
Volume
59,000
75,000
90,000
120,000
In order to maximize profits, what price should JYD Inc. set for the new product?
a)
b)
c)
d)
44.
$180
$170
$160
$150
(+) A manufacturer has the following data:
Hours Required per Unit
Department
Assembly
Packaging
Available Annual
Machine Hours
10,000
4,000
Widget A
3
1
Widget B
4
2
Contribution margin per unit for Widget A is $12 and for Widget B is $14. Current
market demand for Widget A is limited to 2,500 units per year. What is the yearly
product mix that maximizes profitability?
a)
b)
c)
d)
Page 16
0 Widget A, 2,000 Widget B
2,000 Widget A, 1,000 Widget B
2,500 Widget A, 625 Widget B
0 Widget A, 2,500 Widget B
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Performance Measurement
45.
Company E is a large manufacturer that treats its divisions as profit centres. Division X
produces an electronic component at the following costs:
Variable production costs
Variable selling costs
Fixed costs (based on 10,000 units)
$80/unit
$10/unit
$10/unit
Division Y currently purchases a similar component from an outside supplier for
$105/unit. It has determined that the component produced by Division X could be used
instead with no adverse effects on the quality of the final product. Currently, Division
X, which is operating at full capacity, sells all of its output to outside customers at
$112/unit per component. Variable selling costs are not incurred on internal sales.
What is the lowest price at which Division X would agree to transfer the component to
Division Y?
a) $112
b) $90
c) $100
d) $102
46.
(+) PPT Ltd. has two divisions operating as profit centres, East and West. East
produces widgets and currently sells only to external customers for $700 per widget.
The variable manufacturing costs and variable selling expenses for each widget is
$450 and $20 respectively. The following is production data for East during a normal
year:
Production and sales capacity
Production and sales volume
20,000 Units
18,000 units
West is planning on manufacturing a new product and will require 5,000 widgets to
produce 5,000 units of a new product. West could meet its requirements by
purchasing widgets from East or an external supplier for $665 per unit. East would not
incur any variable selling expenses on internal sales.
What is the minimum transfer price per unit that East would be willing to accept to
supply West with 5,000 widgets?
a)
b)
c)
d)
$588
$665
$700
$680
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Page 17
47.
Robert Motoz is the manager of Division B of a large manufacturing company.
Division B purchases all of its direct materials from Division A at a negotiated transfer
price. Division B manufactures a product and sells this product on the market. Robert
Motoz makes all production efficiency decisions for the division, including replacing
and upgrading manufacturing equipment. The above represents which of the following
types of responsibility centre?
a)
b)
c)
d)
48.
After an analysis of a company's operations, it was evident that department
performance varied and that every department worked independently to achieve
departmental objectives. The company would like to improve overall product output
which would require improvement from all departments. To achieve this improvement,
the organization should:
a)
b)
c)
d)
49.
introduce an employee stock program.
develop a wage structure.
increase the employee bonus program.
launch a plant-wide incentive plan.
Supersales Inc. is a small but aggressive sales company with a high employee
turnover. It provides lucrative incentives based on achieving individual sales targets
and turning over inventory within its territory. Which human resource policy reinforces
its incentive program?
a)
b)
c)
d)
Page 18
Cost centre
Revenue centre
Profit centre
Investment centre
Promoting based on performance.
Developing a clear policy of ethics.
Ensuring employee career development.
Maintaining consistent employee relations.
CMA Canada
50.
A company has two divisions that are treated as investment centres. Data for each
division are as follows:
Revenue
Net income
Average total investment
East Division
$80,000
$20,000
$180,000
West Division
$260,000
$35,000
$270,000
The company has a target rate of return of 12% for all investments. In evaluating the
performance of these divisions, it can be concluded that:
a) East Division met the target minimum rate of return.
b) West Division performed better because both its return on investment and residual
income are higher.
c) West Division performed better because its return on investment is higher but its
residual income is lower.
d) East Division performed better because both its return on investment and residual
income are higher.
51.
Residual income is a better measure for performance evaluation of an investment
center manager than return on investment because:
a)
b)
c)
d)
52.
the problems associated with measuring the asset base are eliminated.
desirable investment decisions will not be neglected by high-return divisions.
returns do not increase as assets are depreciated.
the arguments over the implicit cost of interest are eliminated.
Which of the following is an example of an ethically questionable action committed by
a management accountant?
a) Near the end of a fiscal year with lower than expected profits, suggesting that an
expensive advertising campaign be delayed until the next fiscal year.
b) Accepting a gift of a box of chocolates from a regular supplier and sharing the
chocolates with all of the company’s employees.
c) At the request of a manager, capitalizing instead of expensing the development
costs of a new product when the probability of its success in the market is low.
d) Reporting to the controller a suspicion that a line manager is providing incorrect
production data in an effort to increase his year-end bonus.
53.
Job enrichment provides more motivation than job enlargement because the
employees:
a)
b)
c)
d)
are assigned more tasks than before.
have more control over planning their work.
have more responsibility for scheduling.
both b) and c) above.
CMA Canada
Page 19
54.
A corporation declares a dividend in kind to its sole shareholder. The asset used for
this dividend has the following information:
Historical cost
Book value
Fair value
$150,000
$85,000
$95,000
The tax effect of this dividend for the corporation is equivalent to the corporation
disposing of the asset at:
a) $150,000.
b) $85,000.
c) $95,000.
d) $10,000.
55.
The organizational performance measurement tool, Six-Sigma, can be best described
as a system that:
a)
b)
c)
d)
56.
applies only to reducing manufacturing defects.
uses facts and data to drive better customer-focused improvements.
translates the company strategy into four balanced measurement perspectives.
is focused on several categories including leadership, strategic planning and
results.
To achieve the desired business outcomes, a company’s reward system would be
most effective if it:
a) not only links incentives to factors that are spelled out in the strategic plan, but
also to factors that go beyond the strategic plan.
b) includes both monetary and nonmonetary rewards linked to both individual and
corporate performance.
c) bases incentives and rewards of all employees on achieving departmental annual
objectives.
d) Both a) and b) above.
Page 20
CMA Canada
57.
(+) LOP Ltd. has the following results for two of its divisions.
Revenues
Operating income
Average operating assets
Target rate of return
Winnipeg Division
$2,100,000
$540,000
$2,340,000
14%
Regina Division
$3,480,000
$720,000
$2,874,000
17%
After analyzing these results, you conclude that:
a) the Regina Division outperformed the Winnipeg Division because it generated a
better return on investment and residual income.
b) the Regina Division outperformed the Winnipeg Division because it has a higher
target profit margin.
c) the Winnipeg Division outperformed the Regina Division because it generated a
better residual income.
d) the divisions performed equally.
Financial Management
58.
(+) A bond was issued on June 1, Year 1, and it matures on June 1, Year 20. The
present date is June 1, Year 8, and the June 1, Year 8, coupon payment has just been
paid. The bond has a face value of $50,000, a coupon rate of 6% compounded semiannually, and a current yield of 8% compounded semi-annually. Ignoring taxes, what
is the current dollar price of the bond (to the nearest hundred dollars)?
a)
b)
c)
d)
59.
$40,200
$58,500
$61,500
$42,400
Actual and projected sales of a company for May and June are as follows:
May (actual)
June (projected)
Cash Sales
$185,000
$225,000
Credit Sales
$270,000
$290,000
All credit sales are collected in the month following the month in which the sale is
made. The cash balance as at May 31 is $50,000. Cash disbursements for operating
expenses in June are projected to be $350,000. The company plans to declare a
$50,000 cash dividend on June 30 but will not pay it until 30 days later. A $160,000
down payment on a piece of equipment will be made in June. To ensure a $60,000
cash balance on June 30, what amount should the company plan to borrow in June?
a) $250,000
b) $75,000
c) $25,000
d) $185,000
CMA Canada
Page 21
60.
West Coast Customs is evaluating the option of purchasing a new computer system
for $250,000. Given the system’s unique features, it is expected that sales will
increase by $212,500 annually, while the system is in use. The contribution margin on
the sales is 40%.
The new system should provide the company benefits over the next seven years, at
which point it will be scrapped. The capital cost allowance rate for the machine is
35%.The company’s tax rate if 40% and its cost of capital is 12%.
Assuming that the computer equipment is to be purchased at the beginning of the first
year and the cost savings are at the end of each year, which of the following
represents the net present value (NPV) of the new machine?
a) ($17,440)
b) $53,039
c) $177,479
d) $208,079
61.
(+) The sole shareholder of HTZ Ltd. is selling her business. Income before taxes for
the fiscal year ended December 31, Year 9, was $240,000, a level that is expected to
be maintainable into the foreseeable future.
Currently, the shareholder’s son is employed by HTZ Ltd. and is earning $80,000 per
year. The son’s services can be replaced by hiring a new employee for $45,000 per
year. Upon a sale, the son will no longer be involved in the business. HTZ Ltd. also
incurs $10,000 per year in administrative costs that are considered to be personal in
nature.
HTZ Ltd.’s tax rate is 40% and the appropriate earnings multiple is 10. Based on a
capitalized earnings approach to business valuation, what is the value of the HTZ
Ltd.’s shares?
a)
b)
c)
d)
Page 22
$1,500,000
$1,710,000
$1,650,000
$2,850,000
CMA Canada
62.
(+) BXN Inc. has the following capital structure:
Current liabilities
Long-term debt
Preferred shares
Common equity
$250,000
$500,000
$300,000
$600,000
The long-term debt consists of a single bond issue paying 8% interest annually. These
bonds currently yield 6% in the market. The current cost of the preferred shares is 7%.
The market value of the common shares is $25 per share. A dividend of $2 per
common share was recently paid. Common dividends are expected to grow at a rate
of 3% per year. The company’s tax rate is 40%. What is BXN Inc.’s weighted average
cost of capital (rounded to the nearest tenth of a percent)?
a)
b)
c)
d)
63.
During Year 4, a company sold its last piece of equipment. Prior to the sale of the
equipment, the UCC balance in its equipment class account was $100,000. The
equipment cost $140,000 and sold for $110,000. Direct selling fees were $5,000.
What is the recapture income from the sale of the equipment?
a)
b)
c)
d)
64.
7.0%
8.5%
7.6%
8.0%
$40,000
$10,000
$45,000
$ 5,000
Which of the following is NOT a significant consideration in determining a desirable
dividend policy for a firm?
a) The firm’s reinvestment opportunities for retained earnings as compared with the
reinvestment opportunities for the shareholders of the firm.
b) The shareholder’s desire for current income.
c) The firm’s ability to repurchase shares in the open market.
d) The firm’s cash position, both current and projected.
65.
An investor purchased $60,000 worth of 10-year, 6% bonds on December 31,
Year 10, for $56,000. The interest payment dates are June 30 and December 31 each
year. On January 1, Year 14, the investor decided to sell his bonds. The annual yield
for similar bonds in the marketplace is 8%. How much money will the investor receive
for his bonds (rounded to the nearest ten dollars)?
a)
b)
c)
d)
$51,330
$53,630
$59,990
$57,350
CMA Canada
Page 23
66.
(+) CBV Ltd. had income for accounting purposes before taxes of $200,000 in
Year 10. In calculating this amount, expenses included $40,000 for amortization,
$10,000 for charitable donations and $30,000 in entertainment expenses. The capital
cost allowance claimed for Year 10 is $50,000 and $20,000 in dividends were paid to
CBV’s shareholders. The company’s net income for tax purposes for Year 10 is:
a)
b)
c)
d)
$195,000.
$215,000.
$235,000.
$230,000.
PPO Ltd. has the following financial results:
Sales
Earnings before interest and taxes
Interest
Taxes
Earnings per share
67.
Year 6
$615,000
$175,000
$33,000
$70,000
$1.74
Year 7
$695,000
$210,000
$32,000
$84,000
$2.15
What is the financial leverage for Year 6?
a)
b)
c)
d)
68.
Year 5
$540,000
$160,000
$33,000
$64,000
$1.56
1.18
1.23
0.83
6.75
What is the combined leverage for Year 7?
a)
b)
c)
d)
1.18
0.83
1.81
1.54
-------------------------------69.
A company with a debt-to-equity ratio above 1 recently paid down their long-term debt
with cash from the issuance of common stock. This transaction will impact the
company’s debt-to-equity ratio and return on equity as follows:
a)
b)
c)
d)
Page 24
There will be no impact on the debt-to-equity ratio or return on equity.
The debt-to-equity ratio will increase and the return on equity will decrease.
The debt-to-equity ratio will decrease and the return on equity will increase.
Both the debt-to-equity ratio and return on equity will decrease.
CMA Canada
70.
PTU Ltd. is issuing preferred shares to raise capital. Each preferred share will be
issued with a par value of $500 and a $35 cumulative dividend. The preferred shares
will result in underwriting expenses of $20 per share. The underwriting expenses are
tax deductible and the tax rate is 40%. What is the cost of the preferred shares?
a)
b)
c)
d)
71.
7.17%
7.00%
7.29%
4.30%
(+) Large Ltd. is considering a bid to take over GWL Ltd. Should the takeover occur,
Large Ltd. would benefit from GWL Ltd's cash flows before tax and interest of:
i) $200,000 per year for the first three years, and
ii) $220,000 per year from the fourth year into perpetuity.
Assume that the cash flows occur at the end of each year, the tax rate is 30% for both
companies, and Large Ltd’s after-tax required rate of return is 12%. What is the
maximum amount that Large Ltd. should be willing to pay to take over GWL Ltd.
(rounded to the nearest thousand dollars)?
a)
b)
c)
d)
$1,786,000
$2,170,000
$1,642,000
$1,250,000
Financial Reporting
72.
Prior to recording the December 31, Year 5, year-end adjusting entries for a small
business, revenues exceed expenses by $200,000. The following information was
known at December 31, Year 5:
i)
Dividends of $20,000 were declared on December 31, Year 5 and are to be
paid January 15, Year 6.
ii) Sales included $10,000 for services to be provided from January 1, Year 6 to
January 31, Year 6.
iii) $5,000 was paid and expensed on December 1, Year 5 for insurance that
provides insurance coverage for Year 6.
Assuming the company prepares financial statements only at year end, what is its
accounting income before taxes for Year 5?
a)
b)
c)
d)
$195,000
$235,000
$190,000
$205,000
CMA Canada
Page 25
73.
Disclosure notes are considered a part of audited financial statements. Which of the
following would NOT be a part of disclosure notes?
a)
b)
c)
d)
74.
The method of accounting that is used to account for investments.
Management’s view of the future within their industry.
The cost of defined contribution pension plans.
Value method to account for stock option awards.
The following information relates to the investment activity of HWW Ltd. for Year 15:
January 1
HWW acquires 200,000 shares of PBL Ltd. for $3,000,000.
These shares represent 40% of PBL Ltd.
July 1
PBL declares and pays a cash dividend of $200,000.
December 1
PBL declares and pays a cash dividend of $200,000.
December 31 PBL reports net income of $600,000 for the year.
On December 31, Year 15, the shares of PBL Ltd. had a fair value of $17. What
investment income would HWW report for the year ended December 31, Year 15?
a)
b)
c)
d)
75.
$400,000
$240,000
$160,000
$ 80,000
BPL Ltd. purchased an asset on January 1, Year 5 for $500,000. On, January 1,
Year 8, the asset had a carrying value of $171,000 but was reassessed and it was
found that the asset could be sold on the market for $150,000 after selling costs. The
cash flow generated by the asset in each of the next 5 years is $34,000 with no
salvage value at the end of Year 12. The rate of return from the asset is 6%.
According to IAS 36, the reassessment would result in:
a)
b)
c)
d)
76.
Which of the following will create a temporary difference between accounting and
taxable incomes for which future income tax debits or credits must be recorded?
a)
b)
c)
d)
Page 26
an impairment loss of $21,000.
no impairment loss because the recoverable amount is higher than the carrying
value.
Dividends received on Canadian investments
Political contributions
Membership dues to a country club at which clients are entertained
Provision for warranty repairs
CMA Canada
77.
HIJ Ltd., a publicly traded company, has five operating segments all producing
different products with the following results:
Segments
Q
R
S
T
U
Total
Total
Revenues
$ 50
50
160
270
40
$570
Operating
Profits (Losses)
$ 4
3
10
25
2
$44
Total
Assets
$ 100
75
350
500
125
$1,150
Total
Liabilities
$150
100
175
275
60
$760
Based on the quantitative thresholds, which segment(s) would be reported
separately?
a)
b)
c)
d)
78.
T only
S and T only
S, T and U only
Q, R and U only
On January 1, Year 1, PPL Ltd. paid $1 million to acquire a gravel pit that it will use in
its operations. At that time PPL estimated that the pit would be used for 10 years and
at the end of 10 years, PPL would have to spend $300,000 to restore the site to
environmental regulations.
At the beginning of Year 6, there was a change in environmental regulations and it
was estimated that an additional $100,000 will have to be spent to restore the site.
Assuming an interest rate of 4% and use of the straight-line method, the depreciation
expense related to the gravel pit for Year 6 is (rounded to the nearest hundred):
a)
b)
c)
d)
79.
$140,000.
$120,300.
$150,000.
$136,700.
GF Ltd., a Canadian company using Accounting Standards for Private Enterprise, has
a 500,000 FC (foreign currency) note payable due in four years. The exchange rate
was $1 Canadian = 1 FC when the note was issued on January 1, Year 1. On
December 31, Year 1, the exchange rate was $1 Canadian = 1.25 FC. What would be
the foreign exchange gain or loss recognized in GF’s income statement for Year 1?
a)
b)
c)
d)
$100,000 gain
$100,000 loss
$25,000 gain
Nothing is recorded on the income statement for Year 1
CMA Canada
Page 27
80.
(+) In its first year of operations, HAS Charities received:
1.
2.
3.
4.
$100,000 of restricted donations for medical research.
$50,000 of unrestricted grants for the general fund.
$250,000 of endowments to be maintained permanently.
$4,000 of interest income from the endowment investments (all endowment
interest earned is unrestricted).
During its first year, the following expenses were incurred:
1. $20,000 spent on medical research.
2. $35,000 spent on general operating activities.
HAS Charities uses the deferral method of accounting for contributions and does not
set up a separate fund for restricted donations for medical research. What is the total
amount that HAS Charities should report as revenue in the statement of operations?
a) $70,000
b) $74,000
c) $154,000
d) $55,000
81.
(+) JPL Construction uses the percentage-of-completion method on its long-term
construction contracts. In Year 2, JPL agreed to construct a project for a contract price
of $20 million. The job was completed in Year 5 with the following information:
(in millions)
Costs incurred to date
Estimated costs to complete
Billings to date
Collections during the year
Year 3
$5
$10
$7
$6
Year 4
$12
$5
$13
$7
Year 5
$17
$0
$20
$7
What amount of the total contract price would be recognized as revenue in Year 4?
a) $6,666,000
b) $14,118,000
c) $13,000,000
d) $7,452,000
82.
A distinguishing factor in classifying an item as a change in accounting estimate as
opposed to an error is that a change in an accounting estimate:
a)
b)
c)
d)
Page 28
is largely a matter of professional opinion as opposed to a question of fact.
results from new information.
affects more than one accounting period.
is very rare.
CMA Canada
83.
XOM Inc.’s year-end long-term debt and shareholders’ equity at December 31, Year 5,
consisted of:
Common shares: 10,000,000 issued
Preferred shares: 5.75% cumulative; 500,000 issued;
no dividend in arrears
Retained earnings
Convertible bonds: 6.5% interest; issued at par
January 1, Year 2; maturing January 1, Year 12 (each
$1,000 bond is convertible into 200 common shares)
$50,000,000
$20,000,000
$5,500,000
$18,000,000
In Year 5, XOM Inc. reported net income after taxes of $8,000,000 (assume a 40% tax
rate). At the end of Year 5, a common dividend of $0.12 per share was declared and
paid. What are XOM Inc.’s basic earnings per share for Year 5 (rounded to the nearest
cent)?
a)
b)
c)
d)
84.
$0.73
$0.69
$0.80
$0.59
Company X and Company Y are unrelated companies who have chosen to apply
Accounting Standards for Private Enterprises. They have agreed on the following
exchange of assets:
Company X gives Company Y two cars plus $25,000 cash;
Company Y gives Company X two trucks.
The transaction does not have commercial substance. Company X would record:
a)
b)
c)
d)
85.
the two trucks at the fair value of the two cars less $25,000.
the two trucks at the fair value of the two cars plus $25,000.
the two trucks at the carrying amount of the two cars less $25,000.
the two trucks at the carrying amount of the two cars plus $25,000.
(+) On January 1, Year 1, JVC Inc. issued $750,000 of 6% bonds due in five years,
with semi-annual interest payments payable on June 30 and December 31 each year.
Investors are willing to accept an annual interest rate of 4% (compounded semiannually). What will be the amount of the premium on bonds payable on January 1,
Year 2, assuming the effective interest method is used to amortize premiums and
discounts (rounded to the nearest hundred dollars)?
a)
$258
b) $54,600
c) $90,000
d) $269,400
CMA Canada
Page 29
86.
Arts & Crafts Ltd. currently has current assets of $45,000, total assets of $75,000,
current liabilities of $31,500, and total liabilities of $66,000. Management is looking to
reduce its investment working capital. Which one of the following strategies would
reduce the working capital?
a)
b)
c)
d)
87.
An intangible asset is recognized when: the expenditures are reliably measureable;
there is an ability and intention to use or sell the asset and:
a)
b)
c)
d)
88.
Change the inventory turnover ratio from 4 times to 3 times.
Decrease the payables turnover from 15 times to 10 times.
Decrease the days in payables from 36.5 days to 24.3 days.
Decrease the receivables turnover from 20 times to 15 times.
completion of the asset is technically feasible.
there are sufficient resources to complete and sell or use the asset.
there is an existing market for the asset.
All of the above.
(-) According to IAS 39, which of the following types of investments may result in other
comprehensive income?
a)
b)
c)
d)
Significant influence investment
Held for trading investment
Held to maturity investment
Available for sale investment
Selected data from OST Inc.’s financial statements are presented below (in thousands):
Cash
Marketable securities
Accounts receivable (net)
Merchandise inventory
Tangible fixed assets
Total assets
Current liabilities
Total liabilities
Common shares
Retained earnings
Page 30
December 31
Year 2
Year 1
$ 48
$ 39
254
241
315
286
660
588
720
616
2,096
1,848
555
515
976
1,050
339
294
781
504
CMA Canada
Year 2 Operations
Net sales (75% on account)
Cost of goods sold
Interest expense
Income tax
Net income
Dividends declared and paid
89.
What is the quick ratio for Year 2?
a)
b)
c)
d)
90.
1.11
0.54
2.30
2.15
What is the accounts receivable turnover in days (using 365 days) for Year 2?
a)
b)
c)
d)
91.
$6,262
4,320
75
265
577
300
17.5 days
59.2 days
22.2 days
23.4 days
What is the times interest earned for Year 2?
a) 12.2 times
b) 8.2 times
c) 11.2 times
d) 7.7 times
-------------------------------92.
KR Ltd. has agreed to lease a piece of equipment for $15,000 per year over seven
years with the first payment due January 1, Year 5. The economic life of the
equipment is eight years. The interest rate implicit in the lease contract is 4% and the
fair value of the equipment on January 1, Year 5, is $99,000.
What amount should WC Ltd. record on the balance sheet for this lease on January 1,
Year 5?
a)
b)
c)
d)
$99,000
$98,950
$93,630
$0 since this is an operating lease
CMA Canada
Page 31
93.
A local business was purchased including its entire inventory, a piece of land and the
office building situated on the land, all for one lump sum price. How would the
purchase price be allocated among the assets?
a)
b)
c)
d)
94.
Relative fair value
Relative book value
Historical cost
Undepreciated capital cost
(+) The following information is for XYZ Ltd.’s defined benefit pension plan for Year 18:
Current service cost
Benefits paid to retirees
Contributions (funding) remitted on December 31
Interest on accrued benefits (accrued benefit obligation)
Actual and expected return on plan assets
Accrued benefit obligation, January 1
$150,000
$80,000
$100,000
6%
$70,000
$1,100,000
XYZ Ltd also calculated the Year 18 amortization of actuarial losses as $25,000. What
was XYZ Co.’s pension expense for Year 18?
a) $171,000
b) $146,000
c) $251,000
d) $91,000
95.
The following relates to the investment activity of Vast Ltd. for Year 15:
i)
ii)
iii)
iv)
January 1, Vast acquires 200,000 shares (35%) of YHG Ltd. for $1,000,000.
July 1, YHG Ltd. announces and pays a cash dividend of $0.20 per share.
YHG Ltd. reports net income of $350,000 for the fiscal year.
At December 31, Year 15, the shares of YHG Ltd. had a fair value of $6.50.
Assuming Vast Corporation has significant influence over YHG, what would be the
balance in the Investment in YHG Ltd. at December 31, Year 15, on the books of Vast
Corporation?
a) $1,122,500
$960,000
b) $1,082,500
c) $1,300,000
Page 32
CMA Canada
96.
Based on past experience, 1% of FSL Inc.’s credit sales are uncollectible. As at
January 1, Year 4, FSL Inc. had a credit balance of $10,000 in the allowance for
uncollectible accounts. Sales for Year 4 were $2 million of which $1.5 million were
credit sales. During Year 4, FSL Inc. wrote off $16,500 of uncollectible accounts
consisting of sales made during Year 3. Also in Year 4, the company received $4,100
as payment of an account receivable that had been written off as uncollectible in
Year 3.
Using the percentage-of-sales method, what credit balance should FSL Inc. report for
the allowance for uncollectible accounts in its December 31, Year 4, balance sheet?
a) $8,500
b) $15,000
c) $17,600
d) $12,600
97.
In defining an asset, which of the following is NOT essential?
a)
b)
c)
d)
98.
The transaction or event giving rise to the asset must have already occurred.
The asset must have a capacity to contribute to future net cash flows.
There must be a related expenditure.
The entity must control access to the benefit.
(+) Below are transactions of XYZ Company that occurred during Year 10:
i)
ii)
iii)
iv)
Mortgage payments totalled $60,000.
Took out a $100,000 five-year loan.
Inventory decreased $20,000.
Declared dividends of $15,000 on December 31, Year 10, to be paid on
January 5, Year 11. Dividends paid were classified as financing in Year 9.
v) Purchased equipment in exchange for $10,000 cash and furniture valued at
$15,000.
vi) Earned net income of $100,000.
vii) Accounts payable decreased by $15,000.
viii) Recorded amortization of $20,000.
What would be the net increase in cash from operating activities reported on the Cash
Flow Statement for the year ended December 31, Year 10?
a)
b)
c)
d)
$105 000
$140,000
$125,000
$110,000
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Cross Competencies
MMM Ltd. is a raw materials supplier and it is looking to grow its top line revenue. It is
considering buying one of its customers, XYZ Refining, to achieve that growth objective. XYZ
Refining’s most recent balance sheet is as follows:
99.
Assets
Cash
Accounts receivable
Inventory
Equipment (net)
Building and land (net)
Total Assets
$ 125,500
245,000
175,000
400,500
800,000
$1,746,000
Liabilities and Equity
Accounts payable
Long-term debt
Mortgage payable
Common shares
Retained earnings
Total Liabilities and Equity
$ 124,500
300,000
274,500
700,000
347,000
$1,746,000
Research of XYZ’s assets found that equipment was over-valued by $50,000, building
and land was under-valued by $125,000 and accounts receivable is over-valued by
$8,000. All other assets and liabilities had book values equal to fair value.
Negotiations between owners have resulted in a purchase price of $1,200,000.
Based on the $1,200,000 purchase price, how much would MMM pay for goodwill?
a) $698,500
b) $700,000
c) $153,000
d) $86,000
100.
(-) If MMM Ltd was going to use the purchase of XYZ to achieve their growth
objective, what strategy have they employed?
a)
b)
c)
d)
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Alliance
Vertical integration
Merger
Joint Venture
CMA Canada
101.
MMM Ltd. would finance the purchase by using $250,000 of retained earnings, issuing
$650,000 5-year non-convertible bonds at 8% and borrowing the remainder as a longterm loan from the bank at an interest rate of 5%. The owners of MMM require a return
of 12%.
Assume MMM current capital structure weightings are unchanged, what is the
weighted average cost of capital (WACC)?
a)
b)
c)
d)
8.08%
8.33%
12.0%
7.05%
End of Exam
CMA Canada
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Solution Summary
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d
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a
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d
a
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b
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b
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d
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b
d
b
b
d
d
a
d
a
c
a
a
c
d
c
c
d
b
a
CMA Canada
Solutions
1.
Answer: d.
Economies of scale, the “primary” entry barrier in the question, do not deter an entrant
from accomplishing choices a), b) and c). If significant cost advantages result from
economies of scale, it becomes difficult, if not impossible, for a new entrant to produce
on a scale comparable to that of its established rivals and achieve such cost
advantages. On the other hand, even if a large-scale production is possible, it involves
a greater risk of mammoth initial capital costs, which may easily turn into sunk costs.
2.
Answer: d.
Financial ratio analysis identifies how an organization is performing according to its
balance sheet and income statement from a historical perspective to detect trends.
Ratio analysis also allows for an organization to compare its financial performance
against that of other organizations in the same industry and/or industry norms. This
trend and comparative analysis serves as an indicator of the organization’s strengths
and weaknesses.
Choice a) Value-chain analysis views the organization as a sequential process of
value-creating activities. It is very useful in determining the organization’s
competitive advantage. Financial analysis does not provide sufficient detail
regarding the various activities in the value chain.
Choice b) Ratio and comparative analysis is useful for determining strengths and
weaknesses, not opportunities and threats.
Choice c) Ratio and comparative analysis examines internal trends, not external
industry trends.
3.
Answer: a.
When there are many substitutes, buyers have more choices which lessen the
supplier’s bargaining power.
Choices b) to d) all increase the bargaining power of suppliers.
4.
Answer: b.
Diversification strategies strive to reduce the dependency of the firm on a single
industry or single class of product or service.
Choice a) A forward integration strategy would be expanding to gain control over its
distribution (not supply) chain.
Choice c) A horizontal integration strategy would involve strengthening its presence
in the current industry internally (e.g. through research and development)
or externally (e.g. acquiring a competitor).
Choice d) Backward integration involves gaining control over a function in the value
chain that was previously performed by a supplier.
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Page 37
5.
Answer: c.
Comprehensive customer service tends to yield a longer lasting and more profitable
competitive edge, making it the most desirable of the choices listed.
Choice a) This approach would be easily copied by competitors which would lead to
a short-term advantage making it less desirable.
Choice b) This will not differentiate itself from the competition and be a considerable
investment for a mid-size company.
Choice d) JB Ltd. is already differentiated from the competition with its packaging, so
a further change will not provide a long-term solution.
6.
Answer: b.
New products can be seen to follow a life cycle pattern beginning with the introductory
stage where customers begin to try the product and company profits on the product
start in the negative range. Once consumers start to accept the product, it will enter
the growth stage where we see rapid sales growth and high profitability. As more
companies enter the market for that product, enticed by the high profitability, and
competition thus increases, we see downward pressure on price and a squeezing of
profit margins. Here sales growth for the company begins to decline and this is
referred to as the maturity stage. Without new product innovation and improvement,
the product will enter the decline stage of the life cycle.
7.
Answer: b.
Only a matrix structure allows a different mix of resources at various stages of a
technologically complex product. It provides the flexibility required for the availability of
a proper combination of organizational resources when products or processes change
dramatically. Choices a), c) and d) are wrong because, under these structural choices,
project-specific technological expertise cannot be combined with the vertical flows of
authority and communication.
8.
Answer: b.
A joint venture is an entity formed between two or more parties to undertake economic
activity together. The parties agree to create a new entity by both contributing equity
and sharing in the revenues, expenses, and control of the enterprise.
Choice a) Organic growth is growth experienced within existing companies and
excludes new business enterprises.
Choice c) A strategic alliance does not include equity investment and generally is an
agreement between two companies to share resources.
Choice d) Acquisition is the purchasing of another company. This is the creation of a
company.
9.
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Answer: c.
Diminishing production process in relation to competitors is an internal weakness, not
an external threat. Choices a), b) and d) are all examples of external threats.
CMA Canada
10.
Answer: c.
At some point in any process, individual judgement will be relied on and it is neither
controllable nor always correct.
Choice a) Internal controls would create the segregation of duties appropriate to
maximize effectiveness.
Choice b) Procedures are created to assure management that employees are acting
in accordance to proper authorization.
Choice d) Electronic processing is relied upon to increase control as equipment,
assuming correct setup, will be error-free.
11.
Answer: a.
The principal mechanism for preventing fraud is control. Primary responsibility for
establishing and maintaining control rests with management. Such prevention is
ultimately a matter of policies and procedures established by management.
12.
Answer: d.
The definition of internal control indicates that it consists of the policies and
procedures established and maintained by management to assist in achieving its
objective of ensuring the orderly and efficient conduct of the entity’s business. This
includes the strategic plan of organization and all the related methods adopted within
the business to optimize the use of resources (choice c), prevent and detect errors
and fraud, compliance with policies, plans, laws and regulations, safeguard assets
(choice a), assure accuracy and reliability of accounting records, promote
organizational economy and efficiency (choice b) and encourage use of effective
decision-making processes. Therefore, choice d) is the correct answer.
13.
Answer: b.
The board of directors passes on responsibility for evaluating the risk of fraud to the
audit committee as it has oversight responsibility for the financial reporting process.
Choice a) Part of good governance includes having members who are independent
including an audit committee comprised entirely of independent members.
Choice c) This is a typical duty of the audit committee: to hire and monitor
performance of the external auditor.
Choice d) This is the role of the company’s senior financial management staff and
not the audit committee.
14.
Answer: d.
Company N has the greatest spread of returns (18%) and there is no information that
would guarantee Year 11 is positive. Therefore, Company N has the
greatest risk.
Company O has the smallest spread, 7%, which would lead to the least risk.
Choice a) Company M has a spread of returns of 11% which is greater than
Company O.
Choices b) and c) are correct. Hence d) is correct.
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Page 39
15.
Answer: c.
This is a common downfall of Boards. A Board should hire and oversee management
who are responsible for execution and management of the operations that adhere to
the policies and strategy created by the Board.
Choice a) This is the typical role of a Board.
Choice b) Boards are created to have a body that represents and directs
management in the best interests of the organization’s owners.
Choice d) The critical role of the Board is to create and oversee the strategic
management of the organization.
16.
Answer: c.
The auditor will require less evidence if the control risk decreases (detection risk will
be larger).
Choice a) Audit risk is a function of inherent risk, control risk, and planned detection
risk.
Choice b) Audit risk is a measure of how willing the auditor is to accept that the
financial statements may be materially misstated after the audit
engagement is completed and an unqualified opinion has been issued.
Choice d) The auditor performs risk assessment procedures to gain an
understanding of the entity through enquiries of management, analytical
procedures, observation and inspection. Testing of transactions is used for
testing the controls in place and for substantive tests of balances.
17.
Answer: c.
The steering committee guides the system development life cycle. The user
departments must be represented on the committee. Management is ultimately
responsible to the board and shareholders for the system adopted.
Choice a) There has been no system planning or system analysis performed.
Vendors could not propose a system without parameters.
Choice b) Adequate controls are important to the new system, but the development
of the new system is beyond the competence of any one person,
especially one who may not have the IT skills necessary to lead it.
Choice d) Both hardware and software are part of the system. It is unreasonable to
assume that hardware alone will solve the growth issue.
18.
Answer: a.
Fraudulent actions by a group of employees (i.e. collusion) are difficult to detect by an
internal control system. Such controls can be circumvented by a group of employees
who collude to defraud the company.
19.
Answer: d.
There are five distinct components to internal control; process appraisal is not one of
them. Choices a) to c) are components and the remaining components are monitoring
of controls – to assess the quality of the controls over a period of time, and control
activities.
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CMA Canada
20.
Answer: a.
Enterprise resource planning systems enable all functional areas within an
organization to be part of an integrated information system.
Choice b) This is a supply chain management system.
Choice c) This is a decision support system.
Choice d) This is an executive information system.
21.
Answer: b.
10% x $600,000 manufacturing overhead costs = $60,000
60% x $285,000 selling and administrative costs = $171,000
Total order processing costs = $60,000 + $171,000 = $231,000
Allocation rate = $231,000/500 = $462 per order
Order processing costs charged to the customer = $462 x 15 = $6,930
Choice a) Applies the rate on the basis of number of customers: $462 x 1 = $462
Choice c) Uses activity rate: 15/500 x $885,000 = $26,550
Choice d) Only uses manufacturing overhead: $60,000/500 = $120 x 15 orders =
$1,800
22.
Answer: b.
A period cost is matched against revenues on a time period basis and, for a
manufacturing company, is a cost other than one included as part of the costs of
manufacturing goods. Because advertising is not related to the production of the
product, it is a period cost. A discretionary cost is one that has no clearly measurable
cause-and-effect relationship between output and resources used, and that arises
from periodic decisions regarding the maximum amount of costs to be incurred. The
cost of advertising is an example of a discretionary cost.
Choice a) A direct cost is one that is related to a particular cost object and can be
traced to it in an economically feasible way. A product cost for this
company would be one that is involved in the manufacture of the product
and would be matched against sales (as opposed to being matched
against a time period). Advertising could be considered a direct cost if the
cost object is the marketing department, but it would not be considered a
product cost in a manufacturing company.
Choice c) A sunk cost is a past cost that cannot be changed. The advertising cost is
a planned cost that has not yet been expended. Therefore, although it is a
fixed cost, it is not a sunk cost.
Choice d) A conversion cost is a manufacturing cost other than the cost of direct
materials, and can be direct or indirect. An advertising cost is not a
manufacturing cost; therefore, it is not a conversion cost.
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Page 41
23.
Answer: b.
Sales Price Variance = Actual sales volume x (Actual price - Budgeted price)
Regular
7,200 x ($325 - $300) =
$180,000 F
Majestic
4,800 x ($700 - $800) =
480,000 U
$300,000 U
Choice a)
Choice c)
Choice d)
24.
Uses budgeted volume: (4,500 x $25) - (5,500 x $100) = $437,500 U
Total sales variance: $5,700,000 - $5,750,000 = $50,000 U
Assumes variance pertaining to Regular is unfavourable: $180,000 +
$480,000 = $660,000 U
Answer: b.
Industry volume variance = (Actual market size - Budgeted market size) x Budgeted
market share x Budgeted average contribution margin
= (666,667 - 500,000) x [(4,500 + 5,500)/500,000] x [$1,515,000/(4,500 + 5,500)]
= $505,000 F
Choice a) Market share variance: [(12,000/666,667) - (10,000/500,000)] x 666,667 x
($1,515,000/10,000) = $202,000 unfavourable
Choice c) Uses actual market share: (666,667 - 500,000) x [(7,200 + 4,800)/666,667]
x [$1,515,000/(4,500 + 5,500)] = $454,500 favourable
Choice d) Uses actual average contribution margin: (666,667 - 500,000) x [(4,500 +
5,500)/500,000] x [$1,188,000/(7,200 + 4,800)] = $330,000 favourable
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CMA Canada
25.
Answer: b.
Machine time requirement:
10,000 units of Supreme for special order
90,000 units of Supreme
100,000 units of Standard
Total machine time required
14,000 hours
126,000
100,000
240,000 hours
Standard
$300
Supreme
$450
$100.00
$15.00
$115.00
$160.00
$22.50
$182.50
Throughput per unit
$185.00
Throughput per machine hour
$185.00
* $100,000/10,000 units = $10 FC per unit.
$267.50
$191.07
Selling price
Variable costs
Direct materials
Commission
Total variable costs
Since the throughput per machine hour of the Standard is lower than the throughput
per machine hour of the Supreme, production of the Standard should be reduced.
Reduce production of standard widget by 5,000 hours to remain within 235,000 hour
capacity. 5,000 hours = 5,000 standard widgets
Opportunity cost of special order = 5,000 units x $185 = $925,000
Choice a) Reduces production of Supreme: 3,572 units x $267.50 = $955,510
Choice c) Misses commission costs: 5,000 x $200 = $1,000,000
Choice d) Reduces production of Supreme and misses commission: 3,572 x $290 =
$1,035,880
26.
Answer: d.
Increase in income = [10,000 x ($440 – $160 – [3% x $440])] - $100,000 – (5,000 x
$185)
= $2,668,000 – 100,000 – 925,000 = $1,643,000
Choice a) Misses opportunity cost: $2,668,000 – 100,000 = $2,568,000
Choice b) Misses the set-up fee: $2,668,000 – 925,000 = $1,743,000
Choice c) Misses commission reduction: $2,800,000 – 100,000 – 925,000 =
$1,775,000
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Page 43
27.
Answer: b.
Percentage of services allocated:
from Custodial to Administration & IT = 300/2,100 = 14.3%
from Administration to Custodial & IT = 300/1,600 = 18.7%
from IT to Custodial & Administration = 210/910 = 23.1%
Allocation of IT service costs to:
Cutting
= $180,000 x 400/910 = $79,120
Assembly
= $180,000 x 300/910 = $59,340
Choice a)
Choice c)
Choice d)
28.
Answer: c.
Kaizen budgeting is a budgetary approach that explicitly incorporates continuous
improvement during the budget period into the resultant budget numbers. An example
would be budgeting 6.5 machine hours per unit in the first quarter, 6.2 machine hours
in the second quarter, 5.9 machine hours per unit in the third quarter and 5.7 machine
hours per unit in the fourth quarter.
Choice a)
Choice b)
Choice d)
29.
Page 44
Incorrectly allocates Administration service costs.
Incorrectly allocates Custodial service costs.
Uses costs to calculate allocation:
Cutting = 180,000 x 540/860 = 113,020
Assembly = 180,000 x 320/860 = 66,980
Describes program budgeting.
Describes incremental or traditional budgeting.
Describes activity-based budgeting.
Answer: b.
Department A costs = Direct costs + IT allocated costs + Maintenance allocated costs
= $925,000 + ([2,000/(2,000 + 1,500)] x $80,000) + ([2,200/(2,200 + 4,000)] x $30,000)
= $925,000 + $45,714 + $10,645 = $981,359
Choice a) Used Department B hours and sq. m in the denominators: = $925,000 +
(2,000/1,500 x $80,000) + (2,200/4,000 x $30,000) = $925,000 + $106,667
+ $16,500 = $1,048,167
Choice c) Used total hours and sq. m in the denominators: = $925,000 +
(2,000/4,000 x $80,000) + (2,200/6,800 x $30,000) = $925,000 + $40,000
+ $9,706 = $974,706
Choice d) Adjusted the denominators by the other service department’s usage/size:
= $925,000 + ([2,000/(4,000 - 300)] x $80,000) + ([2,200/(6,800 - 200)]
x $30,000) = $925,000 + $43,243 + $10,000 = $978,243
CMA Canada
30.
Answer: c.
Direct materials used ($260,000 - $235,000 + $350,000)
Direct labour used
Factory overhead applied (6,500 x $10/DLH)
Total manufacturing costs incurred
Work in process inventory – Jan 1
Work in process inventory – Dec 31
Cost of goods manufactured
$375,000
160,000
65,000
600,000
95,000
(75,000)
$620,000
Choice a) Ignores work in process inventory and uses total manufacturing costs.
Choice b) Misses factory overhead.
Choice d) Ignores direct material inventories.
31.
Answer: a.
Contribution margin/sales package = 5 x [$80 - $35 - (5% x $80)] + 3 x [$120 - $55 (5% x $120)]
= $205 + $177 = $382
Fixed manufacturing overhead
= (55,000 MCH x $30) = $1,650,000
Total fixed costs
= $900,000 + $1,650,000 = $2,550,000
Breakeven sales units
= $2,550,000 / $382 x 8 = 53,403 units
Choice b) Misses commission costs = 5 x ($80 - $35) + 3 x ($120 - $55) = $420
Breakeven sales units = $2,550,000 / $420 x 8 = 48,572 units
Choice c) Uses standard costs = 5 x [$80 - $50 - (5% x $80)] + 3 x [$120 - $70 - (5%
x $120)]
= $130 + $132 = $262
B/E Sales = $2,550,000 / $262 x 8 = 77,863 units
Choice d) Ignores ratio = [$80 - $35 - (5% x $80)] + [$120 - $55 - (5% x $120)]
= $41 + $59 = $100
B/E Sales = $2,550,000 / $100 = 25,500 units
32.
Answer: b.
T5X = -1,500 units x [$80-$35-(5%x$80)] = -$61,500
T5XLL = 2,000 x [$120-$55-(5%x$120)] = $118,000
Actual income is $56,500 higher than budgeted because of a favourable sales volume
variance of T5XLL.
Choice a) Only considers T5X.
Choice c) Only considers T5XLL and calculates using actual price of $110.
Choice d) Misses commission.
CMA Canada
Page 45
33.
Answer: a.
Actual overhead – allocated overhead based on machine hours
= $640,500 – [($620,000/15,000) x 15,900]
= $640,500 – $657,200 = $16,700 overallocated
Choice b) Uses labour hours
= $640,500 – [($620,000/20,000) x 20,120] = $16,780 underallocated
Choice c) Mixes up budgeted and actual hours
= $640,500 – [($620,000/15,900) x 15,000] = $55,594 underallocated
Choice d) Mixes up budgeted and actual dollars
= $620,000 – [($640,500/15,000) x 15,900] = $58,930 overallocated
34.
Answer: d.
Required sales volume = $590,000 / [$50 - $20 - ($50 x 20%)] = $590,000 / $20
= 29,500
Choice a) Ignores required profit: $590,000 / $30 = 19,667 = 19,970 rounded
Choice b) Adds 20% to the contribution margin: $590,000 / [$50 - $20 + ($50 x 20%)]
= 14,750
Choice c) Uses 20% as gross margin: $590,000 / ($50 x 20%) = 59,000
35.
Answer: a.
Product Y (Y1)
Product Z (Z1)
Incremental revenue
$1,260,000
$880,000
Y: ($120 x 45,000 x 90% - 45,000 x $80)
Z : ($140 x 40,000 x 80% - 40,000 x $90)
Incremental cost
$405,000
$960,000
Y: ($10 x 45,000 x 90%)
Z : ($30 x 40,000 x 80%)
Contribution from further processing
$855,000
-$80,000
Therefore, only Product Y should be processed further into Product Y1.
Choices b), c), d): See solution.
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CMA Canada
36.
Answer: b.
Relative sales value at split-off
Product X: ($70 x 15,000) =
Product Y: ($80 x 45,000) =
Product Z: ($90 x 40,000) =
Total sales value at split-off
$1,050,000
$3,600,000
$3,600,000
$8,250,000
Joint costs allocated
Product X: ($1,000,000 x 1,050/8,250) =
Product Y: ($1,000,000 x 3,600/8,250) =
Product Z: ($1,000,000 x 3,600/8,250) =
$127,273
$436,364
$436,364
Choice a) Uses selling price to determine ratios.
Product X: ($1,000,000 x 70/240) =
Product Y: ($1,000,000 x 80/240) =
Product Z: ($1,000,000 x 90/240) =
$291,667
$333,333
$375,000
Choice c)
Uses further processing prices to determine final sales value.
Relative sales value at split-off
Product X: ($70 x 15,000) =
$ 1,050,000
Product Y1: ($120 x 45,000 x 90%) =
$ 4,860,000
Product Z1: ($140 x 40,000 x 80%) =
$ 4,480,000
Total sales value at split-off
$10,390,000
Product X: ($1,000,000 x 1,050/10,390) =
Product Y: ($1,000,000 x 4,860/10,390) =
Product Z: ($1,000,000 x 4,480/10,390) =
Choice d) Uses production at split-off.
Product X: ($1,000,000 x 15/100) =
Product Y: ($1,000,000 x 45/100) =
Product Z: ($1,000,000 x 40/100) =
37.
$101,058
$467,757
$431,184
$150,000
$450,000
$400,000
Answer: b.
Irrelevant high-low outlier should be excluded in estimating the regression model. This
data will not be incorporated in the estimation and will not be used as an evaluation
criterion.
Choice a) Specification analysis of assumptions provides tests of linearity of the
relevant range, constant variance of residuals, independence of residuals,
and normality of residuals, which is imperative in establishing the validity
of the estimated regression model.
Choice c) Goodness of fit for an estimated regression model measures how well the
dependent variable (y, predicted cost) based on the independent variable
(x, cost driver) matches the actual observations. It is one of the criteria
used to evaluate regression model.
Choice d) The significance of regression coefficient is one of the evaluative criteria
for regression model in which the null hypothesis of no significance is
rejected.
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38.
Answer: b.
The maturity stage is characterized by a large numbers of competitors, each
consuming a portion of the market share leading to a slowing sales growth.
Choice a) This is not a typical description of any stage of the product life cycle.
Choice c) This describes the decline stage.
Choice d) This describes the growth stage.
39.
Answer: a.
June cost of goods manufactured:
Budgeted sales in units
+ Target ending inventory (15% x 6,000)
- Beginning inventory (15% x 8,000)
Units to be produced
x Standard cost of production
Budgeted cost of goods manufactured
8,000
900
8,900
-1,200
7,700
x
$80
$616,000
Choice b) Ignores beginning inventory: 8,900 x $80 = $712,000
Choice c) Ignores ending inventory: 6,800 x $80 = $544,000
Choice d) Uses goods sold: 8,000 x $80 = $640,000
40.
Answer: c.
Setup resources, which are used each time when the machine is set up to produce a
batch, is a batch-level cost.
Choice a) Engineering costs incurred to change product designs is a productsustaining cost.
Choice b) If the cost of an activity increases with each hour of machine time used in
production, it is an output-level cost.
Choice d) The compensation for a quality engineer, who is responsible for
continuous quality improvement projects that affect all production in the
plant, is a facility-sustaining cost.
41.
Answer: c.
Fixed machine insertion costs = $530,000 - 50,000 x $2.20 = $420,000
Flexible budget if 51,000 parts are inserted = (51,000 x $2.20) + $420,000 = $532,200
Choice a) Uses $530,000 as fixed costs: $530,000 + 51,000 x $2.20 = $642,200
Choice b) Uses a ratio: 530/50 = x/51; x = $540,600
Choice d) Assumes budget is unchanged within relevant range.
42.
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Answer: a.
In reengineering a business process, it is critical to understand which activities add
value to the process and are essential to its success. This identification occurs when
trying to understand the current process.
CMA Canada
43.
Answer: b.
Price
a)
$180
b)
$170
c)
$160
d)
$150
Var. Cost/Unit
$122.40
$122.40
$122.40
$122.40
CM/Unit
$57.60
$47.60
$37.60
$27.60
Volume
59,000
75,000
90,000
120,000
Monthly CM
$3,398,400
$3,570,000
$3,384,000
$3,312,000
Total fixed costs for this product = $870,000 + $545,000 + $275,000 = $1,690,000. The
contribution margin at each price is enough to cover fixed costs. The highest expected
monthly income would occur at a price of $170 per unit (i.e. $3,570,000 - $1,690,000
= $1,880,000).
44.
Answer: c.
3A + 4B = 10,000
A + 2B = 4,000
Substituting: 3A + 4[(4,000/2) - A/2] = 10,000
3A + 4(2,000 – 1/2A) = 10,000; A = 2,000
3(2,000) + 4B = 10,000; B = 1,000
The total contribution margin is $12(2,000) + $14(1,000) = $38,000
Confirm using trial and error:
A
B
Contribution Margin
0
2,000
$28,000
2,500
625
$38,750
Therefore, the optimal product mix is the maximum number of Widget A (2,500) and
using the remaining available machine hours to produce 625 units of Widget B.
Choice a) Maximizes Widget B based on packaging constraint (contributes $28,000).
Choice b) Uses point of intersection even though it does not maximize contribution
margin (contributes $38,000).
Choice d) Maximizes Widget B based on assembly constraint (contributes $35,000).
45.
Answer: d.
Although Division X could receive $112 from outside customers, they save $10 in
selling expenses. Consequently, transferring inside at $112 - $10 = $102 leaves them
in the same position as selling to outsiders at $112.
46.
Answer: a.
East is a profit centre; therefore, it would not be willing to accept a transfer price that
would have a negative impact on its divisional income.
Available capacity = 2,000 units, therefore the extra capacity required = 3,000 units
Lost contribution margin from external sales = ($700 - $450 - $20) x 3,000 units =
$690,000
Minimum transfer price per unit of internal sales = $450 + ($690,000/5,000 units)
= $450 + $138 = $588.
Choice b) Incorrectly uses external supplier price.
Choice c) Incorrectly uses West selling price.
Choice d) Incorrectly uses regular selling price less variable selling expense.
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47.
Answer: d.
Robert Motoz is responsible for sales, cost control (including the cost of direct
materials by negotiating the transfer price), and capital purchasing decisions for
Division B. Therefore, Division B represents an investment centre.
48.
Answer: d.
Although this will not address the varying performance, it will direct the efforts of all
employees towards a common goal of improved product output.
Choice a), c) This does not address the differences between departments nor the
need for overall improvement. It may increase the gaps in departmental
performance.
Choice b)
A wage structure creates a logical hierarchy of wages with more
important jobs paid more and does not address the overall goal of output
improvement.
49.
Answer: a.
This method of promotion supports the incentive program the most because it also
provides employees further purpose to achieve their individual objectives.
Choice b)
Choice c)
Choice d)
50.
Ethical policy provides parameters within which individuals are expected
to perform. These parameters do not enhance the company goal of
increased individual sales performance.
The focus of employee development is on advancing the employee’s
work life. Since there is high turnover, it is apparent that Supersales Inc.
is not interested in development of their staff.
Employee relations is concerned with communication to all employees.
Since the incentive program is individual-based the need for
communications from the organization is lessened.
Answer: b.
ROI East Division = $20,000/$180,000 = 11.1%
ROI West Division = $35,000/$270,000 = 13.0%
RI East Division = $20,000 - ($180,000 x .12) = ($1,600)
RI West Division = $35,000 - ($270,000 x .12) = $2,600
West Division met the target minimum rate of return of 12%, and has a higher ROI
and RI.
Choices a), c) and d) are not true.
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CMA Canada
51.
Answer: b.
The objective of maximizing return on investment may induce managers of highly
profitable divisions to reject projects that, from the viewpoint of the organization as a
whole, should be accepted. Using residual income would avoid this motivation – as
long as the project earns a rate of return in excess of the required return for
investments, divisional managers would be motivated to accept the project. Choice a)
pertains to the asset base used in the calculation – the problems involved in asset
base are the same for calculating residual income as they are for calculating return on
investment. The implicit cost of interest (choice d) is not an argument related to
management performance evaluation measures.
52.
Answer: c.
The management accountant should not capitalize development costs if the probability
of success of the product in the market is low. To do so, even at the request of a
divisional manager, compromises the management accountant’s competence,
objectivity and integrity.
Choice a) Delaying an expensive advertising campaign does not represent an
ethically questionable action and could be a reasonable option in the
circumstances. Even if the advertising expenditure was not delayed, it
could be argued that the matching principle would support expensing the
advertising costs in the next fiscal year, if the impact on sales is likely to
be felt only in the next fiscal year.
Choice b) Accepting a gift and sharing it with other employees would not represent
an ethically questionable action as the gift is small, all employees can
partake of the gift and the giver is a regular supplier – it is unlikely that the
gift would influence any decisions made by the management accountant
or any other employees of the company.
Choice d) This represents a correct response to a suspicion of a co-worker
committing an unethical act.
53.
Answer: d.
Job enrichment involves adding responsibility and control over how you perform and
schedule your job (choices b and c). Job enlargement involves adding more tasks
(choice a) without the responsibility for making decisions and planning how you
perform your work.
54.
Answer: c.
All dividends in kind are the equivalent of disposing of the asset at fair value, in this
case $95,000.
55.
Answer: b.
Six Sigma involves measuring and analyzing business processes to improve quality
for the customer through reduced cycle time, reduced defects and improved customer
satisfaction.
Choice a) Six Sigma goes beyond improving just manufacturing processes.
Choice c) This is a description of the Balanced Scorecard tool.
Choice d) These categories are specifically for application to the Baldridge Award.
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56.
Answer: b.
When used properly, money is a great motivator, but there are potent advantages to
be gained from praise, special recognition, handing out plum assignments, etc. As
well, basing rewards on both individual performance and corporate performance
provides individual motivation and aligns the rewards to achieving desired business
outcomes.
Choice a) Rewards should be tightly linked to achieving only those performance
targets spelled out in the strategic plan. Including factors beyond the
strategic plan signals that either the strategic plan is incomplete or
management’s real agenda is something other than what was stated in the
strategic plan.
Choice c) An incentive plan should be linked to both short-term (e.g. annual) and
long-term performance targets, which should be tied to individual
performance as well as achieving corporate objectives.
57.
Answer: a.
ROI
Residual
Income
Profit Margin
Winnipeg
540,000/2,340,000 = 23.1%
540,000 – (2,340,000 x 14%)
= 212,400
540,000/2,100,000 = 25.7%
Regina
720,000/2,874,000 = 25.1%
720,000 – (2,874,000 x 17%)
= 231,420
720,000/3,480,000 = 20.7%
Choice b) This is false. Winnipeg had the higher profit margin.
Choice c) Regina had the better ROI and RI.
58.
Answer: d.
Price = Present value of face value of the bond + Present value of semi-annual
interest of 6% x $50,000/2 = $1,500 for 12 x 2 = 24 periods at 8%/2 = 4%.
Price = ($50,000 x .390) + ($1,500 x 15.247) = $42,370.50 ≈ $42,400.
Choice a) Ignores the semi-annual compounding and uses 20 years (i.e. uses 20
periods at 8%): ($50,000 x 0.215) + ($3,000 x 9.818) = $40,204 ≈ $40,200.
Choice b) Reverses the coupon rate and the current yield: ($50,000 x 0.492) +
[($50,000 x 8%/2) x 16.936] = $58,472 ≈ $58,500.
Choice c) Ignores the semi-annual compounding, uses 20 years and reverses the
coupon rate and the current yield: ($50,000 x 0.312) + ($4,000 x 11.47)
= $61,480 ≈ $61,500.
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CMA Canada
59.
Answer: c.
Required for operating disbursements
Down payment for equipment
Target ending balance
Total cash required:
$350,000
160,000
60,000
570,000
Less: May 31 cash balance
Less: Collections ($270K + $225K)
Necessary borrowing
50,000
495,000
$ 25,000
Choice a) Ignores the June cash sales: $25K + $225K = $250,000
Choice b) Includes the dividend: $25K + $50K = $75,000
Choice d) Misses equipment requirement: $25K + $160K = $185,000
60.
Answer: b.
The net present value (NPV) is calculated as follows:
= -Initial investment + PV of after-tax inflows + PV of tax shield CCA
= -$250,000 + [($85,0001 x 60%) x 4.56] + $70,4792
= -$250,000 + $232,560 + $70,479 = $53,039
1
2
$212,500 increase in sales x 40% contribution margin = $85,000
Tax shield: $250,000 x .40 x .35 x (1 + .5 x .12) = $37,100 = $70,479
(0.12 + .35) x (1 + 0.12)
0.5264
Choice a) Does not include the present value of the tax shield.
= -$250,000 + [($85,000 x 60%) x 4.56]
= -$250,000 + $232,560 = -$17,440
Choice c) Does not discount the $85,000 after-tax increase in contribution margin.
= -$250,000 + [($85,000 x 60%) x 7] + $70,4792
= -$250,000 + $357,000 + $70,4792= $177,479
Choice d) Does not calculate the present value of the increase in contribution margin
on an after-tax basis (i.e. uses $85,000 as opposed to $51,000).
= -$250,000 + [$85,000 x 4.56] + $70,4792
= -$250,000 + $387,600 + $70,479 = $208,079
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61.
Answer: b.
Income before taxes
Normalizing adjustments:
Son’s salary
$35,000
Personal costs
$10,000
Maintainable earnings
Taxes (40%)
After-tax, sustainable income
Earnings multiple (10x)
Capitalized earnings/business value
$240,000
Note 1
Note 2
$285,000
$114,000
$171,000
Note 3
$1,710,000
Note 1 – The son’s salary is not at fair market value. The total salary is $35,000 in
excess of its fair value. Because the son will no longer be involved in the business
after a sale, the excess salary will be avoidable and therefore should be added back.
Note 2 – The personal administrative costs are discretionary, and are not required to
generate the maintainable business income. Therefore, those costs are added back
as a normalizing adjustment.
Note 3 – Maintainable earnings must be net of taxes.
Choice a) Ignores the son’s earnings. After-tax, sustainable income = $150,000
Choice c) Ignores the discretionary, personal costs of $10,000. After-tax, sustainable
income = $165,000
Choice d) Does not reduce maintainable earnings for the taxes. After-tax,
sustainable income = $285,000
62.
Answer: c.
After-tax cost of debt = 6% x (1 - .4) = 3.6%
Cost of preferred shares = 7%
Cost of common equity = [($2 x 1.03)/$25] + .03 = 11.24%
Total long-term debt plus equity = $500,000 + $300,000 + $600,000 = $1,400,000
Weighted average cost of capital (WACC)
= [3.6% x (500/1,400)] + [7% x (300/1,400)] + [11.24% x (600/1,400)]
= 1.29% + 1.5% + 4.82% = 7.61% = 7.6% rounded
Choice a) Includes current liabilities as part of debt
= [3.6% x (750/1,650)] + [7% x (300/1,650)] + [11.24% x (600/1,650)]
= 1.64% + 1.27% + 4.09% = 7.0%
Choice b) Uses cost of debt before tax
= [6% x (500/1,400)] + [7% x (300/1,400)] + [11.24% x (600/1,400)]
= 2.14% + 1.5% + 4.82% = 8.46% = 8.5% rounded
Choice d) Uses bond payment versus yield
= [(8% x [1 - .4]) x (500/1,400)] + [7% x (300/1,400)] + [11.24% x
(600/1,400)]
= 1.71% + 1.5% + 4.82% = 8.03% = 8.0% rounded
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CMA Canada
63.
Answer: b.
UCC
Disposition
Balance
$100,000
($110,000) (lower of original cost or proceeds)
($ 10,000) = Recapture of $10,000
Choice a) Uses original cost to calculate ($100K - $140K = $40K)
Choice c) Uses original cost less selling fees ($100K - $140K - $5K = $45K)
Choice d) Uses proceeds less selling fees ($100K - ($110K - $5K) = $5K)
64.
Answer: c.
The ability to repurchase shares should not have an impact on the dividend policy.
Dividends are paid annually/quarterly, whereas repurchases are less frequent and at
irregular time intervals.
Choice a) The firm’s reinvestment opportunities for retained earnings as compared
with the reinvestment opportunities for the shareholders of the firm is
important to dividend policy. If the shareholders have reinvestment
opportunities with higher rates of return, then paying a dividend will
maximize shareholder wealth. Conversely, a firm with reinvestment
opportunities that have rates of return in excess of what a shareholder can
obtain elsewhere should not pay a dividend; rather, they should retain the
cash and reinvest it internally.
Choice b) The shareholder’s need and desire for immediate income in the form of
cash dividends is an important factor used to determine a firm’s dividend
policy. A firm whose shareholders require firm immediate cash will be
more inclined to have a higher dividend payout ratio. Conversely, a firm
whose shareholders do not require income will be more inclined to have a
lower dividend payout ratio.
Choice d) The firm’s cash position, both current and projected, is important to a
firm’s decision to pay dividends because dividends are paid in cash.
Therefore, a company’s dividend payout ratio will be much lower if the
company projects a negative cash position in the current or future periods.
Conversely, a company’s dividend payout ratio will be much higher if the
company projects and has large amounts of cash available.
65.
Answer: b.
The price of the bond when it was issued is not relevant to the current market price.
The current market value is equal to the present value of the future cash flows, using
14 periods at 4%: = ($60,000 x .577) + ($1,800 x 10.563) = $34,620 + $19,013
= $53,633
Choice a) Uses purchase price to calculate selling price
= ($56,000 x .577) + ($1,800 x 10.563) = $51,325
Choice c) Uses 6% to calculate present value
= ($60,000 x .661) + ($1,800 x 11.296) = $39,660 + $20,333 = $59,993
Choice d) Uses 6% and purchase price
= ($56,000 x .661) + ($1,800 x 11.296) = $37,016 + $20,333 = $57,349
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66.
Answer: b.
Accounting income for Year 10
Add back: Amortization expense
Non-deductible portion of entertainment ($30,000 x .5)
Charitable donations
Deduct: CCA
Net income for tax purposes
$200,000
40,000
15,000
10,000
(50,000)
$215,000
Choice a) Deducts dividends paid: $215,000 - $20,000 = $195,000
Choice c) Adds CCA and deducts amortization.
Choice d) Adds back full entertainment expense: $215,000 + $15,000 = $230,000
67.
Answer: b.
Financial leverage is % change in EPS / % change in EBIT
[(1.74-1.56)/1.56] / [(175,000-160,000) / 160,000] = 0.1154/ 0.09375 = 1.23
Alternatively, EBIT/(EBIT – Interest) = 175,000/(175,000-33,000) = 1.23
Choice a) Calculates for Year 7: [(2.15-1.74)/1.74] / [(210,000-175,000)/175,000] =
1.18
Choice c) Calculates combined leverage: 0.115 / [(615,000-540,000)/540,000]=0.83
Choice d) Calculates operating leverage: 0.9375 / [(615,000-540,000)/540,000] =
6.75
68.
Answer: c.
Combined leverage is % change in EPS / % change in sales
[(2.15-1.74)/1.74] / [(695,000-615,000)/615,000] = 0.236 / 0.1301 = 1.81
Alternatively, DOL x DFL = 1.537 x 1.178 = 1.81
Choice a) Calculates financial leverage. [(2.15-1.74)/1.74] / [210,000175,000)/175,000] = 1.18
Choice b) Calculates for year 6: [(1.74-1.56)/1.56] / [(615,000-540,000)/540,000] =
0.83
Choice d) Calculates operating leverage: [(210,000-175,000)/175,000] / 0.1301 =
1.54
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CMA Canada
69.
Answer: d.
For example, assume the following:
Debt - $100; Equity - $50; Net income - $10
The debt-to-equity ratio would be 2:1 and the ROE 20%.
A transaction that repays $50 of debt through the issuance of equity will result in the
following:
Debt - $50; Equity - $100; Net income - $10
The resulting ratio will be 0.5:1, and the return on equity will be 10%.
Therefore, the debt-to-equity ratio will decrease and the return on equity will decrease.
Choice a) There will be no impact on the debt-to-equity ratio or return on equity.
Incorrect as it does not factor in the impact of the transaction on the debt
or equity.
Choice b) The debt-to-equity ratio will increase and the return on equity will
decrease. Incorrectly calculates the impact of the transaction on the debtto-equity. Correctly calculates the impact on the ROE.
Choice c) The debt-to-equity will decrease and the return on equity will increase.
Incorrectly calculates the impact the transaction has on the ROE and the
DE ratio.
70.
Answer: a.
Amount per share:
Underwriting costs:
Net proceeds:
Dividend per share:
$500
($12)
$488
$35
Cost per share:
$35/$488 = 7.17%
$20 x (1 – 40%)
Choice b) Ignores the underwriting costs. $35/$500 = 7.00%
Choice c) Ignores tax impact on underwriting costs. $35/$480 = 7.29%
Choice d) Takes tax off dividends. $21/$488 = 4.30%
CMA Canada
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71.
Answer: d.
The maximum amount that Large Ltd. should be willing to pay is the present value of
the incremental cash flows using a discount rate of 12%.
Year 1 to 3 – present value of operating after-tax cash flows
= $200,000 x (1 - 30%) x 2.402 = $336,280
Year 4 and beyond – present value of operating after-tax cash flows
= [$220,000 x (1 - 30%)] / 0.12 x 0.712 = $913,733
Net present value = $336,280 + $913,733 = $1,250,013 = $1,250,000 (rounded)
Choice a) Uses before-tax figures
= $200,000 x 2.402 = $480,400
= ($220,000 / 0.12) x 0.712 = $1,305,333
NPV = $1,785,733 = $1,786,000 (rounded)
Choice b) Does not present value ii)
NPV = $336,280 + ($220,000 / 0.12) = $2,169,613 = $2,170,000 (rounded)
Choice c) Uses before-tax figure for ii)
NPV = $336,280 + $1,305,333 = $1,641,613 = $1,642,000 (rounded)
72.
Answer: a.
Net income = $200,000 - $10,000 (deferred revenue for Year 6) + $5,000 (prepaid
insurance for Year 6) = $195,000
Choice b) Deducts dividends which are an after-tax item. ($195K - $20K = $235K)
Choice c) Ignores prepaid insurance. ($195K - $5K = $190K)
Choice d) Ignores the deferred revenue. ($195K +$10K = $205K)
73.
Answer: b.
This would be included within MD&A which is a requirement but is not a part of
disclosure notes nor considered part of audited statements.
Choice a) This would provide information on the company’s accounting policy which
is a part of disclosure notes.
Choice c) This would explain a recognized item in the statements which is a part of
disclosure notes.
Choice d) This would provide information on the company’s accounting policy which
is a part of disclosure notes.
74.
Answer: b.
Since HWW has significant influence over PBL, the investment must be accounted for
using the equity method. Therefore, HWW would record Investment Income equal to
their share of the net income of PBL Corporation. (40% x $600,000) = $240,000
Choice a) This is the amount of increase in the value of the shares held by HWW.
200,000 shares x ($17 – 15) = $400,000
Choice c) Records HWW's share of the total dividends paid in the year.
40% x ($200,000 + $200,000) = $160,000
Choice d) Share of net income less dividends received. $240K - $160K = $80,000
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CMA Canada
75.
Answer: a.
Carrying Value
Recoverable Amount is higher of:
Value-in-use ($34,000 (PVIFA 6%,5)
Fair value less selling costs
$171,000
$143,208
$150,000
Since Carrying Value > Recoverable Value there is an impairment of $171,000 $150,000 = $21,000.
Choice b) Ignores PV for value-in-use ($34,000 x 5) = 170,000
Choice c) Uses value-in-use figure = 171,000-143,208 = 27,792
Choice d) Incorrect since there is an impairment loss.
76.
Answer: d.
Provisions for warranty repairs are not deductible for tax purposes. Only costs actually
incurred for warranty repairs during the year are deductible. Therefore, a provision for
future repair costs will create a timing difference whereby non-deductible expenses in
one year will be deductible in a future year when the actual expenditure is incurred.
Choices a), b) and c) represent permanent differences.
77.
Answer: c.
An operating segment must only satisfy one of the following quantitative thresholds to
be considered a reportable segment:
(a) its reported revenue, including both sales to external customers and intersegment
sales or transfers, is 10 percent or more of the combined revenue, internal and
external, of all operating segments;
(b) the absolute amount of its reported profit or loss is 10 percent or more of the
greater, in absolute amount, of:
(i) the combined reported profit of all operating segments that did not report a
loss; or
(ii) the combined reported loss of all operating segments that did report a loss; and
(c) its assets are 10 percent or more of the combined assets of all operating
segments.
S and T have revenues greater than 10% of combined revenues.
U has assets greater than 10% of combined assets.
Liabilities have no impact on quantitative thresholds.
Therefore, S, T and U should report separately.
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78.
Answer: d.
Annual depreciation = the cost of the asset plus PV of the asset retirement obligation
+ revision to estimate in 2005 is the result of a change in circumstances and is applied
prospectively.
= [($1,000,000 + $300,000PV10,4%) ÷ 10 years] + [($100,000PV5,4%) ÷ 5 years]
= ($1,000,000 + 202,800)/10 + 82,200/5 = 120,280 + 16,440
= $136,720
Choice a) Misses the first 5 years of depreciation and does not PV the ARO.
[($1,000,000 + 300,000 + 100,000) ÷ 10 years]
Choice b) Misses the increase in ARO. [($1,000,000 + $300,000PV10,4%) ÷
10 years]
Choice c) Missed PV for the ARO amounts. [($1,000,000 + 300,000) ÷ 10 years] +
[$100,000 ÷ 5 years)
79.
Answer: a.
According to Section 1651 of the Accounting Standards for Private Enterprise, at each
balance sheet date, monetary items denominated in a foreign currency should be
adjusted to reflect the exchange rate in effect at the balance sheet date. Also, an
exchange gain or loss arising from the transaction of a monetary item should be
included in the determination of net income for the current period.
Therefore, in Year 1, an exchange gain recognized by GF is:
= $500,000Cdn – ($500,000 / 1.25)Cdn = $100,000 gain
Choice b) Incorrectly assumes a loss.
Choice c) Amortizes the gain over 4 years.
Choice d) Incorrectly assumes gains are deferred.
80.
Answer: b.
Restricted contributions – Match revenues to expenses for the period; revenues to be
used against expenses for future periods should be deferred. Therefore, recognize
$20,000 of restricted contributions in the first year.
The entire $50,000 of unrestricted grants is recognized in the first year.
The endowment contribution is not recognized as revenue on the statement of
operations; instead, it is recognized as a direct increase to net assets.
Unrestricted interest income from endowments is recognized as revenue in the period
that the interest is earned.
Therefore, revenue = $20,000 + $50,000 + $4,000 = $74,000.
Choice a) Does not recognize interest earned. = $20K + $50K = $70,000
Choice c) Recognizes all $100,000 of restricted grants. = $100K + $50K + $4K =
$154,000
Choice d) Recognizes only expenses. $20K + $35K = $55,000
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CMA Canada
81.
Answer: d.
In Year 3, the contract is [$5 / ($5 + $10)] = 33.33% complete.
In Year 4, the contract is [$12 / ($12 + $5)] = 70.59% complete.
The additional 37.26% completed in Year 4 x the total contract price of $20M =
$7,452,000 revenue to recognize in Year 4.
Choice a) Uses Year 3. 33.33% x $20M = $6.666M
Choice b) Uses full 70.59% completion. 70.59% x $20M = $14.118M
Choice c) Uses billings to date.
82.
Answer: b.
A change in accounting estimate is an adjustment of the carrying amount of an asset
or a liability, or the amount of the periodic consumption of an asset, that results from
the assessment of the present status of, and expected future benefits and obligations
associated with, assets and liabilities. Changes in accounting estimates result from
new information or new developments and, accordingly, are not corrections of errors.
Choice a) While this sounds reasonable it is not the important distinguishing factor
since a change in estimate must be supported by more than opinion.
Choice c) A change in estimate could affect more than one period but this could also
be true of an error. Therefore this is not a distinguishing factor.
Choice d) The frequency of occurrence is not a determining factor in classification.
83.
Answer: b.
Net income available for common shareholders
= $8,000,000 - (5.75% x $20,000,000) = $6,850,000
Basic EPS = Net income available for common shareholder ÷ Weighted average
common shares outstanding
= $6,850,000 / 10,000,000 = $0.685 (rounded to $0.69)
Choice a) Deducts taxes from preferred dividends.
[$8M - (5.75% x $20M x .6)] / 10M = $7.310M / 10M = $0.731
Choice c) Does not deduct preferred dividends. $8M / 10M = $0.80
Choice d) Uses fully diluted number of shares.
10,000,000 + ($18M / $1,000 x 200) = 13.6M shares;
EPS = $8M / 13.6M = $0.588
CMA Canada
Page 61
84.
Answer: d.
When an exchange involves partial monetary consideration, the carrying amount of
the asset given up is adjusted by the fair value of the monetary consideration. The
entity paying the monetary consideration measures the non-monetary asset received
at the carrying amount of the asset given up plus the fair value of the monetary
consideration paid. The entity receiving the monetary consideration measures the
non-monetary asset received at the carrying amount of the non-monetary asset given
up less the fair value of the monetary consideration received, unless the monetary
consideration exceeds the carrying amount, in which case, a gain is recognized for the
amount of such excess.
Choices a), b) Because there is no commercial substance the fair value is not
relevant.
Choice c)
Mistakes the $25,000 as a decrease.
85.
Answer: b.
Premium = (PV of $750,000 + PV of semi-annual interest of $22,500) - $750,000
compounded semi-annually at N = 8 periods remaining and i = 2%
= [($750,000 x 0.853) + ($22,500 x 7.325)] - $750,000
= $639,750 + $164,812 - $750,000 = $54,562 = $54,600 (rounded)
Choice a) Uses 4% for PV calculations.
= [($750,000 x 0.731) + ($22,500 x 6.733)] - $750,000 = $258
Choice c) Uses 6% for PV calculations.
= [($750,000 x 0.627) + ($22,500 x 6.210)] - $750,000 = $90,025
Choice d) Neglects to take semi-annual payments.
= [($750,000 x 0.853) + ($45,000 x 7.325)] - $750,000 = $269,375
86.
Answer: b.
Decreasing the payables turnover will result in a longer days in payable, which would
reduce the required investment in working capital.
Choice a) Decreasing the inventory turnover will require a larger investment in
inventory to finance the larger balance, therefore working capital would
increase.
Choice c) Decreasing the days in payable will increase the cash required to pay the
payables, and therefore increase the working capital requirement.
Choice d) Decreasing the receivable turnover will increase the days required to
collect A/R, which will require a larger investment in A/R to finance the
larger balance, therefore working capital would increase.
Page 62
CMA Canada
87.
Answer: d.
An intangible asset arising from development (or from the development phase of an
internal project) is recognized if, and only if, an entity can demonstrate all of the
following:
i. the technical feasibility of completing the intangible asset so that it will be
available for use or sale;
ii. its intention to complete the intangible asset and use or sell it;
iii. its ability to use or sell the intangible asset;
iv. the availability of adequate technical, financial and other resources to complete
the development and to use or sell the intangible asset;
v. its ability to measure reliably the expenditure attributable to the intangible asset
during its development; and
vi. how the intangible asset will generate probable future economic benefits.
Among other things, the entity can demonstrate the existence of a market for
the output of the intangible asset or the intangible asset itself or, if it is to be
used internally, the usefulness of the intangible asset.
Therefore d) is the correct solution.
88.
Answer: d.
These investments are carried at fair value and this is the only type of investment that
results in OCI.
Choice a) Equity method is used and income is part of net income.
Choice b) Fair value is used and gains and losses are included in net income.
Choice c) These investments are accounted for at cost.
89.
Answer: a.
Quick ratio = (Cash + Marketable securities + Receivables)/Current liabilities
= ($48 + $254 + $315)/$555 = 1.11.
Choice b) Excludes accounts receivable: ($48 + $254)/$555 = 0.54
Choice c) Current ratio: ($48 + $254 + $315 + $660)/$555 = 2.30
Choice d) Uses total assets and total liabilities: $2,096/$976 = 2.15
90.
Answer: d.
Accounts receivable turnover in days = 365/[Net credit sales/Average net accounts
receivable] or Average net accounts receivable/Net credit sales x 365 days
= 365/{($6,262 x 75%)/[($315 + $286)/2]} = 23.4 days.
Choice a) Uses total sales instead of credit sales: 365/{$6,262/[($315 + $286)/2]}
= 17.5 days.
Choice b) Uses gross margin and year-end accounts receivable: 365/[($6,262 $4,320)/$315] = 59.2 days.
Choice c) Uses Year 1 accounts receivable: 365/[($6,262 x 75%)/$286] = 22.2 days.
CMA Canada
Page 63
91.
Answer: a.
Times interest earned = Income before interest & taxes ÷ Interest
= ($577 + $265 + $75)/$75 = 12.2 times
Choice b) Deducts dividends: ($577 + $265 + $75 - $300)/$75 = 8.2 times
Choice c) Does not add back interest: ($577 + $265)/$75 = 11.2 times
Choice d) Uses net income: $577/$75 = 7.7 times
92.
Answer: c.
This is a finance/capital lease since the lease term is a major part of the economic life.
Under IAS17: the value recorded is equal to the fair value of the leased property or, if
lower, the present value of the minimum lease payments.
Under HB3065: the asset value is the present value of the minimum lease payments
and the maximum value recorded for the asset may not exceed the leased asset's fair
value.
PV of lease payments: $15,000 + $15,000PV6,4%
= 15,000 + 15,000(5.242) = $93,630
PV of lease payments < fair value of equipment.
Therefore, the lease is recorded as a $93,630 asset.
Choice a) Incorrectly uses the fair value.
Choice b) Incorrectly includes purchase price in equation. $93,630 + $7,000PV7,4%
= $98,950.
Choice d) This is a finance lease.
93.
Answer: a.
When assets are purchased as a group for a single lump sum price, the practice is to
allocate the total cost among the assets based on their relative fair values. The
assumption is that costs will vary in direct proportion to their relative values.
Choice b) The relative book value (of the previous business) is not relevant to the
new business that acquires the assets.
Choice c) The Historical Cost (or unamortized cost) is also not relevant to the new
business that acquires the assets.
Choice d) The UCC (like amortized cost) is also not relevant to the new business
that acquires the assets.
94.
Answer: a.
Pension expense = Service cost + Interest cost - Expected return + Amortization of
actuarial losses = $150,000 + (6% x $1,100,000) - $70,000 + $25,000 = $171,000.
Choice b) Excludes amortization of actuarial losses: $171,000 - $25,000 = $146,000
Choice c) Includes benefits paid to retirees: $171,000 + $80,000 = $251,000
Choice d) Deducts benefits paid: $171,000 - $80,000 = $91,000
Page 64
CMA Canada
95.
Answer: c.
Since Vast Corporation has significant influence over YHG Ltd., the investment must
be accounted for using the Equity Method. The investment is initially recorded at the
cost of the acquired shares; subsequently, its carrying amount is adjusted each period
for the investor’s proportionate share of the changes in the net assets of the investee.
When cash is received from the investment (dividend), the Investment account is
credited. Income from the investment is recognized as the investee earns income.
= $1,000,000 – 200,000 x 0.20 + 35% x $350,000 = $1,082,500
Choice a) Fails to reduce the investment by the dividends received.
$1,000,000 + 35% x ($350,000) = $1,122,500
Choice b) Fails to recognize net income attributable to Vast.
$1,000,000 – 200,000 x 0.20 = $960,000
Choice d) Uses the new share price.
$6.50 x 200,000 = $1,300,000
96.
Answer: d.
The percentage-of-sales approach matches costs with revenues because it relates the
charge to the period in which the sale is recorded. When a specific account is
determined to be uncollectible, its balance is removed from the accounts receivable
and the allowance for uncollectible accounts is reduced.
Allowance for uncollectible accounts = $10,000 beginning balance - $16,500 bad debt
written off in Year 4 + $4,100 collection of Year 3 bad debt + (1% x $1,500,000)
allowance for Year 4 sales = $12,600.
Choice a) Neglects to add back the Year 3 written-off receivable that was collected in
Year 4: $10,000 - $16,500 + (1% x $1,500,000) = $8,500.
Choice b) Assumed the allowance equals only the allowance related to Year 4 sales:
1% x $1,500,000 = $15,000.
Choice c) Uses total sales rather than credit sales: $10,000 - $16,500 + $4,100 +
$20,000 = $17,600.
97.
Answer: c.
It is possible that there is no related expenditure, e.g. an asset may be donated.
Choice a) A future event may affect an asset but in order for the asset to be
recognized there must be a past event.
Choice b) A contribution to future cash flow must be expected – the capacity for the
impact must be present.
Choice d) Control, although not legal control, is required.
CMA Canada
Page 65
98.
Answer: c.
The amounts would be reported under Operating Activities on the Cash Flow
Statement.
Net income earned
Add amortization
Add decrease in inventory
Deduct decrease in accounts payable
Increase (decrease) in cash from operating activities
$100,000
$ 20,000
$ 20,000
$ (15,000)
$125,000
Choice a) Excludes amortization. $125,000 - $20,000 = $105 000
Choice b) Incorrectly includes all transactions as operating activities.
$125K - $60K + $100K - $15K - $10K = $140,000
Choice d) Incorrectly deducts dividends declared. $125K - $15K = $110,000
99.
Answer: d.
Calculate the market value of the net identifiable assets:
= [$1,746K - 50K + 125K – 8K] – [124,500 + 300K + 274,500] = $1,114,000
Goodwill = Purchase price – Net identifiable assets = $1.2M - $1,114,000 = $86,000
Choice a) Uses long-term assets and liabilities only:
= (400,500 + 800,000) – (124,500 + 300K + 274,500) = $501,500
Goodwill = $1.2M - $501,500 = $698,500
Choice b) Uses common shares as goodwill: = $700,000
Choice c) Uses net identifiable assets at book value:
= $1,746K – (124,500 + 300K + 274,500) = $1,047,000
Goodwill = $1.2M - $1.047M = $153,000
100.
Answer: b.
Vertical integration is when a company takes over a function previously performed by
a supplier or distributor.
Choice a) An alliance is a collaborative partnership with a supplier or marketing ally
to enhance the company’s own competitiveness. This would not be an
alliance.
Choice c) A merger is when two companies exchange shares, but only one company
survives.
Choice d) A joint venture is when two parties work cooperatively on a particular
project.
101.
Answer: a.
WACC = (250/1,200)x12% + (650/1,200)x8% + (300/1,200)x5% = 8.08%
Choice b) Average out the three percentages evenly. (8%+5%+12%)/3 = 8.33%
Choice c) Assumes 12% required return.
Choice d) Ignores retained earning portion. (650/950)x8% + (300/950)x5% = 7.05%
Page 66
CMA Canada
Supplement of Formulae and Tables
Formulae
1.
CAPITAL STRUCTURE
a)
After-Tax Marginal Cost of Debt:
kb = k(1− T) or
where
b)
= interest rate
= corporate tax rate
= annual interest payment on debt
= face value of debt
Cost of Preferred Shares:
kp =
Dp
NPp
where
c)
k
T
I
F
(1− T)I
F
Dp = stated annual dividend payment on shares
NPp = net proceeds on preferred share issue
Cost of Common Equity:
i)
Cost of Common Shares (Capitalization of Dividends with Constant
Growth Rate):
ke =
D1
+g
NPe
where
ii)
D1 = dividend expected for period 1
NPe = net proceeds on common share issue
g
= annual long-term dividend growth rate
Cost of Retained Earnings:
kre = re =
D1
+g
Pe
where Pe
re
iii)
= market price of a share
= expected return on common equity
Capital Asset Pricing Model:
(
Rj = Rf + β j Rm − Rf
where
CMA Canada
Rj
Rf
Rm
βj
)
= expected rate of return on security j
= risk-free rate
= expected return for the market portfolio
= beta coefficient for security j (measure of
systematic risk)
Page 67
d)
Weighted Average Cost of Capital:
⎛ B⎞
⎛ P⎞
⎛ E⎞
k = ⎜ ⎟ kb + ⎜ ⎟ kp + ⎜ ⎟ ke
⎝ V⎠
⎝ V⎠
⎝ V⎠
where
2.
B
P
E
V
= amount of debt outstanding
= amount of preferred shares outstanding
= amount of common equity outstanding
= B + P + E = total value of firm
PRESENT VALUE OF TAX SHIELD FOR AMORTIZABLE ASSETS
a)
Present Value of Total Tax Shield from CCA for a New Asset
Present Value =
b)
Ctd ⎛ 2 + k ⎞ CdT ⎛ 1 + 0.5k ⎞
⎜
⎟=
⎜
⎟
(d + k ) ⎜⎝ 2(1 + k ) ⎟⎠ (d + k ) ⎝ 1 + k ⎠
Present Value of Total Tax Shield from CCA for an Asset that is Not Newly
Acquired
⎛ dT ⎞
Present Value = UCC⎜
⎟
⎝d +k ⎠
c)
Present Value of Total Tax Shield Lost From Salvage
Sn ⎛ dT ⎞
Sn
⎛ dT ⎞
Present Value =
⎟ or
⎟, depending on cash
n ⎜
n −1 ⎜
(1 + k ) ⎝ d + k ⎠ (1 + k ) ⎝ d + k ⎠
flow assumptions
Notation for above formulae:
C
= net initial investment
UCC = undepreciated capital cost of asset
= salvage value of asset realized at end of year n
Sn
T
= corporate tax rate
k
= discount rate or time value of money
d
= maximum rate of capital cost allowance
n
= total life of investment
Page 68
CMA Canada
Table 1
Present Value of One Dollar Due at the End of n Years
P=
n
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1%
0.990
.980
.971
.961
.951
.942
.933
.923
.914
.905
.896
.887
.879
.870
.861
.853
.844
.836
.828
.820
.811
.803
.795
.788
.780
CMA Canada
2%
0.980
.961
.942
.924
.906
.888
.871
.853
.837
.820
.804
.788
.773
.758
.743
.728
.714
.700
.686
.673
.660
.647
.634
.622
.610
3%
0.971
.943
.915
.888
.863
.837
.813
.789
.766
.744
.722
.701
.681
.661
.642
.623
.605
.587
.570
.554
.538
.522
.507
.492
.478
4%
0.962
.925
.889
.855
.822
.790
.760
.731
.703
.676
.650
.625
.601
.577
.555
.534
.513
.494
.475
.456
.439
.422
.406
.390
.375
1
(1+ i) n
5%
0.952
.907
.864
.823
.784
.746
.711
.677
.645
.614
.585
.557
.530
.505
.481
.458
.436
.416
.396
.377
.359
.342
.326
.310
.295
6%
0.943
.890
.840
.792
.747
.705
.665
.627
.592
.558
.527
.497
.469
.442
.417
.394
.371
.350
.331
.312
.294
.278
.262
.247
.233
7%
0.935
.873
.816
.763
.713
.666
.623
.582
.544
.508
.475
.444
.415
.388
.362
.339
.317
.296
.277
.258
.242
.226
.211
.197
.184
8%
0.926
.857
.794
.735
.681
.630
.583
.540
.500
.463
.429
.397
.368
.340
.315
.292
.270
.250
.232
.215
.199
.184
.170
.158
.146
9%
10%
0.917 0.909
.842
.826
.772
.751
.708
.683
.650
.621
.596
.564
.547
.513
.502
.467
.460
.424
.422
.386
.388
.350
.356
.319
.326
.290
.299
.263
.275
.239
.252
.218
.231
.198
.212
.180
.194
.164
.178
.149
.164
.135
.150
.123
.138
.112
.126
.102
.116
.092
Page 69
Table 1 (cont’d)
P=
n
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Page 70
11%
0.901
.812
.731
.659
.593
.535
.482
.434
.391
.352
.317
.286
.258
.232
.209
.188
.170
.153
.138
.124
.112
.101
.091
.082
.074
12%
0.893
.797
.712
.636
.567
.507
.452
.404
.361
.322
.287
.257
.229
.205
.183
.163
.146
.130
.116
.104
.093
.083
.074
.066
.059
13%
0.885
.783
.693
.613
.543
.480
.425
.376
.333
.295
.261
.231
.204
.181
.160
.142
.125
.111
.098
.087
.077
.068
.060
.053
.047
14%
0.877
.769
.675
.592
.519
.456
.400
.351
.308
.270
.237
.208
.182
.160
.140
.123
.108
.095
.083
.073
.064
.056
.049
.043
.038
1
(1+ i) n
15%
0.870
.756
.658
.572
.497
.432
.376
.327
.284
.247
.215
.187
.163
.141
.123
.107
.093
.081
.070
.061
.053
.046
.040
.035
.030
16%
0.862
.743
.641
.552
.476
.410
.354
.305
.263
.227
.195
.168
.145
.125
.108
.093
.080
.069
.060
.051
.044
.038
.033
.028
.024
17%
0.855
.731
.624
.534
.456
.390
.333
.285
.243
.208
.178
.152
.130
.111
.095
.081
.069
.059
.051
.043
.037
.032
.027
.023
.020
18%
0.847
.718
.609
.516
.437
.370
.314
.266
.225
.191
.162
.137
.116
.099
.084
.071
.060
.051
.043
.037
.031
.026
.022
.019
.016
19%
0.840
.706
.593
.499
.419
.352
.296
.249
.209
.176
.148
.124
.104
.088
.074
.062
.052
.044
.037
.031
.026
.022
.018
.015
.013
20%
0.833
.694
.579
.482
.402
.335
.279
.233
.194
.162
.135
.112
.093
.078
.065
.054
.045
.038
.031
.026
.022
.018
.015
.013
.010
CMA Canada
Table 1 (cont’d)
P=
n
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
21%
0.826
.683
.564
.467
.386
.319
.263
.218
.180
.149
.123
.102
.084
.069
.057
.047
.039
.032
.027
.022
.018
.015
.012
.010
.009
CMA Canada
22%
0.820
.672
.551
.451
.370
.303
.249
.204
.167
.137
.112
.092
.075
.062
.051
.042
.034
.028
.023
.019
.015
.013
.010
.008
.007
23%
0.813
.661
.537
.437
.355
.289
.235
.191
.155
.126
.103
.083
.068
.055
.045
.036
.030
.024
.020
.016
.013
.011
.009
.007
.006
24%
0.806
.650
.524
.423
.341
.275
.222
.179
.144
.116
.094
.076
.061
.049
.040
.032
.026
.021
.017
.014
.011
.009
.007
.006
.005
1
(1+ i) n
25%
0.800
.640
.512
.410
.328
.262
.210
.168
.134
.107
.086
.069
.055
.044
.035
.028
.023
.018
.014
.012
.009
.007
.006
.005
.004
26%
0.794
.630
.500
.397
.315
.250
.198
.157
.125
.099
.079
.062
.050
.039
.031
.025
.020
.016
.012
.010
.008
.006
.005
.004
.003
27%
0.787
.620
.488
.384
.303
.238
.188
.148
.116
.092
.072
.057
.045
.035
.028
.022
.017
.014
.011
.008
.007
.005
.004
.003
.003
28%
0.781
.610
.477
.373
.291
.227
.178
.139
.108
.085
.066
.052
.040
.032
.025
.019
.015
.012
.009
.007
.006
.004
.003
.003
.002
29%
0.775
.601
.466
.361
.280
.217
.168
.130
.101
.078
.061
.047
.037
.028
.022
.017
.013
.010
.008
.006
.005
.004
.003
.002
.002
30%
0.769
.592
.455
.350
.269
.207
.159
.123
.094
.073
.056
.043
.033
.025
.020
.015
.012
.009
.007
.005
.004
.003
.002
.002
.001
Page 71
Table 1 (cont’d)
P=
n
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Page 72
31%
0.763
.583
.445
.340
.259
.198
.151
.115
.088
.067
.051
.039
.030
.023
.017
.013
.010
.008
.006
.005
.003
.003
.002
.002
.001
32%
0.758
.574
.435
.329
.250
.189
.143
.108
.082
.062
.047
.036
.027
.021
.016
.012
.009
.007
.005
.004
.003
.002
.002
.001
.001
33%
0.752
.565
.425
.320
.240
.181
.136
.102
.077
.058
.043
.033
.025
.018
.014
.010
.008
.006
.004
.003
.003
.002
.001
.001
.001
34%
0.746
.557
.416
.310
.231
.173
.129
.096
.072
.054
.040
.030
.022
.017
.012
.009
.007
.005
.004
.003
.002
.002
.001
.001
.001
1
(1+ i) n
35%
0.741
.549
.406
.301
.223
.165
.122
.091
.067
.050
.037
.027
.020
.015
.011
.008
.006
.005
.003
.002
.002
.001
.001
.001
.001
36%
0.735
.541
.398
.292
.215
.158
.116
.085
.063
.046
.034
.025
.018
.014
.010
.007
.005
.004
.003
.002
.002
.001
.001
.001
.001
37%
0.730
.533
.389
.284
.207
.151
.110
.081
.059
.043
.031
.023
.017
.012
.009
.006
.005
.003
.003
.002
.001
.001
.001
.001
.001
38%
0.725
.525
.381
.276
.200
.145
.105
.076
.055
.040
.029
.021
.015
.011
.008
.006
.004
.003
.002
.002
.001
.001
.001
.001
.001
39%
0.719
.518
.372
.268
.193
.139
.100
.072
.052
.037
.027
.019
.014
.010
.007
.005
.004
.003
.002
.001
.001
.001
.001
.001
.001
40%
0.714
.510
.364
.260
.186
.133
.095
.068
.048
.035
.025
.018
.013
.009
.006
.005
.003
.002
.002
.001
.001
.001
.001
.001
.001
CMA Canada
Table 2
Present Value of One Dollar Per Year — n Years at i%
⎛ 1 ⎞
⎟
1− ⎜
⎜ 1+ i n ⎟
) ⎠
⎝(
Pn =
i
n
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1%
0.990
1.970
2.941
3.902
4.854
5.796
6.728
7.652
8.566
9.471
10.368
11.255
12.134
13.004
13.865
14.718
15.562
16.398
17.226
18.046
18.857
19.661
20.456
21.244
22.023
CMA Canada
2%
0.980
1.942
2.884
3.808
4.713
5.601
6.472
7.325
8.162
8.983
9.787
10.575
11.348
12.106
12.849
13.578
14.292
14.992
15.678
16.351
17.011
17.658
18.292
18.914
19.523
3%
0.971
1.914
2.829
3.717
4.580
5.417
6.230
7.020
7.786
8.530
9.253
9.954
10.635
11.296
11.938
12.561
13.166
13.753
14.324
14.877
15.415
15.937
16.444
16.936
17.413
4%
0.962
1.886
2.775
3.630
4.452
5.242
6.002
6.733
7.435
8.111
8.760
9.385
9.986
10.563
11.118
11.652
12.166
12.659
13.134
13.590
14.029
14.451
14.857
15.247
15.622
5%
0.952
1.859
2.723
3.547
4.330
5.076
5.786
6.463
7.108
7.722
8.306
8.863
9.394
9.899
10.380
10.838
11.274
11.690
12.085
12.462
12.821
13.163
13.489
13.799
14.094
6%
0.943
1.833
2.673
3.465
4.212
4.917
5.582
6.210
6.802
7.360
7.887
8.384
8.853
9.295
9.712
10.106
10.477
10.828
11.158
11.470
11.764
12.042
12.303
12.550
12.783
7%
0.935
1.808
2.624
3.387
4.100
4.767
5.389
5.971
6.515
7.024
7.499
7.943
8.358
8.745
9.108
9.447
9.763
10.059
10.336
10.594
10.836
11.061
11.272
11.469
11.654
8%
0.926
1.783
2.577
3.312
3.993
4.623
5.206
5.747
6.247
6.710
7.139
7.536
7.904
8.224
8.560
8.851
9.122
9.372
9.604
9.818
10.017
10.201
10.371
10.529
10.675
9%
0.917
1.759
2.531
3.240
3.890
4.486
5.033
5.535
5.995
6.418
6.805
7.161
7.487
7.786
8.061
8.313
8.544
8.756
8.950
9.129
9.292
9.442
9.580
9.707
9.823
10%
0.909
1.736
2.487
3.170
3.791
4.355
4.868
5.335
5.759
6.145
6.495
6.814
7.103
7.367
7.606
7.824
8.022
8.201
8.365
8.514
8.649
8.772
8.883
8.985
9.077
Page 73
Table 2 (cont’d)
⎛ 1 ⎞
⎟
1− ⎜
⎜ 1+ i n ⎟
) ⎠
⎝(
Pn =
i
n
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Page 74
11%
0.901
1.713
2.444
3.102
3.696
4.231
4.712
5.146
5.537
5.889
6.207
6.492
6.750
6.982
7.191
7.379
7.549
7.702
7.839
7.963
8.075
8.176
8.266
8.348
8.422
12%
0.893
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650
5.938
6.194
6.424
6.628
6.811
6.974
7.120
7.250
7.366
7.469
7.562
7.645
7.718
7.784
7.843
13%
0.885
1.668
2.361
2.975
3.517
3.998
4.423
4.799
5.132
5.426
5.687
5.918
6.122
6.303
6.462
6.604
6.729
6.840
6.938
7.025
7.102
7.170
7.230
7.283
7.330
14%
0.877
1.647
2.322
2.914
3.433
3.889
4.288
4.639
4.946
5.216
5.453
5.660
5.842
6.002
6.142
6.265
6.373
6.467
6.550
6.623
6.687
6.743
6.792
6.835
6.873
15%
0.870
1.626
2.283
2.855
3.352
3.785
4.160
4.487
4.772
5.019
5.234
5.421
5.583
5.725
5.847
5.954
6.047
6.128
6.198
6.259
6.313
6.359
6.399
6.434
6.464
16%
0.862
1.605
2.246
2.798
3.274
3.685
4.039
4.344
4.607
4.833
5.029
5.197
5.342
5.468
5.576
5.669
5.749
5.818
5.878
5.929
5.973
6.011
6.044
6.073
6.097
17%
0.855
1.585
2.210
2.743
3.199
3.589
3.922
4.207
4.451
4.659
4.836
4.988
5.118
5.229
5.324
5.405
5.475
5.534
5.585
5.628
5.665
5.696
5.723
5.747
5.766
18%
0.848
1.566
2.174
2.690
3.127
3.498
3.812
4.078
4.303
4.494
4.656
4.793
4.910
5.008
5.092
5.162
5.222
5.273
5.316
5.353
5.384
5.410
5.432
5.451
5.467
19%
0.840
1.547
2.140
2.639
3.058
3.410
3.706
3.954
4.163
4.339
4.487
4.611
4.715
4.802
4.876
4.938
4.990
5.033
5.070
5.101
5.127
5.149
5.167
5.182
5.195
20%
0.833
1.528
2.107
2.589
2.991
3.326
3.605
3.837
4.031
4.193
4.327
4.439
4.533
4.611
4.676
4.730
4.775
4.812
4.844
4.870
4.891
4.909
4.925
4.937
4.948
CMA Canada
Table 2 (cont’d)
⎛ 1 ⎞
⎟
1− ⎜
⎜ 1+ i n ⎟
) ⎠
⎝(
Pn =
i
n
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
21%
0.826
1.510
2.074
2.540
2.926
3.245
3.508
3.726
3.905
4.054
4.177
4.279
4.362
4.432
4.489
4.536
4.576
4.608
4.635
4.657
4.675
4.690
4.703
4.713
4.721
CMA Canada
22%
0.820
1.492
2.042
2.494
2.864
3.167
3.416
3.619
3.786
3.923
4.035
4.127
4.203
4.265
4.315
4.357
4.391
4.419
4.442
4.460
4.476
4.488
4.499
4.507
4.514
23%
0.813
1.474
2.011
2.448
2.804
3.092
3.327
3.518
3.673
3.799
3.902
3.985
4.053
4.108
4.153
4.189
4.219
4.243
4.263
4.279
4.292
4.302
4.311
4.318
4.323
24%
0.807
1.457
1.981
2.404
2.745
3.021
3.242
3.421
3.566
3.682
3.776
3.851
3.912
3.962
4.001
4.033
4.059
4.080
4.097
4.110
4.121
4.130
4.137
4.143
4.147
25%
0.800
1.440
1.952
2.362
2.689
2.951
3.161
3.329
3.463
3.571
3.656
3.725
3.780
3.824
3.859
3.887
3.910
3.928
3.942
3.954
3.963
3.971
3.976
3.981
3.985
26%
0.794
1.424
1.923
2.320
2.635
2.885
3.083
3.241
3.366
3.465
3.543
3.606
3.656
3.695
3.726
3.751
3.771
3.786
3.799
3.808
3.816
3.822
3.827
3.831
3.834
27%
0.787
1.407
1.896
2.280
2.583
2.821
3.009
3.156
3.273
3.364
3.437
3.493
3.538
3.573
3.601
3.623
3.640
3.654
3.664
3.673
3.679
3.684
3.689
3.692
3.694
28%
0.781
1.392
1.868
2.241
2.532
2.759
2.937
3.076
3.184
3.269
3.335
3.387
3.427
3.459
3.483
3.503
3.518
3.529
3.539
3.546
3.551
3.556
3.559
3.562
3.564
29%
0.775
1.376
1.842
2.203
2.483
2.700
2.868
2.999
3.100
3.178
3.239
3.286
3.322
3.351
3.373
3.390
3.403
3.413
3.421
3.427
3.432
3.436
3.438
3.441
3.442
30%
0.769
1.361
1.816
2.166
2.436
2.643
2.802
2.925
3.019
3.092
3.147
3.190
3.223
3.249
3.268
3.283
3.295
3.304
3.311
3.316
3.320
3.323
3.325
3.327
3.329
Page 75
Table 2 (cont’d)
⎛ 1 ⎞
⎟
1− ⎜
⎜ 1+ i n ⎟
) ⎠
⎝(
Pn =
i
n
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Page 76
31%
0.763
1.346
1.791
2.131
2.390
2.588
2.739
2.854
2.942
3.009
3.060
3.100
3.129
3.152
3.170
3.183
3.193
3.201
3.207
3.211
3.215
3.217
3.219
3.221
3.222
32%
0.758
1.332
1.766
2.096
2.345
2.534
2.678
2.786
2.868
2.930
2.978
3.013
3.040
3.061
3.076
3.088
3.097
3.104
3.109
3.113
3.116
3.118
3.120
3.121
3.122
33%
0.752
1.317
1.742
2.062
2.302
2.483
2.619
2.721
2.798
2.855
2.899
2.931
2.956
2.974
2.988
2.999
3.007
3.012
3.017
3.020
3.023
3.025
3.026
3.027
3.028
34%
0.746
1.303
1.719
2.029
2.260
2.433
2.562
2.658
2.730
2.784
2.824
2.853
2.876
2.892
2.905
2.914
2.921
2.926
2.930
2.933
2.935
2.937
2.938
2.939
2.939
35%
0.741
1.289
1.696
1.997
2.220
2.385
2.508
2.598
2.665
2.715
2.752
2.779
2.799
2.814
2.826
2.834
2.840
2.844
2.848
2.850
2.852
2.853
2.854
2.855
2.856
36%
0.735
1.276
1.674
1.966
2.181
2.339
2.455
2.540
2.603
2.650
2.683
2.708
2.727
2.740
2.750
2.758
2.763
2.767
2.770
2.772
2.773
2.775
2.775
2.776
2.777
37%
0.730
1.263
1.652
1.936
2.143
2.294
2.404
2.485
2.544
2.587
2.618
2.641
2.658
2.670
2.679
2.685
2.690
2.693
2.696
2.698
2.699
2.700
2.701
2.701
2.702
38%
0.725
1.250
1.630
1.906
2.106
2.251
2.356
2.432
2.487
2.527
2.556
2.576
2.592
2.603
2.611
2.616
2.621
2.624
2.626
2.627
2.629
2.629
2.630
2.630
2.631
39%
0.719
1.237
1.609
1.877
2.070
2.209
2.308
2.380
2.432
2.469
2.496
2.515
2.529
2.539
2.546
2.551
2.555
2.557
2.559
2.561
2.562
2.562
2.563
2.563
2.563
40%
0.714
1.225
1.589
1.849
2.035
2.168
2.263
2.331
2.379
2.414
2.438
2.456
2.469
2.478
2.484
2.489
2.492
2.494
2.496
2.497
2.498
2.499
2.499
2.499
2.499
CMA Canada

2011 Sample Entrance Examination

Transcription

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