2012 Sample
Entrance Examination
(Time Allowed: 4 hours)
Notes:
i)
All answers must be indicated on the 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.
Revised April 23, 2012
© 2012 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.
2012 Sample Entrance Examination
TABLE OF CONTENTS
Examination:
Instructions ......................................................................................... 1
Questions ............................................................................................ 3
Solutions ........................................................................................... 37
Supplement of Formulae ......................................................................... 71
* This supplement is provided to all candidates with the examination.
2012 Sample Entrance Examination
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 100 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:
89.
(-) 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 89 in the “ANSWERS” area of the multiple-choice answer sheet as shown below:
89
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.”
CMA Canada
Page 1
2012 Sample Entrance Examination
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.
CMA Canada
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2012 Sample Entrance Examination
Corporate Finance
1.
QWC Ltd. has cash of $100,000 that will be invested in an equity investment that has
a beta of 2.25. The current risk-free rate in the market is 2.5%, and the market
requires an 8% risk premium for equity securities. What return should QWC Ltd.
expect to earn?
a) $8,000
b) $18,000
c) $23,625
d) $20,500
2.
(+) BG Corporation is considering a bid to take over SM Limited. Should the takeover
occur, BG Corporation would benefit from SM Limited’s before-tax operating cash
flows of:
i) $500,000 per year for the first three years,
ii) $700,000 per year from the fourth year into perpetuity, and
iii) $225,000 per year of synergistic savings before taxes in perpetuity starting
from the first year.
Assume that the cash flows occur at the end of each year, the tax rate is 40% for both
companies, and BG Corporation’s after-tax required rate of return is 13%. What is the
maximum amount that BG Corporation should be willing to pay to take over SM
Corporation (rounded to the nearest thousand dollars)?
a)
b)
c)
d)
3.
$4,978,000
$2,947,000
$1,909,000
$3,986,000
XYZ company recently issued rights to raise financing. The shares are currently
trading for $18 per share on the stock exchange. The subscription price for the rights
offering is $14 per share, and an investor will require 3 rights to purchase 1 share.
The value of one right is
a) $12.00.
b) $2.33.
c) $1.00.
d)
$0.
CMA Canada
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2012 Sample Entrance Examination
4.
LPY Ltd. has cash of $500,000 that will be used to create an investment portfolio. The
portfolio will be invested evenly in two assets: an equity investment that has a beta of
1.70 and a one-year risk-free interest bearing certificate. The current risk-free rate in
the market is 3% and the market requires a 6% risk premium for equity securities.
What one-year return should LPY Ltd. expect to earn on its portfolio?
a) $7,500
b) $30,000
c) $33,000
d) $40,500
5.
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) $295,000
b) $250,000
c) $75,000
d) $25,000
6.
According to the Efficient Market Hypothesis, what effect would a higher-thanexpected earnings report have on a firm’s share price?
a) A gradual increase in the share price over several days.
b) An immediate decrease in the share price, with no later adjustments.
c) An immediate increase in the share price, followed by a decrease the following
day.
d) An immediate increase in the share price, with no later adjustments.
CMA Canada
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2012 Sample Entrance Examination
7.
A company is considering the following projects:
Annual after-tax cash inflows
Initial project cost
Cost of capital
Project life
W
$620,000
$2,000,000
9%
4 years
X
$1,000,000
$5,000,000
11%
5 years
Y
$2,000,000
$10,000,000
13%
7 years
Based only on profitability index, which project(s) should the company invest in?
a)
b)
c)
d)
8.
Only W.
Only X.
Only Y.
All three projects.
The Capital Asset Pricing Model (CAPM) disregards diversifiable risk because the
model
a) assumes that investors are risk neutral but not risk averse.
b) assumes that investors will be holding anywhere from one security to the entire
market of securities.
c) assumes that diversifiable risk represents that aspect of financial risk which is
unique to that security and not related to the financial risk of the market.
d) recognizes that diversifiable risk can be virtually eliminated with a large enough
portfolio.
9.
(+) On January 1, 2007, Moon Co. issued eight-year bonds with a face value of
$950,000 and a stated interest rate of 7%, payable semi-annually on June 30 and
December 31. The market yield for similar bonds was 8%.
Two years later, on January 1, 2009, Moon Co. repurchased the bonds in the open
market to reduce its overall level of debt. At the date of repurchase, the market yield
had increased to 10%.
What is the difference in cash received at issuance and cash paid at repurchase for
the bond (rounded to the nearest thousand)?
a) $(11,000)
b) $126,000
c)
$0
d) $71,000
10.
(-) An asset’s market (systematic) risk is measured by its
a)
b)
c)
d)
CMA Canada
variance of returns.
beta coefficient.
standard deviation.
total return.
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2012 Sample Entrance Examination
11.
(+) Assume that Acquire Ltd. wants to raise capital by issuing a $48,000,000 mortgage
bond. A brokerage firm that raises market capital for Acquire Ltd. estimates that the
10-year bond will need a stated annual interest rate of 8.0%. Semi-annual interest
payments are made on January 31 and July 31 each year. The brokerage firm also
charges 2.5% of face value for commission and administration charges. This bond is
sold to the primary market on February 1 with an effective interest rate of 10.0%. How
much cash will Acquire Ltd. receive from the sale of this mortgage bond (rounded to
the nearest ten thousand)?
a)
b)
c)
d)
12.
$42,020,000
$42,120,000
$40,820,000
$41,070,000
DHC Ltd. is looking to purchase WIC Ltd., which has the following information:
Revenue
EBITD
Basic EPS
Net assets
Shares outstanding
Dividends paid
$4,000,000
$900,000
$1.40
$5,000,000
500,000
$0.50
Research has shown that the price-earnings ratio for companies like WIC Ltd. is 9.5.
Based on that ratio, what is the value of WIC Ltd.?
a)
b)
c)
d)
13.
$2,375,000
$8,550,000
$5,000,000
$6,650,000
(+) XYZ Ltd. has the following current and projected information:
Sales
Variable costs (35% of sales)
Fixed costs (excluding interest and taxes)
Earnings per share
Current
$700,000
$245,000
$120,000
$0.90
Projected
$800,000
$280,000
$120,000
$1.00
Given the above information, what is the projected degree of operating leverage for
XYZ Ltd.?
a)
b)
c)
d)
CMA Canada
0.78
0.57
0.74
1.36
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2012 Sample Entrance Examination
14.
(+) Trout Ltd. produces a single product that has a contribution margin of 60% per unit
and sold 500,000 units last year. Trout has a degree of operating leverage of 1.60 and
a degree of financial leverage of 1.20 for the current year. If the sales volume were to
increase by 10% this coming year, what would be the expected percentage increase
in earnings per share (rounded to the nearest percent)?
a) 16%
b) 12%
c) 6%
d) 19%
15.
(+) A company is looking to replace a machine with a new unit that is more efficient.
The old machine is also in need of many repairs.
Purchase price
Salvage value today
Salvage value in 5 years
Repairs immediately
Repairs at the end of 3 years
Annual operating costs
Remaining life
Old Machine
$100,000
$15,000
$1,000
$25,000
$10,000
$20,000
5 years
New Machine
$120,000
n/a
$80,000
n/a
n/a
$12,000
5 years
Based on a cost of capital of 7% and ignoring tax effects, what is the net present value
in favour of buying the new machine?
a) $17,287
b) $(2,287)
c) $(15,513)
d) $49,000
16.
(+) SCC Inc. has the following financial information:
Current liabilities
Long-term debt
Total liabilities
Preferred shares
Common equity
$900,000
$1,300,000
$2,200,000
$3,500,000
$6,200,000
The long-term debt consists of a single bond issue paying 6% interest annually. These
bonds currently yield 7.5% in the market. The current cost of the preferred shares is
8%. The current cost of the common shares is 12%. The company’s tax rate is 40%.
What is SCC Inc.’s weighted average cost of capital (rounded to the nearest tenth of a
percent)?
a) 9.4%
b) 10.2%
c) 9.8%
d) 9.2%
CMA Canada
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2012 Sample Entrance Examination
17.
Flower Inc. is issuing preferred shares to raise capital. Each preferred share will be
issued with a par value of $200 and a cumulative dividend of $18. The preferred
shares will result in after-tax underwriting expenses of $3 per share.
What is the cost of issuing the preferred shares?
a) 9.14%
b) 9.00%
c) 7.50%
d) 10.50%
18.
RLC Ltd. is considering investing into one of the following:
i) Investment A at 9.75% compounded monthly.
ii) Investment B at 9.25% compounded daily.
iii) Investment C at 10.0% compounded quarterly.
Which investment(s) should the company choose?
a)
b)
c)
d)
Only A.
Only B.
Only C.
Either A or B.
Financial Accounting
19.
DLC Ltd. has calculated its basic EPS to be $5.50 at the end of Year 4 and has the
following outstanding debt and equity information.
i)
$2,000,000 in 10% convertible bonds. Each $1,000 bond could be converted to
8 common shares.
ii) 5,000 outstanding stock options awarded at the start of Year 4 to executives at
DLC with an exercise price of $55. The price of DLC stock reached $58 on
July 1, Year 4.
iii) 50,000 convertible preferred shares issued at the start of Year 4, each with a
$50 annual cumulative dividend paid at the end of each year. Each preferred
share could be converted to 10 common shares.
The corporate tax rate is 40%. Which of the above items could dilute the basic EPS?
a)
b)
c)
d)
CMA Canada
i) only.
iii) only.
ii) and iii) only.
All of i), ii) and iii).
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2012 Sample Entrance Examination
20.
(-) Which of the following statements regarding the conceptual framework for financial
reporting under ASPE is correct?
a)
b)
c)
d)
21.
The key principal qualitative characteristics are relevance and verifiability.
Enhancing characteristics include comparability, timeliness and relevance.
Reliability includes verifiability, neutrality and the freedom from error or bias.
Consistency is a principal qualitative characteristic.
Which of the following scenarios correctly identifies and records a subsequent event?
a) ABC Co. has a year-end of December 31 and was on a one-week shutdown from
December 24 until January 2. On December 30, ABC suffers a fire in one of its
warehouses resulting in damages of $5,000,000. ABC disclosed these details in its
financial statements.
b) XYZ Co. has a June 30 year-end. The auditors noted during their work performed
the week of July 21 that XYZ was in the process of issuing substantial new debt.
As a result, they are recommending an adjustment to the June 30 financial
statements.
c) N Co. has an October 31 year-end. While the auditors were completing their audit
of N’s year-end financial statements, N’s unionized staff went on strike and
remained on strike past the financial statement issue date. No disclosure or
adjustments were made to the year-end financial statements.
d) T Co. has a material receivable from S Co. on its year-end financial statements
dated January 31. Prior to the completion of its financial statements, T Co. was
made aware that S Co. had gone bankrupt and would be unable to pay any of its
amounts owing to T Co. This fact was disclosed in the financial statements of
T Co.
22.
GC Ltd. has entered into an agreement with Island Ltd. (IL) in which each company
exchanges land. GC would give IL 10 acres of vacant land that GC cannot use and is
currently recorded at $1,100,000. IL will give GC 10 acres of land that GC would use
to build a new manufacturing plant. The appraised fair value of the land that GC would
receive from IL is $1,350,000 and the appraised fair value of the vacant GC land is
$1,320,000.
Under ASPE, GC would treat this as a non-monetary transaction with
a) no commercial substance and record the land received from IL at $1,100,000.
b) no commercial substance and record the land received from IL at $1,350,000.
c) commercial substance and record the land received from IL at the fair value of the
asset given up—$1,320,000, resulting in a gain of $220,000.
d) commercial substance and record the land received from IL at the fair value of the
asset received—$1,350,000, resulting in a gain of $250,000.
CMA Canada
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2012 Sample Entrance Examination
23.
Which of the following statements is true with respect to accounting for income taxes?
a) Under IFRS, companies may choose to use either the deferred method or the
future income tax method.
b) Under ASPE, companies must use the taxes payable method.
c) Under IFRS, deferred income tax asset and deferred income tax liability accounts
are classified as current or noncurrent, according to the type of asset or liability
that created them.
d) Under ASPE, companies choosing to use the future income tax method are not
allowed to discount future income tax assets and liabilities.
24.
Guinness Co. (GC) is a private company and follows ASPE. It recently purchased
shares of Alex Ltd. (AL). Under which condition can GC record this share purchase
using either cost or equity method?
a)
b)
c)
d)
25.
GC purchased 40% of AL, and AL’s shares are not publicly traded.
GC purchased 40% of AL, and AL’s shares are publicly traded.
GC purchased 5% of AL, and AL’s shares are publicly traded.
GC purchased 20% of AL, and AL’s shares are publicly traded.
At the end of Year 11, JJW Ltd. owns a patent with a remaining useful life of 10 years
and a carrying amount of $400,000. JJW expects future net (undiscounted) cash flows
from this patent to total $390,000. The patent’s fair value is $350,000 and the disposal
costs are expected to be $15,000. The discounted cash flows (value in use) would be
$375,000.
What impairment loss would JJW Corporation record on its books if it is a publicly
traded enterprise?
a)
$0
b) $10,000
c) $25,000
d) $65,000
26.
(-) The following is selected financial data from CHI Inc. as at December 31:
Accounts payable
Inventory
Year 1
$120,000
$75,000
Year 2
$180,000
$50,000
The accounts payable balances relate solely to CHI’s inventory purchases, all of
which were made on account. Sales for Year 2 were $200,000. All sales were credit
sales. CHI Inc.’s pricing policy provides the company with a gross profit of 40%.
How much inventory did CHI purchase in Year 2?
a) $55,000
b) $95,000
c) $120,000
d) $145,000
CMA Canada
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2012 Sample Entrance Examination
27.
MS Ltd. uses ASPE and recently purchased a government bond that matures in four
years. MS Ltd. measured the investment at amortized cost. Which one of the following
is correct?
a)
b)
c)
d)
28.
When the bond was acquired, MS Ltd. had to recognize it at amortized cost.
The transaction costs are recognized in net income in the period incurred.
At each reporting date, the bond must be adjusted to fair value.
The income from amortized cost investments, including any amortization of
premium or discount, is included in net income.
Sunnyside Manufacturing, a publicly traded company, has entered into an agreement
with FP Inc. to lease a specialized piece of production equipment. Significant
modification would be required to make this equipment available to others after the
lease has expired. Terms of the lease are as follows:
Lease term
Expected life of the equipment
Implicit interest rate
Sunnyside’s borrowing rate
Annual lease payment
Fair value of the equipment
Leased asset
5 years
8 years
8%
6%
$60,000 (made at the beginning of the year)
$400,000
Reverts to the lessor at the end of the lease
Based on this, in the first year of the lease Sunnyside would account the production
equipment as:
a)
b)
c)
d)
29.
an operating lease of $60,000.
a finance lease of $258,720.
a finance lease of $400,000.
a finance lease of $267,900.
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)
T only.
S and T only.
S, T and U only.
Q, R and U only.
CMA Canada
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2012 Sample Entrance Examination
30.
(+) On January 1, Year 2, GHI Inc. had depreciable assets with a book value of
$920,000 and a historical cost of $1,000,000. CCA totalling $100,000 had been taken
on these assets. During Year 2, depreciation of $80,000 and CCA of $20,000 had
been taken on these assets. The tax rate in effect is 35%.
For Year 2, the temporary differences arising from the above would result in
a)
b)
c)
d)
31.
a decrease to income tax expense of $21,000.
an increase to income tax expense of $7,000.
a decrease to income tax expense of $7,000.
a decrease to income tax expense of $14,000.
Merlin Co. reports under ASPE with a December 31 fiscal year-end. On January 2, the
unadjusted balance in the allowance for doubtful accounts is a debit of $15,000.
Previously, the allowance was established at 2% of accounts receivable, but recent
industry analysis suggests that, going forward, the allowance should be established at
4% of accounts receivable.
If the year-end accounts receivable balance is $625,000, the correct year-end
adjustment is a credit to the allowance for doubtful accounts for
a)
b)
c)
d)
32.
$10,000.
$25,000.
$40,000.
$27,500.
Johnson Inc. adheres to IFRS and sponsors a defined benefit pension plan for its
employee group. On January 1, Year 1, a plan amendment took effect. The plan
amendment resulted in an additional $920,000 in benefits payable to the employee
group, half of which have vested on January 1, Year 1. The plan’s expected average
remaining service life (EARSL) is 8 years, while the average vesting period is 5 years.
For the year ended December 31, Year 1, Johnson’s plan amendment will result in an
increase in pension expense of
a)
b)
c)
d)
33.
$115,000.
$184,000.
$552,000.
$517,500.
Items that should be included in a company’s Management Discussion and Analysis
(MD&A) are
a)
b)
c)
d)
CMA Canada
descriptions of the company’s accounting policies.
explanations of uncertainties and contingencies.
the company’s key performance drivers.
both b) and c).
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2012 Sample Entrance Examination
The following information pertains to questions 34 to 36.
Quinn Manufacturing has the following results:
(in ’000s)
Current assets
Long-term investments
Property, plant and equipment
Goodwill
Other non-current assets
Year 7
$15,640
3,500
8,500
1,000
5,330
Year 6
$14,825
3,500
8,300
1,000
5,025
$33,970
$32,650
$10,355
5,500
4,365
2,500
7,500
3,750
$10,200
5,550
4,150
2,500
7,500
2,750
$33,970
$32,650
Sales
Cost of sales
Gross profit
Operating expenses
Operating income
Other income/expenses (net)
Earnings before interest and tax
Interest expense
Income tax expense
$24,200
11,250
12,950
8,250
4,700
425
5,125
330
1,438
$20,500
9,400
11,100
7,250
3,850
600
4,450
333
1,235
Net Income
$ 3,357
$ 2,882
Current liabilities
Long-term debt
Other non-current liabilities
Preferred stock
Common stock
Retained earnings
34.
What is Quinn’s times interest earned for Year 7?
a)
b)
c)
d)
35.
15.53
10.17
14.24
13.36
What is Quinn’s return on total assets for Year 6?
a) 22.04%
b) 15.39%
c) 8.65%
d) 10.08%
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2012 Sample Entrance Examination
36.
Based on the Year 7 current ratio, Quinn has
a)
b)
c)
d)
bettered its use of assets.
greater liquidity.
improved profitability.
higher inventory turnover.
-------------------------------37.
The following is selected financial data for Horse Inc.:
Accounts receivable
Allowance for doubtful accounts
(credit balance)
December 31,
Year 1
$120,000
December 31,
Year 2
$160,000
$5,000
$12,000
Sales for Year 2 were $200,000. All sales were credit sales. Bad debt expense for
Year 2 is estimated at 5% of sales. Horse Inc.’s cash collections for Year 2 were
a)
b)
c)
d)
$157,000.
$162,000.
$167,000.
$145,000.
The following information pertains to questions 38 and 39.
On January 1, Year 1, ABC Inc. bought and received equipment from a US supplier for
$100,000 US payable on March 1, Year 1. On January 1, immediately after receiving the
supplier’s invoice, ABC entered into a 60-day forward exchange contract to purchase $100,000
US for $105,000 Cdn for delivery on March 1.
Spot exchange rates:
January 1
March 1
$1 US = $1.04 Cdn
$1 US = $1.06 Cdn
60-day forward rates:
January 1
March 1
CMA Canada
$1 US = $1.05 Cdn
$1 US = $1.09 Cdn
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2012 Sample Entrance Examination
38.
ABC Inc. elected to apply hedge accounting and designated its forward contract as a
fair value hedge of its US dollar account payable. Ignoring the time value of money,
when the contract is settled on March 1, the journal entry for the contract will result in
a foreign exchange gain of
a)
b)
c)
d)
39.
$2,000 Cdn.
$1,000 Cdn.
$3,000 Cdn.
$5,000 Cdn.
Assume that no depreciation had been taken on the equipment. The March 1 book
value of the equipment would be
a)
b)
c)
d)
$104,000 Cdn.
$106,000 Cdn.
$105,000 Cdn.
$109,000 Cdn.
-------------------------------40.
The following selected amounts are taken from an adjusted trial balance.
Sales
Sales discounts
Cost of goods sold
Accrued liabilities
Allowance for doubtful accounts
Operating expenses
Contributed surplus
Unrealized holding gain
$500,000
$10,000
$245,000
$12,000
$8,000
$125,000
$20,000
$5,000
Based on the information above, comprehensive income would be
a)
b)
c)
d)
CMA Canada
$112,000.
$120,000.
$135,000.
$125,000.
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2012 Sample Entrance Examination
41.
ABC Inc. applies the revaluation model to account for its Machinery and Equipment.
On January 1, Year 1, its Machinery and Equipment had a net book value of
$180,000. An impairment test revealed that the fair value of these assets on that date
was $120,000. There was a $35,000 credit balance in the company’s Revaluation
Surplus – Machinery and Equipment account on that date.
The required journal entry to adjust ABC’s Machinery and Equipment to fair value
would include a
a)
b)
c)
d)
42.
debit to Retained Earnings of $60,000.
debit to Depreciation Expense of $25,000.
debit to Revaluation Surplus – Machinery and Equipment of $60,000.
debit to Revaluation Surplus – Machinery and Equipment of $35,000.
Prior to recording the December 31, Year 5, year-end adjusting entries for a small
business, revenues exceed expenses by $50,000. The following information was
known at December 31, Year 5:
i)
Services amounting to $8,000 had been performed but not yet been billed or
recorded,
ii) An advertising campaign is scheduled to run from January 1 to June 30,
Year 6. The $6,000 costs for the campaign were paid for and expensed on
November 30, Year 5,
iii) Amortization of capital assets for Year 5 of which $7,000 has not yet been
recorded,
iv) The December, Year 5, bank reconciliation shows that the bank deducted
interest expense of $2,000 on a note payable on December 31, Year 5, but was
not recorded by the company until January 10, 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)
$49,000
$55,000
$37,000
$62,000
CMA Canada
Page 16
2012 Sample Entrance Examination
43.
MOR Construction reports using ASPE. In June, one month before its year-end, it was
formally notified that it was being sued by a former customer for an environmental spill
on a property that MOR had worked on. It is believed that the spill is a result of the
work that MOR did, and consequently MOR is being sued for $1,000,000 based on
cleanup estimates.
MOR denies any wrongdoing. MOR’s lawyers believe that the $1,000,000 is too high
and that this claim amount is not substantiated. They do believe that MOR may
ultimately be liable for cleanup costs, but the amount will be between $300,000 and
$600,000. MOR does not have any liability insurance for this type of claim.
Based on this information, how should MOR record the environmental spill?
a) Record a contingent liability of $300,000 and disclose the range of $300,000 to
$600,000.
b) Disclose in the financial statements the possibility of a lawsuit but do not record a
liability.
c) Record a contingent liability of $1,000,000 and disclose a range of $300,000 to
$1,000,000.
d) Since the lawyers cannot decide on an exact amount, MOR should record nothing
at this point.
44.
On January 1, Year 1, Tree Inc. purchased call options to purchase 2,000 shares of
Rock Ltd. with a strike price of $50. The total cost of the options was $1,000. On
December 31, Year 1, the shares of Rock Ltd. were trading at $47 per share. The
options expire at the end of Year 2. Tree Inc. adheres to IFRS, and the options are not
hedging instruments. On December 31, Year 1, how would these options be reflected
on Tree’s statement of financial position?
a)
b)
c)
d)
CMA Canada
As an asset of $1,000.
As a liability of $6,000.
As a liability of $7,000.
They would be expensed and appear on the income statement.
Page 17
2012 Sample Entrance Examination
45.
JMR Inc. just purchased 85% of ASJ Ltd. for $840,000 cash. All of ASJ’s net
identifiable assets of $625,000 are equal to their fair values except for the following:
i)
Machinery and equipment with a book value of $625,000 and a fair value of
$125,000 in excess of book value.
ii) ASJ has a patent, not currently on its books. The cash flows from the patent
are expected to be $40,000 per year for the next 8 years, and JMR believes
that 5% is an adequate discount rate.
JMR has determined that it will calculate any non-controlling interest based on its
proportionate share of ASJ’s fair value.
What should be recorded as the fair value of ASJ’s assets acquired by JMR (rounded
to the nearest thousand dollars)?
a)
$625,000
b)
$840,000
c)
$951,000
d) $1,009,000
46.
For a not-for-profit entity using accounting standards for not-for-profit organizations,
which one of the following is correct with respect to recording capital assets?
a) The entity may choose to record some or all of its tangible capital assets on the
statement of financial position.
b) Any contributed capital asset should be recognized at fair market value at the date
of the contribution. If a fair value cannot be determined, the asset should not be
recognized.
c) If the entity uses fund accounting, it may report depreciation in the operating fund
or as an expense of the tangible capital asset or plant fund.
d) An impairment loss shall be recognized when the carrying amount of a long-lived
asset is not recoverable and exceeds its fair value.
47.
City Museum is a not-for-profit organization that recently acquired a collection of
paintings worth $5,000,000 for a new public exhibit. What is the correct accounting
policy City Museum would use to account for this collection?
a)
b)
c)
d)
CMA Canada
Capitalize but not amortize.
Capitalize and amortize.
Expense upon acquisition.
Any of the above.
Page 18
2012 Sample Entrance Examination
48.
(+) Reed Construction Ltd. (RCL) uses the percentage-of-completion method on its
long-term construction contracts. In Year 16, RCL agreed to construct an apartment
building for a contract price of $250 million. The job was completed in Year 18 with the
following information:
(in millions)
Costs incurred to date
Estimated costs to complete
Billings to date
Collections during the year
Year 16
$80
$150
$90
$80
Year 17
$165
$70
$180
$95
Year 18
$240
$0
$250
$75
What amount of the total contract price would be recognized as revenue in Year 17?
a) $175,500,000
b) $95,000,000
c) $88,500,000
d) $90,000,000
Management Accounting
49.
A company is considering investing in a machine worth $3,250,000. The machine will
generate annual net cash inflow of $500,000, and the company uses a 7% rate of
return to evaluate its capital investments. What is the minimum useful life the machine
must have for the company to accept the purchase of the machine?
a) 10 years
b) 9 years
c) 8 years
d) 7 years
50.
ZIL Inc. operates two divisions, which are treated as investment centres. Data for
each division for Year 4 are as follows (in ’000s):
Net income
Total assets
Division A
$65,000
$400,000
Division B
$140,000
$850,000
The company’s required rate of return is 15%. The president wishes to evaluate the
performance of these divisions and is not sure whether to use return on investment
(ROI) or residual income (RI) as the performance measure. Which division performed
better based on the ROI and RI performance measures?
a)
b)
c)
d)
CMA Canada
Division A, because its RI is higher than that of Division B.
Division B, because its ROI and RI are higher than those of Division A.
Division A, because its ROI is higher than that of Division B.
Both a) and c) above.
Page 19
2012 Sample Entrance Examination
51.
Which of the following is a benefit of using return on investment (ROI) in evaluating
performance of and determining incentive compensation for divisional managers?
a) ROI is a ratio that accounts for the difference in investment in assets among
divisions.
b) ROI is a ratio that can be used in evaluating performance of divisions against
those in the industry.
c) ROI is a ratio that accounts for the difference in the business operations among
the divisions.
d) Both a) and b).
52.
(-) Which of the following best describes the function of management accounting
within an organization?
a) Its primary emphasis is the future.
b) Its primary emphasis is the past.
c) It focuses on the organization as a whole, rather than on the organization’s
segments.
d) It places more emphasis on precision of data than financial accounting does.
53.
In the previous year, a company’s total fixed manufacturing overhead costs were
$13,600 and its total variable production costs were $15,000. There were no units in
beginning inventory, 10,000 units were produced and 9,200 units were sold. How
much lower is the operating income for the previous year using direct (variable)
costing versus absorption costing?
a)
b)
c)
d)
CMA Canada
$1,192
$2,288
$1,088
$1,200
Page 20
2012 Sample Entrance Examination
54.
Last month, Talbot Ltd. bought raw lumber for $480,000. Talbot separates and
processes the raw lumber into 3 grades: A, B and C. It has the following information:
Final sales value
after processing
Cost of processing
A
B
C
Total
$320,000
$100,000
$480,000
$120,000
$180,000
$20,000
$980,000
$240,000
The lumber could also be sold immediately after separation and without further
processing:
Sales value before further processing
A
$240,000
B
$300,000
C
$120,000
Based on this information, which of the following should the company do?
a)
b)
c)
d)
Sell A as is and do not process further.
Sell B as is and do not process further.
Sell C as is and do not process further.
Process all three grades further.
The following information pertains to questions 55 and 56.
Ex Company, which produces a single product, began operations on January 1, Year 1.
Material A is added at the start of the production process and packaging material B is added at
the end of the process. Conversion costs are incurred uniformly throughout the process.
Inspection takes place when manufacturing is completed, but before packaging material B is
added. Spoiled units are discarded. Normal spoilage for this production process is 4% of good
output. Production data for the first quarter of Year 1 was as follows:
Units started
Good units completed and transferred out
Ending work-in-process inventory
18,000 units
15,000 units
2,000 units
Using a first-in, first-out (FIFO) process costing system, Ex Company incurred the following
costs per equivalent unit during the first quarter:
Material A
Material B
Conversion costs
$11.00
$0.80
$15.00
The cost of ending work-in-process inventory using FIFO process costing was $34,000.
CMA Canada
Page 21
2012 Sample Entrance Examination
55.
(+) The loss from abnormal spoilage for the first quarter was
a)
b)
c)
d)
56.
$16,080.
$10,400.
$15,600.
$26,800.
(+) In terms of conversion, what was the percentage of completion of the ending workin-process inventory?
a)
b)
c)
d)
65.4% complete
34.7% complete
54.5% complete
40.0% complete
-------------------------------57.
Which of the following statements about transfer pricing is true?
a) Division managers favour full-cost-based transfer pricing because it yields relevant
costs for short-run decisions.
b) Distress price should be used for transfer price when the drop below historical
average market price is temporary.
c) Negotiated transfer price promotes autonomy among division managers, but it can
be time-consuming.
d) Use of market price motivates managers to deal with customers and suppliers in
the external market.
58.
Which of the following statements regarding the allocation methods of common
(service) costs is true?
a) The direct method of common cost allocation ignores the services provided by a
service department to itself and to all other service departments in the allocation
process.
b) The step-down (sequence) method of common cost allocation ignores the services
provided by a service department to itself and to all other service departments in
the allocation process.
c) The reciprocal method of common cost allocation recognizes that services are
provided by a service department to all other service departments in the allocation
process.
d) Both a) and c) above.
CMA Canada
Page 22
2012 Sample Entrance Examination
59.
Bartok Motors Inc. operates as a decentralized multidivisional company. The Sonata
Division purchases most of its motors from the Concerto Division. The Concerto
Division’s incremental costs for manufacturing the motors are $620 per motor. The
Concerto Division currently has sufficient excess capacity to satisfy the Sonata
Division’s motor requirements. The current market price for motors is $890. Assuming
the divisions are treated as profit centres, which of the following statements regarding
transfers from the Concerto Division to the Sonata Division is true?
a) The minimum transfer price the Concerto Division is willing to accept on sales to
the Sonata Division is $620.
b) The minimum transfer price the Concerto Division is willing to accept on sales to
the Sonata Division is $890.
c) The maximum transfer price the Sonata Division is willing to pay on purchases from
the Concerto Division is $890.
d) Both a) and c) above.
The following information pertains to questions 60 and 61.
Russ has developed a new device, which he hopes to produce and market on a large scale.
Russ will rent a production space for $500 per month and rent production equipment for $800
per month. Russ estimates the material cost per unit will be $5 and the labour cost per unit, $3.
Advertising and promotion will cost $900 per month. He will hire workers and spend his time
promoting the product.
60.
The production space rental is a
a)
b)
c)
d)
61.
sunk cost.
variable period cost.
variable product cost.
fixed product cost.
Advertising and promotion is a
a)
b)
c)
d)
CMA Canada
variable product cost.
fixed product cost.
fixed period cost.
variable period cost.
Page 23
2012 Sample Entrance Examination
62.
The following is information from the records of SKT Inc. for the month of June:
Direct materials
Indirect materials
Work in process
Office supplies
Opening Inventory
June 1
$100,000
$20,000
$0
$48,000
Ending Inventory
June 30
$100,000
$15,000
$0
$22,000
Purchased
in June
$920,000
$40,000
n/a
$34,000
Other expenses:
Direct manufacturing labour
Selling and administrative salaries and benefits
Rent
Utilities
Advertising
$680,000
$36,000
$120,000
$80,000
$300,000
SKT Inc. allocates 60% of rent and utilities to manufacturing and 40% to selling and
administration. What amount of indirect manufacturing costs would be charged to cost
of goods manufactured in June?
a)
$165,000
b) $1,765,000
c)
$225,000
d) $1,085,000
This information pertains to questions 63 and 64.
Clarkson Company is a retailer with a fiscal year ending March 31. Data pertaining to sales of a
ceiling fan that sells for $60 is as follows:
Actual Sales (in units)
April
2,000
May
4,000
Budgeted Sales (in units)
June
5,000
July
7,000
August
8,000
September
6,000
October
3,000
The average purchase price for the fan is $25 per unit. The company’s policy is to have an
inventory equal to 30% of the following month’s unit sales at the end of each month. The
merchandise inventory balance on May 31 is $37,500. The payment terms with the supplier are
such that 80% of any month’s purchases is payable in the month of purchase, while the balance
is paid in the following month.
CMA Canada
Page 24
2012 Sample Entrance Examination
63.
The total amount spent on fans during the second fiscal quarter (July to September) is
a)
$547,500.
b)
$495,000.
c)
$472,500.
d) $1,188,000.
64.
On June 30, the estimated account balances for Merchandise Inventory and Accounts
Payable are:
a)
b)
c)
d)
$52,500 and $22,000, respectively.
$37,500 and $28,000, respectively.
$52,500 and $28,000, respectively.
$52,500 and $112,000, respectively.
-------------------------------65.
A ski resort calculates that the cost driver for equipment maintenance is number of
guests. The resort has the following information:
Month
November
December
January
February
Maintenance Costs
$7,200
$6,800
$11,600
$10,000
Number of Guests
6,000
6,500
10,000
9,000
Using the high-low method, the estimated variable cost per guest for equipment
maintenance is
a)
b)
c)
d)
66.
An investment centre is a segment of business in which the manager controls and is
accountable for the segment’s
a)
b)
c)
d)
67.
$1.10.
$1.17.
$1.20.
$1.37.
operating profits and market share.
revenues and operating costs.
return on the resources invested.
revenues, operating costs and marketing costs.
Which of the following describes the core concept of kaizen budgeting?
a)
b)
c)
d)
CMA Canada
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.
Page 25
2012 Sample Entrance Examination
68.
Harry Company uses a predetermined overhead rate based on direct labour hours to
apply manufacturing overhead to jobs. At the beginning of the year, the company
estimated its total manufacturing overhead cost at $400,000 and its direct labour
hours at 100,000 hours. The actual manufacturing overhead incurred during the year
was $365,000 and the actual direct labour hours incurred during the year were 90,000
hours. The manufacturing overhead for the year is
a)
b)
c)
d)
69.
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)
70.
$35,000 underapplied.
$35,000 overapplied.
$40,000 overapplied.
$5,000 underapplied.
validity of the assumptions of regression analysis.
irrelevant high-low outliers.
goodness of fit.
significance of regression coefficient.
A company makes one product and uses a standard cost system. Last month 4,500
units of the product were made, and the labour efficiency variance was $8,000
favourable. The standards for direct labour are 2.5 hours per unit at $16 per hour.
What was the actual number of direct labour hours worked last month?
a)
b)
c)
d)
11,750
10,750
12,500
11,050
The following information pertains to questions 71 and 72.
Foster United Ltd. operates with 3 service departments and 2 operating departments. The
company allocates service department costs as follows: Administrative (Admin.) – number of
employees; Janitors – space used; and Equipment Maintenance (Maint.) – machine-hours.
Additional information for the 5 departments follows:
Overhead costs
Number of staff
Space used (m2)
Machine-hours
CMA Canada
Service Departments
Admin.
Janitors
Maint.
$42,000
$24,000
$18,000
40
200
40
200
40
800
0
0
0
Operating
Departments
Metals
Plastics
$128,000
$249,000
400
200
2,000
4,000
6,000
18,000
Total
$461,000
880
7,040
24,000
Page 26
2012 Sample Entrance Examination
71.
If the company uses the direct method to allocate service department costs, the
additional overhead assigned to the Plastics department is
a)
b)
c)
d)
72.
$48,000.
$43,500.
$36,681.
$42,519.
If the company uses the step-down method starting with the service department with
the highest costs to allocate service department costs, the additional overhead
assigned to the Metals department is
a)
b)
c)
d)
$30,408.
$40,500.
$36,000.
$33,693.
-------------------------------73.
(-) Which of the following is the most appropriate explanation for a company that
experienced a favourable material price variance and an unfavourable material
quantity variance?
a) Materials were purchased at a discount and workers were well trained.
b) The price of materials has decreased and demand for the product has decreased.
c) The actual quantity of material purchased was less than the estimated budgeted
amount.
d) Lower-quality materials that resulted in excessive waste were purchased at a
discount.
74.
Which of the following statements about activity-based costing is most accurate?
a) It requires that all manufacturing overhead be included in product cost.
b) It must be used for external financial reporting.
c) It will allocate more overhead to low-volume products, when compared to the
traditional costing approach.
d) It will allocate more overhead to high-volume products, when compared to the
traditional costing approach.
CMA Canada
Page 27
2012 Sample Entrance Examination
The following information pertains to questions 75 to 77.
Adventure Products (AP) sells camping equipment. One of the company’s products, a camp
lantern, sells for $80. The company uses a standard costing system, and all variances are
adjusted to cost of goods sold at month end. The standard production cost per unit for the camp
lantern for Year 9 is as follows:
Direct materials
Direct labour (0.8 DLH @ $15 per DLH)
Variable overhead (0.5 MCH @ $10 per MCH)
Fixed overhead (0.5 MCH @ $20 per MCH)
Standard Cost per Unit
$13
12
5
10
$40
The manufacturing facility has a capacity of 60,000 machine-hours (MCH) per year. The facility
has been operating on average at 80% capacity, which is used as the denominator activity in
setting the overhead rates.
Commission of 5% of selling price is the only variable selling cost. The fixed selling and
administrative costs are budgeted at $420,000 for Year 9.
75.
What are the breakeven sales (in units) for the camp lantern for Year 9?
a) 34,500
b) 38,334
c) 30,000
d) 9,131
76.
(+) Adventure Products (AP) is considering purchasing a new component, CP8, to
replace an existing component, CP5, in production. CP8 is more expensive than CP5
and will increase direct material cost by $2. There will also be a 20% reduction in
machine-hours required for the production. Moreover, sales are expected to increase
by 10% to 99,000 units per year as the selling price remains unchanged at $80 per
unit. All other costs are unaffected by the use of the new component, CP8.
With respect to the new component, CP8, AP should
a)
b)
c)
d)
77.
not use the new component in production as income will decrease by $531,000.
use the new component in production as income will increase by $99,000.
use the new component in production as income will decrease by $720,000.
use the new component in production as income will increase by $315,000.
There were 500 camp lanterns in inventory on June 1, Year 9. In June, 8,400 units
were manufactured and 8,700 units were sold. There are no flexible-budget variances
in June. For the month of June, operating income under full (absorption) costing
income is
a)
b)
c)
d)
$3,000 greater than operating income under direct (variable) costing.
$1,500 greater than operating income under direct (variable) costing.
$3,000 lower than operating income under direct (variable) costing.
$1,500 lower than operating income under direct (variable) costing.
CMA Canada
Page 28
2012 Sample Entrance Examination
78.
(+) Alpha Leather Company (ALC) manufactures and sells two products, wallets and
belts, in its two-department plant. Operating data pertaining to the two products are as
follows:
Selling price per unit
Cost per unit:
Variable manufacturing costs
Variable marketing costs
Fixed manufacturing costs
Fixed marketing costs
Wallet (per unit)
Belts (per unit)
Monthly direct labour hour
(DLH) capacity
Wallets
$30
Belts
$50
$8
$2
$5
$6
$15
$3
$5
$1
Cutting
10 minutes
20 minutes
Finishing
15 minutes
40 minutes
1,000 hours
1,200 hours
ALC has a non-cancellable contract with one of the major department stores to supply
1,800 belts for the last quarter, from October to December. The maximum expected
sales of belts for the last quarter are 1,500 belts per month, which includes the noncancellable contract. The maximum expected sales of wallets are 2,500 units per
month.
The optimal production plan for the last quarter, October to December, is
a)
b)
c)
d)
CMA Canada
7,500 wallets and 1,800 belts.
7,500 wallets and 2,587 belts.
7,500 wallets and 4,500 belts.
2,400 wallets and 4,500 belts.
Page 29
2012 Sample Entrance Examination
79.
(+) Yabco Inc. produces three design types of a product, A, B and C. The budgeted
gross margin per unit for Year 5 is as follows:
Price
Direct materials
Direct labour
Variable overhead
Fixed overhead
A
$400
100
50
60
20
230
B
$250
80
50
40
20
190
C
$150
40
50
10
20
120
Gross Margin per Unit
$170
$ 60
$ 30
The fixed overhead allocation rate is based on the Year 4 sales of 5,000 units of A,
10,000 units of B and 20,000 units of C.
The budgeted total administration costs for Year 5 amount to $500,000, all of which
are fixed costs. Assuming the sales mix in Year 5 will be the same as in Year 4, what
is the breakeven sales volume for Year 5 (rounded to the nearest 10 units)?
a) 8,540 units
b) 11,250 units
c) 8,840 units
d) 15,270 units
80.
A company produces three products, A, B and C, all using the same direct materials.
The company is experiencing an unexpected spike in the demand for these products
and a shortage in the supply of direct materials. The price of materials is $16 per
gram, and only 6,000 grams of material are currently available each week. Per unit
data is as follows:
Sales price
Costs:
Direct materials
Direct labour
Variable manufacturing overhead
Fixed manufacturing overhead
Product A
$120
Product B
$180
Product C
$190
$24
$54
$6
$1
$64
$28
$16
$38
$32
$110
$8
$7
In what order should the company produce its products?
a)
b)
c)
d)
A, C, B
B, C, A
B, A, C
A, B, C
CMA Canada
Page 30
2012 Sample Entrance Examination
81.
Which of the following statements about performance measures is INCORRECT?
a) Return on investment is a productivity measure for evaluating performance of
investment centres, e.g. strategic business unit.
b) Revenue per salesperson is a partial factor productivity measure for evaluating
performance of revenue centres, e.g. sales department.
c) Units of output per direct labour hour is a partial factor productivity measure for
evaluating performance of engineered expense centres, e.g. production
department.
d) Units of output per dollar of production resources is a partial factor productivity
measure for evaluating performance of engineered expense centres, e.g.
production department.
The following information pertains to questions 82 to 84.
Super Kitty produces two brands of cat food with the following data for May, Year 5:
Sales (bags)
Price per bag
Variable manufacturing
costs per bag
Fixed manufacturing costs
per bag
Variable S&A costs per bag
Fixed S&A costs per bag
Budget
Gourmet
Homemade
10,000
5,000
$8.00
$5.00
Actual
Gourmet
Homemade
9,200
6,800
$7.50
$5.50
$1.60
$0.75
$1.50
$0.80
$1.20
$1.40
$0.80
$1.20
$0.65
$0.80
$1.25
$1.50
$0.75
$1.25
$0.70
$0.75
Variable manufacturing costs include direct materials, direct labour and variable manufacturing
overhead. Fixed manufacturing costs are allocated to the two brands based on the number of
bags produced. In May, 10,000 bags of Gourmet and 7,000 bags of Homemade were produced,
and on May 1, Year 5, there were 200 bags of Gourmet and 100 bags of Homemade.
Variable selling and administrative (S&A) costs include a commission of 5% of price, and fixed
selling and administrative (S&A) costs are allocated to the two brands based on the number of
bags sold.
According to the company forecasts, it was budgeting to earn a 20% market share in total units
(bags) of specially prepared cat food sold in May, Year 5, in Burlington, Ontario. Industry figures
indicated that the total number of bags of cat food sold for May, Year 5, in Burlington was
100,000 bags.
82.
(+) Which of the following statements is correct?
a)
b)
c)
d)
Market size variance is unfavourable and market share variance is favourable.
Market size variance is favourable and total sales mix variance is unfavourable.
Market share variance is favourable and total sales mix variance is favourable.
Market size variance is favourable and total sales mix variance is favourable.
CMA Canada
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2012 Sample Entrance Examination
83.
The sales volume variance for Gourmet is:
a)
b)
c)
d)
84.
$4,160 unfavourable
$4,000 unfavourable
$3,800 unfavourable
$3,600 unfavourable
The total sales quantity variance is
a)
b)
c)
d)
$1,200 unfavourable
$2,480 favourable
$2,053 unfavourable
$4,533 favourable
Taxation
85.
Joe is an employee of New Tech Ltd. The following information lists all payments and
other benefits Joe received from New Tech in Year 10:
Gross salary received in Year 10
Vacation pay owed to him at the end of Year 10
Discounts on merchandise Joe purchased from New Tech
Travel expenses to a conference for Joe and his spouse (50% each)
Gift cards for a local restaurant
$100,000
$5,000
$3,500
$6,000
$500
Based on the above, Joe’s income from employment for Year 10 was:
a)
b)
c)
d)
86.
(-) Which of the following is NOT a taxable entity for income tax purposes?
a)
b)
c)
d)
87.
$103,500
$105,000
$107,000
$108,500
Joe Smith, an individual
Smith Ltd., a corporation
The Smith Family Trust, a trust
Smith’s General Store, a sole proprietorship
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 the proceeds of disposition were $110,000. Direct
selling fees were $5,000. What is the recapture from the sale of the equipment?
a) $40,000
b) $10,000
c) $5,000
d) A terminal loss of $30,000.
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88.
In Year 16, PRL Ltd. disposed of a rental property that it purchased several years ago
for a cost of $200,000. The property was sold for less than its Undepreciated Capital
Cost (UCC) leaving a UCC balance of $25,000. In calculating its taxable income for
Year 16, PRL
a) must deduct the $25,000 in calculating its taxable income.
b) must continue to claim CCA until the $25,000 balance is zero.
c) may defer the deduction by purchasing a new property of the same or similar type
before the end of the year.
d) has the option of deducting the $25,000 or continuing to claim CCA.
89.
Humber Connect Inc. is a private corporation that uses Accounting Standards for
Private Enterprises (ASPE) in its annual financial statements. The following
information is available for the year ended December 31, Year 11:
Net income for accounting purposes
Income tax (current and future)
Accounts payable (including charitable donations of
$2,000 and investment counsel fees of $5,000)
Accounts receivable (net of the allowance for doubtful
accounts of $11,000)
Capital Cost Allowance (CCA) in excess of depreciation
$650,000
$90,000
$40,000
$43,000
$4,000
Minimum net income for tax purposes for Year 11 was
a)
b)
c)
d)
90.
$648,000.
$729,000.
$743,000.
$754,000.
Shauna owns a capital asset with an adjusted cost base of $100,000 and a fair market
value of $150,000. She transfers this asset to her son, Daniel, at $175,000. As a
result, Shauna would incur a capital gain of
a) $75,000.
b) $50,000.
c) $25,000.
d)
$0.
91.
In determining for income tax purposes if a person is an employee or a self-employed
individual, the determining factor is the
a)
b)
c)
d)
CMA Canada
ownership of the tools and equipment necessary for the job.
actual terms and conditions of the employment.
degree of control.
risk assumed by the individual (for profit and loss).
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2012 Sample Entrance Examination
92.
(+) During the year, a taxpayer made the following transactions in the shares of XYZ
Inc.:
Date
January 15
May 31
November 20
Type of
Transaction
Purchase
Purchase
Sale
Number of
Shares
4,000
2,000
5,000
Price per
Share
$7.60
$8.10
$8.00
The expenses associated with selling the shares on November 20 were $400. What is
the taxable capital gain (rounded to the nearest ten)?
a) $1,500
b)
$580
c)
$770
d)
$380
Internal Control
93.
Which one of the following is true?
a) The internal auditor is interested primarily in the internal controls that relate to
reliable financial statements.
b) Well-designed internal controls prevent or detect errors, thereby ensuring that
financial statements are not materially misstated.
c) Even well-designed internal controls cannot prevent or detect all fraudulent
activities.
d) Small entities are unable to segregate duties well enough to implement good
internal controls.
94.
The owner of a convenience store suspects that one of her employees is stealing from
the store. Which one of the following employee actions could go unnoticed if the
owner does not intervene?
a) Only take small amounts of cash from the cash register.
b) Ask customers if they want a receipt before entering the sale in the cash register.
c) Shortchange customers by small amounts; if a customer notices, claim it was
honest error.
d) Take small amounts of merchandise from the store and sell it for cash.
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2012 Sample Entrance Examination
95.
Which one of the following situations shows INAPPROPRIATE segregation of duties?
a) The controller performs the bank reconciliation independent of the accounts
receivable and accounts payable personnel.
b) The cashier receives cash, prepares the bank deposit and turns over the cash and
deposit book to the accounting manager for review and deposit.
c) The receiving supervisor approves all receiving reports and updates the perpetual
inventory records.
d) The assistant controller authorizes payments to vendors and cancels supporting
documents to prevent reuse.
96.
(-) The primary responsibility for preventing fraud in an organization lies with
a)
b)
c)
d)
97.
The internal auditors of an organization should
a)
b)
c)
d)
98.
management.
the internal auditor.
the audit committee of the board of directors.
the external auditor.
identify areas of risk that need to be addressed in the control systems.
continuously monitor and maintain the control systems.
appoint the external auditors.
All of the above.
The external auditor gathers sufficient appropriate audit evidence using tests of
controls and tests of details of balances to support an opinion on whether the financial
statements are presented without any material misstatements. Which of the following
statements is true?
a) The external auditor uses the same audit objectives when testing controls over
classes of transactions as are used when testing account balances.
b) The external auditor needs to evaluate all controls for all assertions for all cycles in
order to identify all potential material misstatements.
c) The external auditor may choose to rely on the internal auditor’s assessment of
controls instead of directly testing the controls.
d) Where sophisticated controls are highly reliable, the external auditor may rely on
those controls instead of performing substantive testing.
99.
BSL Ltd. is considering the costs and benefits of acquiring an enterprise resource
planning system (ERP). Of particular concern are controls to ensure the data is
correct and not corrupt, and that only the people who should have access to the data
can access it. Which one of the following is true?
a) Implementing an ERP requires controls over access that are similar to those used
in less complex information systems.
b) Using complex passwords that must be changed weekly is a good way to control
access.
c) The strong internal controls in ERPs eliminate the need to segregate duties.
d) An unauthorized user can affect more processes in an ERP than in an older
system.
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2012 Sample Entrance Examination
100.
Huff Industries is in the process of updating its IT operating systems. Operating
system maintenance is outsourced to a service provider. Which one of the following is
a necessary control procedure for revisions to operating systems?
a) Adequate testing of all changes in the operating systems and programs.
b) Review and approval of each change by the user department responsible for the
activity.
c) Parallel runs of the old and new systems for a reasonable period after a change is
implemented.
d) Proper IT library authorization for application software requirements.
End of Exam
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2012 Sample Entrance Examination
SOLUTIONS
1.
Answer: d.
The expected return on the equity investment is calculated with the Capital Asset Pricing
Model (CAPM) = 2.5% + 2.25(8%) = 20.5%.
Expected return = $100,000 x 20.5% = $20,500.
Choice a) Uses 8% risk premium: 8% x $100,000 = $8,000
Choice b) Ignores risk-free rate: 2.25(8%) x $100,000 = $18,000
Choice c) Multiplies return by beta: (2.5% + 8%) x $100,000 x 2.25 = $23,625
2.
Answer: d.
The maximum amount that BG Corporation should be willing to pay for SM Corporation
is the present value of the incremental cash flows using a discount rate of 13%.
Years 1 to 3 – present value of operating after-tax cash flows from SM Corporation
= $500,000 x .6 x PVIFA13,3 (2.361) = $708,300
Years 4 & beyond – present value of operating after-tax cash flows from SM Corporation
= ($700,000 x .6)/.13 x PVIF13,3 (0.693) = $2,238,923
Present value of synergies = ($225,000 x .6)/.13 = $1,038,462
Net present value = $708,300 + $2,238,923 + $1,038,462
= $3,985,685 = $3,986,000 (rounded)
Choice a) Uses the values of the perpetuities at the beginning of Year 4 (i.e. they are
not discounted to the present): $708,300 + ($700,000 x .6)/.13 + $1,038,462
= $4,977,531 = $4,978,000 (rounded).
Choice b) Ignores the synergies of $225,000 per year: $708,300 + $2,238,923
= $2,947,223 = $2,947,000 (rounded).
Choice c) The synergies are subtracted from cash flows instead of added: $708,300 +
$2,238,923 - $1,038,462 = $1,908,761 = $1,909,000 (rounded).
3.
Answer: c.
Vr = ($18 - $14)/(3 + 1) = $1
Choice a) Incorrectly multiplies by the number of rights: 3 x ($18 - $14) = $12.
Choice b) Multiplies the cash required by the number of rights and divides by the current
value of the shares: ($14 x 3)/$18 = $2.33
Choice d) This is correct if the market price of a share is less than the subscription price
of a share with three rights.
4.
Answer: d.
The expected return on the equity investment is calculated with the Capital Asset Pricing
Model (CAPM) = 3% + 1.7(6%) = 13.2%
Expected return = $250,000 x 13.2% = $33,000
The expected return on the interest bearing certificate is 3% x $250,000 = $7,500
Therefore, the combined return of the portfolio is $40,500.
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5.
Answer: d.
Required for operating disbursements
Down payment for equipment
Target ending balance
Total cash required
Less: May 31 cash balance
Less: Collections ($270K + $225K)
Necessary Borrowing
$350,000
160,000
60,000
570,000
50,000
495,000
$ 25,000
Choice a) Ignores cash collected from May credit sales: $25K + $270K = $295,000
Choice b) Ignores the June cash sales: $25K + $225K = $250,000
Choice c) Includes the dividend: $25K + $50K = $75,000
6.
Answer: d.
In an efficient capital market, current market prices fully reflect available information.
Market prices adjust quickly and correctly when new information arrives. This is the case
in choice d).
Choice a) The price should have adjusted immediately, not gradually over a period of
days.
Choice b) The price should have increased, not decreased.
Choice c) In this scenario, the market overreacted to the report, after which there was a
market correction. Efficient markets do not overreact to information.
7.
Answer: a.
Profitability index = PV cash inflows / PV cash outflows
Project W = 620(3.240)/2,000 = 1.004
Project X = 1,000(3.696)/5,000 = 0.7392
Project Y = 2,000(4.423)/10,000 = 0.8846
Since Project W has a profitability index greater than 1, it is the only project the company
should invest in.
8.
Answer: d.
The CAPM links non-diversifiable risk and return for all assets and recognizes that
diversifiable risk can be eliminated.
Choice a) The risk preference of the investor has no bearing on the model.
Choice b) The model assumes investors’ portfolios will be diversified to minimize risk.
Choice c) This response has no bearing on why the model disregards diversifiable risk.
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2012 Sample Entrance Examination
9.
Answer: d.
The value of the bond is calculated as the present value of the stream of interest
(annuity) plus the present value of the principal payment.
At issuance, the bond will be valued as follows:
PV of Principal: $950,000 x (PVIF i=4%, t=16) 0.534 = $507,300
PV of Interest:
$33,250 x (PVIFA i=4%, t=16) 11.652 = $387,249
$894,549
At repurchase, the bond will be valued as follows:
PV of Principal: $950,000 x (PVIF i=5%, t=12) 0.557 = $529,150
PV of Interest:
$33,250 x (PVIFA i=5%, t=12) 8.863 = $294,695
$823,845
Difference: $894,549 - $823,845 = $70,704 = $71,000 (rounded)
Choice a) Calculates the bonds at the repurchase date by using the original market rate
of 8% as opposed to the revised market rate of 10%.
At issuance, the bond will be valued as:
At repurchase, the bond will be valued as follows:
PV of Principal: $950,000 x (PVIF i=4%, t=12) 0.625 =
PV of Interest:
$33,250 x (PVIFA i=4%, t=12) 9.385 =
$894,549
$593,750
$312,051
$905,801
Difference: $894,594 - $905,801 = ($11,207) = ($11,000) (rounded)
Choice b) Calculates the interest payment based on the market rate.
At issuance, the bond will be valued as follows:
PV of Principal: $950,000 x (PVIF i=4%, t=16) 0.534 = $507,300
PV of Interest:
$38,000 x (PVIFA i=4%, t=16) 11.652 = $442,776
$950,076
At repurchase, the bond will be valued as:
$823,845
Difference: $950,076 - $823,845 = $126,231 = $126,000 (rounded)
Choice c) Assumes that there is no change in the bond value over time.
10.
Answer: b.
The beta coefficient indicates how sensitive the return of a particular asset is with
respect to general market conditions. It measures how much systematic risk a particular
asset has relative to an average asset, i.e. an average asset has a beta of 1.0.
Choice a) The variance is the average squared deviation between the actual return and
the average total return of an asset. It is a measure of total risk, i.e. includes
both systematic and unsystematic risk.
Choice c) The standard deviation is not a measure of risk.
Choice d) The total return is not a measure of risk.
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11.
Answer: c.
B
I
n
M
k
= Gross value from bond sale at time zero
= 4.0% (= 8.0% / 2)
= 20 payments (coupon payments are semi-annual)
= $48,000,000
= 10.0% p.a.
B = (M x I x PVIFA 5%@ n terms) + (M x PVIF 5% @ n terms)
B = ($48,000,000 x 4% x PVIFA 5%,20) + ($48,000,000 x PVIF 5%,20)
= ($48,000,000 x 4% x 12.462) + ($48,000,000 x 0.377)
= $42,023,040
Brokerage charge = $48,000,000 x 2.5% = $1,200,000
Net proceeds from sale of bond = $42,023,040 - $1,200,000 = $40,823,040
= $40,820,000 (rounded)
Choice a) Ignores commission fee.
Choice b) Uses annual interest payments and ignores commission:
B = (M x I x PVIFA, 8% @ n terms) + (M x PVIF, 10.0% @ n terms)
B= ($48,000,000 x 8% x 6.145) + ($48,000,000 x 0.386)
= $23,596,800 + $18,528,000 = $42,124,800 = $42,120,000 (rounded)
Choice d) Uses annual interest payments and calculates commission incorrectly:
B = $42,124,800
Brokerage charge = $42,124,800 x 2.5% = $1,053,120
Net proceeds from sale of bond = $42,124,800 - $1,053,120
= $41,071,680 = $41,070,000 (rounded)
12.
Answer: d.
Fair share price = $1.40 x 9.5 = $13.30
Value = $13.30 x 500,000 shares = $6,650,000
Choice a) Uses ratio x dividends paid = 9.5 x (0.50 x 500,000) = $2,375,000
Choice b) Uses ratio x EBITD = 9.5 x $900,000 = $8,550,000
Choice c) Uses net assets
13.
Answer: d.
Operating leverage = % change in EBIT / % change in sales
= [($400K - $335K)/$335K] / [($800K - $700K)/$700K] = 0.1940/0.1429 = 1.36
Choice a) Total leverage = % change in EPS / % change in sales
= [($1.00 - $0.90)/$0.90] / [($700K - $800K)/$700K] = 0.1111/0.1429 = 0.78
Choice b) Financial Leverage
= [($1.00 - $0.90)/$0.90] / [($400K - $335K)/$335K] = 0.1111/0.1940 = 0.57
Choice c) Mixes denominator and numerator: 0.1429/0.1940 = 0.74
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14.
Answer: d.
Current Degree Total Leverage (DTL)
= Degree Operating Leverage (DOL) x Degree Financial Leverage (DFL)
=1.60 x 1.20 = 1.92
DTL also = % change in EPS / % change in sales
Therefore, % change in EPS = 10% x 1.92 = 19.2% rounded to 19%
Choice a) Uses DOL x increase = 16%
Choice b) Uses DFL x increase = 12%
Choice c) Uses contribution margin and increase = 60% x 10% = 6%
15.
Answer: a.
Item
Buy New Machine
Cost of new machine
Salvage value of old
machine
Salvage value of new
machine
Annual operating costs
Year
Cash Flow
PV
Factor
1
$(120,000)
1
$(120,000)
1
$15,000
1
15,000
5
1-5
$80,000
$(12,000)
0.713
4.10
PV of Cash Outflows
Keep Old Machine
Repairs
Repairs
Annual operating costs
Salvage value of old
machine
PV of
Cash Flows
57,040
(49,200)
$ (97,160)
1
3
1-5
5
$(25,000)
$(10,000)
$(20,000)
1
0.816
4.10
$ (25,000)
(8,160)
(82,000)
$1,000
0.713
713
PV of Cash Outflows
Net PV in Favour of Buying New
$(114,447)
$17,287
Choice b) Misses old machine salvage value in calculation of the new machine:
$17,287 - $15,000 = $2,287
Choice c) Misses operating costs: $47,960new - $32,447old = $15,513
Choice d) Misses present values: $85,000new - $134,000old = $49,000
16.
Answer: c.
After-tax cost of debt = 7.5% x (1 - .4) = 4.5%
Cost of preferred shares = 8%; Cost of common equity = 12%
Total long-term debt + equity = $1,300K + $3,500K + $6,200K = $11,000,000
WACC = (4.5% x 1.3/11) + (8% x 3.5/11) + (12% x 6.2/11)
= 0.532% + 2.545% + 6.764% = 9.841% = 9.8% (rounded)
Choice a) Uses total liabilities: WACC = (4.5% x 2.2/11.9) + (8% x 3.5/11.9) +
(12% x 6.2/11.9) = 0.832 + 2.353 + 6.252 = 9.437 = 9.4%
Choice b) Ignores tax on debt: WACC = (7.5% x 1.3/11) + (8% x 3.5/11) +
(12% x 6.2/11) = 0.886% + 2.545% + 6.764% = 10.195% = 10.2%
Choice d) Uses average of all three rates: (7.5+8+12)/3 = 9.167% = 9.2%
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17.
Answer: a
The total cost of the preferred shares is calculated as follows:
Amount per share:
$200
Issue costs:
$ 3
Net proceeds:
$197
Dividend per share:
$ 18
Cost per share:
$18 / $197 = 9.1371% ~ 9.14%
Choice b) Ignores the issue costs: $18/$200 = 9.00%
Choice c) Subtracts issue costs from dividend = $15/$200 = 7.50%
Choice d) Adds issue costs to dividend costs = $21/$200 = 10.5%
18.
Answer: c.
Effective interest rate = (1+Ratequoted/n)n -1
Investment A = (1+.0975/12)12 - 1 = 10.20%
Investment B = (1+.0925/365)365 - 1 = 9.69%
Investment C = (1+.10/4)4 - 1 = 10.38%
Since Investment C has the highest effective rate, RLC should invest in C.
19.
Answer: c.
i)
($2,000,000 x 10%) (1-0.4) = $120,000
2,000 bonds x 8 = 16,000 common shares
$120,000/16,000 = $7.50 NOT dilutive
ii) Options are in the money dilutive.
iii) $50/10 common shares = $5 dilutive
Choices a), b) and d) are incorrect; see solution above.
20.
Answer: c.
Reliability is a principal qualitative characteristic and includes verifiability, neutrality and
freedom from error or bias.
Choice a) Verifiability is not a principal qualitative characteristic.
Choice b) Ignores understandability and verifiability, and includes relevance, which is a
fundamental characteristic.
Choice d) Consistency is a subset of comparability and forms part of the enhancing, not
principal qualitative characteristics.
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2012 Sample Entrance Examination
21.
Answer: c.
Some subsequent events do not require disclosure or adjustment to the year-end
financial statements. In the case of the union strike, this is a non-accounting event that
requires neither adjustment nor disclosure.
Choice a) This is not a subsequent event as it occurred before the year-end date. Any
losses as a result of the fire should be recorded.
Choice b) This is a subsequent event that did not exist at the balance sheet date and
therefore no adjustment should be made. Note that disclosure may be
required in this situation.
Choice d) It is reasonable to assume that this condition existed at the year-end date,
and this information, received subsequently, is simply confirming that the
receivable is impaired. At a minimum an allowance should be set up. Given
that it is determined that S Co. cannot pay, that amount should be written off.
22.
Answer: c.
GC follows ASPE with specific guidance for non-monetary transactions. This is a nonmonetary transaction with commercial substance as the exchange will allow GC to build
a manufacturing plant resulting in significant changes in risk and cash flows. A nonmonetary transaction with commercial substance should be recorded at the fair value of
the asset given up or received, whichever is more reliable. If both are equally reliable,
the transaction should be recorded at the fair value of the asset given up. This would
result in $1,320,000 with the resulting gain being recorded in net income.
Choices a), b) This transaction has commercial substance.
Choice d)
While this choice recognizes that there is commercial substance, it
incorrectly records it at the fair value of the asset received rather than
given up.
23.
Answer: d.
Under ASPE, discounting of future income tax assets and liabilities is not allowed.
HB 3465.52
Choice a) Under IFRS, companies have no choice and must use the deferred income
tax method.
Choice b) Under ASPE, companies have the choice to use the taxes payable method or
the future income tax method.
Choice c) Under IFRS, companies classify all deferred income tax assets and liabilities
as noncurrent.
24.
Answer: a.
GC is a private company following ASPE. Under Section 3051, a strategic investment
that does not have a quoted market price should be accounted for using the cost or
equity method.
Choice b)
The shares are publicly traded, and this is an investment with significant
influence. GC will be required to account for its investment of AL using
either equity or fair value. Cost is not an option.
Choices c), d) This is a non-strategic investment under ASPE with a quoted market
price. This will be a financial instrument to GC and will be recorded at fair
value with gains and losses through net income. Cost is not an option.
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25.
Answer: c.
If, and only if, the recoverable amount of an asset is less than its carrying amount, the
carrying amount of the asset shall be reduced to its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs to sell and its
value in use.
Recoverable amount = Higher of ($350K - $15K) = $335K or $375K = $375,000
Therefore the impairment loss would be $400K - $375K = $25,000.
Choice a) Incorrectly assumes no loss.
Choice b) Assumes loss is the difference between carrying value and undiscounted
cash flow.
Choice d) Assumes loss is the difference between carrying value and fair value less
disposal.
26.
Answer: b.
Purchases are calculated as follows: $120,000 - $75,000 + $50,000 = $95,000.
Choice a) Mistakenly credits the inventory account by 40% of sales ($80,000) instead of
the requisite cost of sales ($160,000).
Choice c) Ignores opening and ending inventory.
Choice d) Incorrectly calculates purchases by adding beginning inventory to cost of
goods sold and subtracting the inventory from this amount as follows:
$120,000 + $75,000 - $50,000 = $145,000.
27.
Answer: d.
The income from amortized cost investments is measured using the amortized cost
method, which includes amortizing any premium or discount. [3856.11]
Choice a) False – MS may elect to measure any financial asset at fair value by
designating that fair value measurement shall apply.
Choice b) False – The transaction costs are included as part of the cost of the asset.
Choice c) False – Because MS measured the investment at amortized cost, it is not
marked to market.
28.
Answer: b.
Sunnyside is a public company and is therefore reporting using IFRS. Since this is
specialized equipment, IFRS requires Sunnyside to record this as a finance lease, not an
operating lease, AND to use the implicit interest rate, not the lower of the two rates.
The value of the finance lease is the lower of fair value and the present value of the
minimum lease payments.
PV of the minimum lease payments = $60,000 + $60,000PV4,8% = $258,720
Since this is lower than the FV of $400,000, $258,720 is what should be recorded for the
lease.
Choice a) Mistakenly assumes an operating lease.
Choice c) Uses the fair value as the amount to capitalize.
Choice d) Uses the incorrect interest rate of 6% instead of 8%.
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29.
Answer: c.
An operating segment must satisfy only 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,
internally and externally, 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.
30.
Answer: a.
At the start of Year 2, there would be a deferred tax liability balance of
($900,000 - $920,000) x 35% = $7,000.
This is a taxable difference resulting in a deferred tax liability, since $20,000 more CCA
than depreciation had been taken on these assets to January 1.
At the end of Year 2, the assets have a book value of ($920,000 - $80,000) = $840,000
and undepreciated capital cost (UCC) of ($900,000 - $20,000) = $880,000.
This results in a deferred tax asset balance of ($40,000 x 35%) = $14,000. The income
tax expense effect is simply the difference between these two amounts (i.e. the
difference between the $7,000 credit balance in the deferred tax account and the
requisite $14,000 balance in the account).
Thus, the income tax expense must be reduced by $21,000.
Choice b) This choice incorrectly treats the January 1 temporary difference as a
deductible one and the December 31 temporary difference as a taxable one.
Choice c) Uses Year 2 starting balance.
Choice d) Misses Year 2 opening balance.
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31.
Answer: c.
While Merlin has used 2% in the past, recent industry conditions strongly suggest that
this estimate is too low. 4% of $625,000 is $25,000, which is the balance that should be
in the allowance for doubtful accounts. Since the allowance currently sits in a debit
position of $15,000, Merlin would need to credit it by $40,000 in order to reach the
$25,000 credit.
Choice a) Mistakes the beginning balance as credit: $25,000 - $15,000 = $10,000
Choice b) Uses 4% but ignores the current balance in the allowance for doubtful
accounts.
Choice d) Correctly adjusts the balance in the allowance but uses 2%, not 4%.
2% x $625,000 = $12,500
$12,500 + $15,000 = $27,500
32.
Answer: c.
Under IFRS, the vested portion of any past service costs is expensed immediately, with
the remainder being amortized over the vesting period. Thus, the effect on pension
expense for Year 1 would be $460,000+$460,000/5=$552,000.
Choice a) This choice incorrectly divides the entire value of the plan amendment by the
EARSL. Note that this approach would be correct under ASPE.
Choice b) This choice incorrectly divides the entire value of the plan amendment by the
vesting period, without immediately expensing the vested portion of these
costs.
Choice d) While this choice correctly expenses the vested portion of the plan
amendment ($460,000), the remaining costs are incorrectly amortized over
the EARSL instead of the vesting period.
33.
Answer: c.
Key performance drivers are one of the five key elements that should be in the MD&A.
Choices a) and b) These are parts of disclosure notes.
34.
Answer: a.
Times interest earned = EBIT/interest = 5,125/330 = 15.53
Choice b) Uses net income: 3,357/330 = 10.17
Choice c) Uses operating income: 4,700/330 = 14.24
Choice d) Uses Year 6: 4,450/333 = 13.36
35.
Answer: d.
Return on assets = Net income/average total assets = 3,357/[(32,650+33,970)/2]
= 3,357/33,310 = 10.08%
Choice a) Uses only current assets: 3,357/15,233 = 22.04%
Choice b) Uses EBIT: 5,125/33,310 = 15.39%
Choice c) Uses Year 7: 2,882/33,310 = 8.65%
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36.
Answer: b.
Current ratio Year 7: 15,640/10,355 = 1.51
Current ratio Year 6: 14,825/10,200 = 1.45
Therefore, the liquidity of Quinn has increased.
Choice a) Current ratio does not measure use of assets.
Choice c) Current ratio does not measure profitability.
Choice d) Current ratio does not indicate turnover of inventory.
37.
Answer: a.
Cash collections = 120,000+200,000-160,000-(5,000+10,000-12,000) = $157,000
Choice b) Ignores Year 1 Allowance.
Choice c) Misses the 5% of sales as bad debt.
Choice d) Incorrectly credits the December 31, Year 2, Allowance for doubtful accounts
balance to Accounts receivable.
38.
Answer: b.
The gain on the hedge is simply the difference between the spot rate on the settlement
date and forward exchange rates when the forward contract is entered into, thus
($1.06-$1.05) x $100,000 = $1,000.
Choice a) Incorrectly uses the January 1 and March 1 spot rates:
($1.04-$1.06) x $100,000 = $2,000
Choice c) Incorrectly uses the March 1 spot rate and March 1 forward rates:
($1.06-$1.09) x $100,000 = $3,000
Choice d) Incorrectly uses the January 1 spot rate and March 1 forward rates:
($1.04-$1.09) x $100,000 = $5,000
39.
Answer: a.
The equipment is non-monetary. Therefore it should be valued at its historical cost,
which would be $1 US = $1.04 Cdn = $104,000.
Choice b) Incorrectly values the equipment at the March 1 spot rate.
Choice c) Incorrectly values the equipment at the January 1 forward rate.
Choice d) Incorrectly values the equipment at the March 1 forward rate.
40.
Answer: d.
Comprehensive income includes net income plus other comprehensive income that
bypasses net income but affects shareholders’ equity.
The calculation includes: Sales - Sales Discounts - Cost of Goods Sold - Operating
Expenses + Unrealized Holding Gain = 500 - 10 - 245 - 125 + 5 = 125
Choice a) Fails to include the Unrealized Holding Gain and deducts the Allowance for
Doubtful Accounts as an expense: ($125 - 5 - 8 = $112)
Choice b) Fails to include the Unrealized Holding Gain in the calculation:
($125 - 5 = $120)
Choice c) Fails to deduct the Sales Discount in the calculation: ($125 + 10 = $135)
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41.
Answer: d.
The correct journal entry when recording an asset impairment under the Revaluation
model would include a reduction of the Revaluation Surplus account (up to its original
balance) with any remaining impairment being charged to an impairment loss account on
the Statement of Comprehensive Income.
Choice a) This choice incorrectly charges the entire impairment loss to Retained
Earnings.
Choice b) While this choice correctly charges $25,000 of the $60,000 impairment loss to
Earnings, it does so by incorrectly charging this amount to Depreciation
Expense instead of to an impairment loss account.
Choice c) The Revaluation Surplus account cannot reflect a debit balance. Thus, the
Revaluation Surplus account may be debited only to the extent of any prior
credit balance, in this case, $35,000.
42.
Answer: b.
Net income = $50,000 + $8,000 accrued revenue + $6,000 prepaid advertising
campaign - $2,000 interest expense - $7,000 amortization expense = $55,000
Choice a) Neglects to add back the advertising expense: $50,000 + $8,000 - $2,000 $7,000 = $49,000
Choice c) Ignores the interest expense and accrued revenue, and deducts the
advertising expense: $50,000 - $6,000 - $7,000 = $37,000
Choice d) Neglects to deduct the amortization: $50,000 + $8,000 + $6,000 - $2,000 +
= $62,000
43.
Answer: a.
Under ASPE, if an amount is likely and measurable, then a contingent liability should be
recorded. If there is a range of amounts and no amount is more reasonable than another
within that range, the low range of the amount should be recorded and the range
disclosed.
Choice b) Incorrectly assumes that, because it is a range, the amount cannot be
measured and therefore MOR should only disclose.
Choice c) Ignores the fact that a range that is more likely has been presented and that
this range should be used.
Choice d) Incorrectly assumes that, because it is a range, the amount cannot be
measured and therefore MOR should do nothing.
44.
Answer: a.
Note that this option is currently not “in the money” and therefore is currently of no value
to the company. Thus, this option will be recorded at its cost of $1,000 until it is
exercised or expires, at which point it will be expensed.
Choice b) This choice values these options as a liability of $3 per share but excludes
the $1,000 purchase cost of the option.
Choice c) This choice values these options as a liability of $3 per share plus the $1,000
purchase cost of the option.
Choice d) Options are only expensed once they are exercised or expired.
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45.
Answer: d.
HB1582 and IFRS3 are converged. Using the acquisition method, the net identifiable
assets are to be calculated based on fair values.
The patent should be recognized even though it is not currently on ASJ’s books as it has
value. Valuation techniques can be used to value the patent, and it clearly has a finite
life of 8 years. The present value of the patent is: $40,000PV8,5% = $258,520
The machinery should be adjusted for its fair value.
The fair value of identifiable assets = $625,000 + $125,000 + $258,520 = $1,008,520
Choice a) Ignores the fair value of the machinery and equipment, and the patent.
Choice b) Uses the amount paid as the fair value.
Choice c) Picks up 85% of the fair value of the machinery and the patent. It correctly
discounts the patent. 625,000+106,250+219,742 = 950,992
46.
Answer: c.
If the entity uses fund accounting, it may report amortization in the operating fund or in
the choice of the fund or funds based on providing the most meaningful presentation.
[HB 4431]
Choice a) False – The entity may not give some assets different capital treatment than
others. All tangible capital assets should be recognized [4431.07] unless the
cost of following the requirements exceeds the benefits for its users
[4431.04].
Choice b) False – If the fair value cannot be reasonably determined, the tangible capital
asset should be recorded at nominal value. [4431.07]
Choice d) False – The impairment loss or writedown is not based on the recoverable
amount but on the long-term service potential to the not-for-profit
organization. The excess of its net carrying amount over any residual value is
the calculation of the loss. [4431.27]
47.
Answer: d.
City Museum may use any one of the accounting policies to account for the collection
and must include that choice in its disclosure notes. [HB 4440]
48.
Answer: c.
In Year 16 the contract is ($80/(80+150)) = 34.8% complete.
In Year 17 the contract is ($165/(165+70)) = 70.2% complete.
The additional (70.2-34.8) = 35.4% completed in Year 17 x the total contract price of
$250M = $88,500,000 revenue to recognize in Year 17.
Choice a) Incorrectly uses total costs for Year 17. 70.2% x $250M = $175,500,000
Choice b) Incorrectly chooses collections for Year 17.
Choice d) Incorrectly chooses billings for Year 17.
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49.
Answer: b.
Minimum NPV = 0 to be accepted
NPV = -3,250,000 + (500,000 x PVx,7%)
If x = 8: -3,250,000 + (500,000 x 5.971) = -264,500
If x = 9: -3,250,000 + (500,000 x 6.515) = 7,500
Therefore, the machine needs to have a minimum useful life of 9 years.
50.
Answer: b.
ROI Division A = $65,000/$400,000 = 16.3%
ROI Division B = $140,000/$850,000 = 16.5%
RI Division A = $65,000 - ($400,000 x .15) = $5,000
RI Division B = $140,000 - ($850,000 x .15) = $12,500
Division B has a higher ROI and RI.
51.
Answer: d.
Return on investment is a ratio that accounts for the difference in investment in assets
among divisions. It can also be used in evaluation performance against those in the
industry. Both a) and b) are benefits of using return on investment in evaluating
performance of and determining incentive compensation for divisional managers.
Choice a) As a ratio, return on investment takes into account the difference in
investment in assets among divisions. This is a benefit of using return on
investment in evaluating performance of and determining incentive
compensation for divisional managers.
Choice b) As a ratio, return on investment takes into account the difference in
investment in assets and can be used in evaluating performance of a division
against those in the industry. The use of external benchmarks for
performance evaluation is beneficial to the company. Thus, this is a benefit of
using return on investment in evaluating performance of and determining
incentive compensation for divisional managers.
Choice c) It is inappropriate to use return on investment to evaluate performance of a
division in different industries. For instance, manufacturing divisions have
significant investment in Property, Plant and Equipment while the software
divisions do not, and return on investment in manufacturing divisions will be
lower compared to divisions in software design and development. Thus,
return on investment does not account for the difference in business
operations among divisions. This is not a benefit of using return on
investment in evaluating performance of and determining incentive
compensation for divisional managers.
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52.
Answer: a.
Management accounting has a strong future orientation. In contrast, financial accounting
generally summarizes past transactions.
Choice b) Financial accounting generally summarizes past transactions. In contrast,
management accounting has a strong future orientation.
Choice c) Management accounting focuses more on the parts, or segments, of an
organization. Financial accounting is primarily concerned with reporting for
the organization as a whole.
Choice d) Management accounting requires immediate estimates, while financial
accounting requires more precise information.
53.
Answer: c.
Fixed manufacturing overhead
$13,600
Units produced
10,000
(1) Fixed manufacturing overhead per unit produced
$1.36
(2) Units in ending inventory (10,000 - 9,200)
800
Fixed manufacturing overhead in ending inventory (1) x (2)
$1,088
Direct costing will result in operating income that is $1,088 lower than absorption
costing.
Choice a) Uses units sold instead of units produced to determine fixed manufacturing
overhead in ending inventory.
Fixed manufacturing overhead
$13,600
Units sold
9,200
(1) Fixed manufacturing overhead per unit produced
$1.49
(2) Units in ending inventory (10,000 - 9,200)
800
Fixed manufacturing overhead in ending inventory (1) x (2)
$1,192
Choice b) Uses total cost per unit.
Fixed manufacturing overhead
Variable costs
Total costs
Units produced
(1) Fixed manufacturing overhead per unit produced
(2) Units in ending inventory (10,000 - 9,200)
Fixed manufacturing overhead in ending inventory (1) x (2)
$13,600
$15,000
$28,600
10,000
$2.86
800
$2,288
Choice d) Uses variable cost per unit.
Variable costs
Units produced
(1) Fixed manufacturing overhead per unit produced
(2) Units in ending inventory (10,000 - 9,200)
Variable manufacturing overhead in ending inventory (1) x (2)
$15,000
10,000
$1.50
800
$1,200
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54.
Answer: a.
Final sales value after further processing
Sales value before further processing
Revenue from further processing
Cost of further processing
A
$320,000
240,000
80,000
100,000
B
$480,000
300,000
180,000
120,000
C
$180,000
120,000
60,000
20,000
Profit (Loss) from Further Processing
$ (20,000)
$ 60,000
$ 40,000
Therefore Grade A should not be processed further, and B and C should be processed
further.
Choice b) Chose not to process B any further because it has the highest cost of further
processing.
Choice c) Chose not to process C because it has the lowest sales value after
processing.
Choice d) Chose to process all because it results in higher total revenue.
55.
Answer: b.
Total spoilage = 18,000 - 15,000 - 2,000 = 1,000 units
Normal spoilage = 4% x 15,000 = 600 units
Abnormal spoilage = 1,000 - 600 = 400 units
Loss from abnormal spoilage = 400 x ($11.00 + $15.00) = $10,400
56.
Answer: d.
Conversion costs = Cost of ending work in process - Cost of Material A
= $34,000 - ($11.00 x 2,000)
= $34,000 - $22,000 = $12,000
Equivalent units of conversion costs = $12,000 ÷ $15.00 = 800 units
Percentage of completion = 800 equivalent units ÷ 2,000 total units = 40% complete
Choice a) Incorrectly divided by the sum of the cost per equivalent unit for Material A
and conversion costs: ($34,000 ÷ $26.00) ÷ 2,000 units = 65.4%
Choice b) Incorrectly included the cost per equivalent unit for Material B:
[$34,000 - (2,000 x $11.80)] ÷ $15.00 ÷ 2,000 units = 34.7%
Choice c) Incorrectly divided the conversion costs in ending work-in-process inventory
by the cost per equivalent unit for Material A:
($12,000 ÷ $11.00) ÷ 2,000 units = 54.5%
57.
Answer: c.
Negotiated transfer price allows division managers to come to an agreeable price as if
they were unrelated parties, thereby promoting autonomy among subunit managers.
However, negotiation can be time-consuming as in any business dealings with unrelated
parties.
Choice a) Divisional managers favour full-cost-based transfer pricing because it yields
relevant costs for long-run, and not short-run, decisions.
Choice b) Distress price should be used for transfer price when the drop below
historical average market price is permanent, not temporary.
Choice d) The use of market price motivates managers to deal internally, not externally.
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58.
Answer: d.
Both a) and c) are true as explained below.
Choice a) Is true because the direct method allocates service costs to operating
departments based on the services provided to the operating departments
and ignores all service relationships among the service departments.
Choice b) Is false because the step-down (sequential) method does partially recognize
the services provided by one service department to other service
departments.
Choice c) Is true because the reciprocal method recognizes that services are provided
by a service department to all other service departments as well as
production departments.
59.
Answer: d.
Since the Concerto Division has excess capacity, there is no opportunity cost for
transferring the motors to the Sonata Division up to full capacity. Thus, the minimum
transfer price acceptable to the Concerto Division is the incremental costs for
manufacturing the motors, $620 per motor (choice a). If the Concerto Division were
operating at full capacity, there would be opportunity costs associated with transferring
to the Sonata Division, and the minimum acceptable transfer price would be $890. On
the other hand, since the Sonata Division can purchase the motors for $890 in the
market, this is the maximum transfer price the Sonata Division is willing to pay
(choice c). Since choices a) and c) are both correct and choice b) is incorrect, the correct
answer is choice d).
60.
Answer: d.
A fixed cost is fixed in total over a relevant range. The rental is a fixed monthly amount
regardless of the activity. Product costs include the material labour and overhead
involved in the manufacture of a product. The rental is an overhead cost. Hence the
rental is a fixed product cost.
Choice a) A sunk cost is a cost that has already been incurred and cannot be altered by
any decision taken now or in the future. The space rental is not a sunk cost.
Choice b) A variable cost is a cost that varies proportionately with activity. The space
rental does not vary with activity. A period cost is any cost that is not included
in product costs. The space rental is a product cost.
Choice c) While this space rental is a product cost, it is not a variable cost as it does not
vary with activity.
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61.
Answer: c.
A fixed cost is fixed in total over a relevant range. The advertising and promotion is a
fixed monthly amount regardless of the activity it generates. Product costs include the
material labour and overhead involved in the manufacture of a product. The advertising
and promotion is not a product cost. Period costs are any costs not included in product
costs. The advertising is a period cost. Hence the advertising is a fixed period cost.
Choice a) A variable cost is a cost that varies proportionately with activity. The
advertising does not vary with activity.
Choice b) A fixed cost is fixed in total over a relevant range. The advertising and
promotion is a fixed amount regardless of the activity it generates. However,
the advertising is not a product cost, as it is not direct material, labour or
manufacturing overhead.
Choice d) While the advertising is a period cost, it is not a variable cost as it does not
vary with the level of activity.
62.
Answer: a.
Indirect materials ($20,000 + $40,000 - $15,000)
Rent (60% x $120,000)
Utilities (60% x $80,000)
Indirect Manufacturing Costs
$ 45,000
72,000
48,000
$165,000
Choice b) Represents total manufacturing costs, rather than indirect manufacturing
costs:
Direct materials ($100,000 + $920,000 - $100,000)
$ 920,000
Indirect materials ($20,000 + $40,000 - $15,000)
45,000
Direct labour
680,000
Rent (60% x $120,000)
72,000
Utilities (60% x $80,000)
48,000
Total Manufacturing Costs
$1,765,000
Choice c) Includes office supplies: $165,000 + ($48,000 + $34,000 - $22,000)
= $225,000
Choice d) Includes direct materials: $165,000 + $920,000 = $1,085,000
63.
Answer: b.
Desired merchandise inventory, September 30 (30% x 3,000 units)
Add: Expected sales for July, August and September
(7,000 + 8,000 + 6,000) units
Total requirement
Less: Merchandise inventory, June 30 (30% x 7,000 units)
Total purchases required
Total purchase costs (19,800 units x $25) = $495,000
900 units
21,000 units
21,900 units
2,100 units
19,800 units
Choice a) Misses beginning inventory: 21,900 x $25 = $547,500
Choice c) Misses ending inventory: 18,900 x $25 = $472,500
Choice d) Uses selling price: 19,800 x $60 = $1,188,000
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64.
Answer: c.
Merchandise inventory, June 30 = (30% x 7,000 units) x $25
Purchases for June
= ($52,500 + 5,000 x $25 - $37,500)
Accounts payable, June 30
= (20% x $140,000)
= $52,500
= $140,000
= $28,000
Choice a) Miscalculates purchases:
Purchases for June = ($37,500 + 5,000 x $25 - $52,500) = $110,000
Accounts payable, June 30 = (20% x $120,000) = $22,000
Choice b) Miscalculates ending inventory with beginning inventory:
Merchandise inventory, June 30 = (30% x 5,000 units) x $25 = $37,500
Choice d) Miscalculates payable: (80% x $140,000) = $112,000
65.
Answer: a.
Change in number of guests
Change in total costs
Estimate of variable cost
No. of Guests
6,000
10,000
4,000
$4,400/4,000 =
Total Cost
$7,200
$11,600
$4,400
$1.10 per guest
Choice b) Total number of guests divided by total cost.
No. of Guests
6,000
10,000
Total number of guests
16,000
Total costs
Estimate of variable cost
$18,800/16,000 =
Choice c) Uses cost per guest as low.
No. of guests
Total Cost
6,000
$7,200
Total Cost
$7,200
$11,600
$18,800
$1.17 per guest
Cost per Guest
$7,200/6,000 = $1.20
Choice d) Uses December as low.
Change in number of guests
Change in total costs
Estimate of variable cost
66.
No. of Guests
6,500
10,000
3,500
$4,800/3,500 =
Total Cost
$6,800
$11,600
$4,800
$1.37 per guest
Answer: c.
An investment centre is a segment of a business where the manager has control over
and is accountable for the segment’s revenue, costs and use of investment funds. The
return on the resources invested would encompass revenue, costs and investments (i.e.
income divided by investment = return on investment).
Choices a), b) and d) These are profit centres.
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67.
Answer: c.
Kaizen budgeting is a budgetary approach that explicitly incorporates continuous
improvement during the budget period into the resultant budget numbers (e.g. budgeting
6.5 machine-hours per unit in the first quarter, 6.2 machine-hours per unit 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) Describes program budgeting.
Choice b) Describes incremental or traditional budgeting.
Choice d) Describes activity-based budgeting.
68.
Answer: d.
Overhead rate = $400,000/100,000 hours = $4/hr
Overhead applied = 90,000 x $4 = $360,000
Actual overhead
Overhead applied
Underapplied
$365,000
360,000
$ 5,000
Choice a) Compares estimated overhead to actual overhead and interprets this as
underapplied: $400,000 - $365,000 = $35,000
Choice b) Compares estimated overhead to actual overhead and interprets this as
overapplied: $400,000 - $365,000 = $35,000
Choice c) Correctly computes overhead rate, but compares estimated to actual hours
and interprets this as overapplied: $4 x (100,000 - 90,000 hours) = $40,000
69.
Answer: b.
Irrelevant high-low outliers 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, 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 a regression model.
Choice d) The significance of regression coefficient is one of the evaluative criteria for
a regression model in which the null hypothesis of no significance is
rejected.
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70.
Answer: b.
Standard hours allowed x Standard rate
Favourable efficiency variance
Actual labour
Standard hours = $172,000/$16 = 10,750
(4,500 x 2.5) x $16 =
$180,000
(8,000)
$172,000
Choice a) Incorrectly adds favourable variance to determine actual hours.
Standard hours = $188,000/$16 = 11,750
Choice c) Incorrectly adds variance hours to output:
Variance / Standard rate
$8,000/$16 = 500 units
Output x Standard hours per unit
(4,500 + 500) x 2.5 = 12,500
Choice d) Incorrectly deducts variance per hour from standard hours allowed:
Standard hours allowed
4,500 x 2.5 = 11,250
Standard hours x Standard rate
2.5 x $16 = $40
Favourable efficiency variance
$8,000
Variance ÷ Standard
$8,000/$40 = 200
(200)
Actual hours
11,050
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71.
Answer: b.
Metals
$28,000
8,000
Administrative: (400/600; 200/600)
Janitorial: (2,000/6,000; 4,000/6,000)
Equipment maintenance:
(6,000/24,000; 18,000/24,000)
Additional Overhead
4,500
13,500
$40,500
$43,500
Choice a) Incorrectly uses the step method.
Admin.
Janitors
Costs before allocation
$42,000
$24,000
Administrative: (200/840;
40/840; 400/840; 200/840) (42,000)
10,000
Janitorial: (800/6,800;
2,000/6,800; 4,000/6,800)
(34,000)
Equipment maintenance:
(6,000/24,000;
18,000/24,000)
–
–
Total Cost after Allocations
$
–
$
Plastics
$14,000
16,000
–
Maint.
$18,000
Metals
Plastics
2,000
$20,000
$10,000
4,000
10,000
20,000
(24,000)
6,000
18,000
$36,000
$48,000
$
–
Choice c) Incorrectly uses the total driver as the denominator in the calculation.
Metals
Plastics
Administrative: (400/880; 200/880)
$19,091
$ 9,545
Janitorial: (2,000/7,040; 4,000/7,040)
6,818
13,636
Equipment maintenance:
(6,000/24,000; 18,000/24,000)
4,500
13,500
Additional Overhead
$30,409
$36,681
Choice d) Incorrectly includes the driver from the service department when calculating
the ratio.
Metals
Plastics
Administrative: (400/640; 200/640)
$26,250
$13,125
Janitorial: (2,000/6,040; 4,000/6,040)
7,947
15,894
Equipment maintenance:
(6,000/24,000; 18,000/24,000)
4,500
13,500
Additional Overhead Allocated
CMA Canada
$38,697
$42,519
Page 58
2012 Sample Entrance Examination
72.
Answer: c.
Admin.
Janitor
Maint.
Costs before allocation
$ 42,000 $ 24,000 $ 18,000
Administrative: (200/840; 40/840;
400/840; 200/840)
(42,000)
10,000
2,000
Janitorial: (800/6,800; 2,000/6,800;
4,000/6,800)
(34,000)
4,000
Equipment Maintenance:
(6,000/24,000; 18,000/24,000)
–
–
(24,000)
Metals
Total cost after allocations
$
–
$
–
$
–
Plastics
20,000
10,000
10,000
20,000
6,000
18,000
$36,000
$48,000
Choice a) Incorrectly includes driver from service department being allocated in both the
numerator and denominator of the ratio. Incorrectly allocates only costs
before allocation.
Admin.
$42,000
Janitor
$24,000
Maint.
$18,000
1,909
9,545
1,909
19,090
9,545
136
2,727
6,818
13,636
–
–
4,500
13,500
–
$30,408
$36,681
Admin.
Janitor
Maint.
Costs before allocation
$ 42,000 $ 24,000 $ 18,000
Administrative: (400/600; 200/600) (42,000)
Janitorial:
(2,000/6,000; 4,000/6,000)
(24,000)
Equipment Maintenance:
–
(18,000)
(6k/24k; 18k/24k)
–
Metals
Plastics
Additional overhead allocated
Costs before allocation
Allocation:
Administrative: (40/880;
200/880; 40/880; 400/880;
200/880)
Janitorial: (40/7,040; 800/7,040;
2,000/7,040; 4,000/7,040)
Equipment Maintenance:
(0/24k; 6k/24k; 18k/24k)
Total cost allocated
–
$
–
$
–
$
Metals
Plastics
Choice b) Incorrectly uses direct method.
$
–
$
–
$
–
28,000
14,000
8,000
16,000
4,500
13,500
$40,500
$43,500
Choice d) Incorrectly uses total number of drivers as denominator in the ratio.
Admin.
Janitor
Maint.
Costs before allocation
$ 42,000 $ 24,000 $ 18,000
Administrative: (200/880; 40/880;
400/880; 200/880)
(42,000)
9,545
1,909
Janitorial: (800/7,040; 2,000/7,040;
4,000/7,040)
(33,545)
381
Equipment Maintenance:
(6k/24k; 8k/24k)
–
–
(20,290)
Metals
Total cost after allocations
CMA Canada
$
–
$
–
$
–
Plastics
19,090
9,545
9,530
19,060
5,073
15,217
$33,693
$43,822
Page 59
2012 Sample Entrance Examination
73.
Answer: d.
If lower-grade materials resulted in excessive waste, then more materials were used
than anticipated. But materials purchased at a discount would explain a favourable price
variance.
Choice a) This would result in both a favourable price and quantity variance.
Choice b) This would result in a favourable price variance, but would not explain an
unfavourable quantity variance.
Choice c) The price variance relates to price paid and the quantity variance to quantity
used; hence this information is insufficient to determine the impact on these
variances.
74.
Answer: c.
Activity-based costing attempts to allocate overhead based on the estimated use of
resources, so more overhead is allocated to low-volume products using activity-based
costing.
Traditional costing approaches use volume bases such as direct labour hours or
machine-hours to allocate overhead to product costs; hence more overhead is allocated
to high-volume products using traditional costing.
Choice a) Activity-based costing attempts to allocate overhead based on the estimated
use of resources. Manufacturing overhead that is considered to be
organization-sustaining in nature would not be allocated to product cost under
the activity-based approach.
Choice b) Activity-based costing is not acceptable for external financial reporting.
Choice d) Traditional costing allocates more overhead to high-volume products.
75.
Answer: c.
Contribution margin per unit
Fixed costs
Breakeven sales
= $80 - ($13 + $12 + $5) - $80x5%
= ($20 x 60,000 x 80% + $420,000)
= $1,380,000 / $46
= $46
= $1,380,000
= 30,000 units
Choice a) Incorrectly uses gross profit in computing breakeven sales.
Gross profit per unit = $80 - ($13 + $12 + $5 + $10) = $40
Fixed costs = ($20 x 60,000 x 80% + $420,000) = $1,380,000
Breakeven sales = $1,380,000 / $40 = 34,500 units
Choice b) Includes fixed overhead in contribution margin.
Contribution margin per unit = $46 - $10 = $36
Fixed costs = ($20 x 60,000 x 80% + $420,000) = $1,380,000
Breakeven sales = $1,380,000 / $36 = 38,334 units
Choice d) Misses fixed overhead.
Contribution margin per unit = $80 - ($13 + $12 + $5) - $80 x 5% = $46
Breakeven sales = $420,000 / $46 = 9,131 units
CMA Canada
Page 60
2012 Sample Entrance Examination
76.
Answer: d.
With CP5
Selling price
$80
Direct materials
13
Direct labour
12
Variable overhead (0.5 MCH x 80% x $10 per MCH)
5
Variable selling costs ($80 x 5%)
4
Total variable costs
34
Contribution margin per unit
$46
Total contribution margin (99,000/110% x $46);
(99,000 x $45)
$4,140,000
Increase in income = $4,455,000 - $4,140,000 = $315,000
With CP8
$80
15
12
4
4
35
$45
$4,455,000
Choice a) Incorrectly uses gross profits.
With CP5
$80
13
12
5
10
40
$40
Selling price
Direct materials
Direct labour
Variable overhead (0.5 MCH x 80% x $10 per MCH)
Fixed overhead (0.5 MCH x 80% x $20 per MCH)
Product cost per unit
Gross profits per unit
Total gross profits (99,000/110% x $40);
(99,000 x $45)
$3,600,000
Decrease in income = $4,059,000 - $3,600,000 = $531,000
With CP8
$80
15
12
4
8
39
$41
$4,059,000
Choice b) Incorrectly uses gross profits times the number of units.
Increase in income = ($41 - $40) x 99,000 units = $99,000
Choice c) Incorrectly uses difference in number of units times sales price.
[99,000 - (99,000/110%)] x $80 = $720,000
CMA Canada
Page 61
2012 Sample Entrance Examination
77.
Answer: c.
Difference in income = (8,700 - 8,400) x $10 = $3,000
Absorption costing income is $3,000 lower than direct costing income because 300 more
units were sold than produced, i.e. a decrease in 300 units of inventory, since more fixed
overhead in beginning inventory is deducted as cost of goods sold under absorption
costing, or:
Absorption Costing Income
Sales ($80 x 8,700)
Cost of goods sold
Standard cost of goods sold ($40 x 8,700)
Production volume variance
($20 x 60,000 x 80%/12 - $10 x 8,400)
Adjusted cost of goods sold
Gross profits
Selling and administrative expenses
($80 x 5% x 8,700 + $420,000/12)
Operating Income
Direct Costing Income
Sales
Variable costs
Variable cost of goods sold ($30 x 8,700)
Variable S&A expenses ($80 x 5% x 8,700)
Total variable costs
Contribution margin
Fixed costs ($20 x 60,000 x 80%/12 + $420,000/12)
Operating Income
$696,000
348,000
(4,000)
344,000
352,000
69,800
$282,200
$696,000
261,000
34,800
295,800
400,200
115,000
$285,200
Choice a) Mistakes the difference as higher under absorption costing.
Choice b) Incorrectly uses variable overhead and mistakes the difference as higher
under absorption costing.
Choice d) Incorrectly uses variable overhead.
CMA Canada
Page 62
2012 Sample Entrance Examination
78.
Answer: b.
Direct labour hours requirement at maximum demand:
Cutting = 10/60 x 2,500 x 3 months + 20/60 x 1,500 x 3 months = 2,750 DLH
Finishing = 15/60 x 2,500 x 3 months + 40/60 x 1,500 x 3 months = 4,875 DLH
Thus, production constraint exists for hours in Finishing department.
Contribution margin per unit:
Wallets = $30 - $8 - $2 = $20
Belts = $50 - $15 - $3 = $32
Contribution margin per direct labour hour (Finishing):
Wallets = $20 / (15/60) = $80 per DLH (Finishing)
Belts = $32 / (40/60) = $48 per DLH (Finishing)
Thus, in addition to meeting the contract requirement for 1,800 belts, ALC should use
capacity to manufacture wallets first and then belts as follows:
Production Plan
Direct Labour Hours (Finishing) Required
Belts
1,800 units
1,800 x 40/60 = 1,200 DLH
Wallets
7,500 units
7,500 x 15/60 = 1,875 DLH
Belts
525 / (40/60) = 787.5 units 3,600 - 1,200 - 1,875 = 525 DLH
ALC should produce 7,500 wallets and 2,587 belts to maximize its profits.
Choice a) Does not use excess capacity of 525 DLH.
Choice c) Assumes production matches maximum sales volume and ignores
constraints.
Choice d) Incorrectly uses net margin instead of contribution margin.
Net margin per unit:
Wallets = $30 - $8 - $2 - $5 - $6 = $9 per unit
Belts = $50 - $15 - $3 - $5 - $1 = $26 per unit
Net margin per direct labour hour (Finishing):
Wallets = $9 / (15/60) = $36 per direct labour hour (Finishing)
Belts = $26 / (40/60) = $39 per direct labour hour (Finishing)
In this case, ALC should use the capacity to product belts first and then
wallets.
Production Plan
Direct Labour Hours (Finishing) Required
Belts
4,500 units
4,500 x 40/60 = 3,000 DLH
Wallets
600 / (15/60) = 2,400 units 3,600 DLH - 3,000 DLH = 600 DLH
That is, ALC will produce 2,400 wallets and 4,500 belts.
CMA Canada
Page 63
2012 Sample Entrance Examination
79.
Answer: d.
Total fixed costs: [$20(5,000 + 10,000 + 20,000)] + $500,000 = $1,200,000
Contribution margin per unit:
A = $400 - ($100 + $50 + $60) = $190
B = $250 - ($80 + $50 + $40) = $80
C = $150 - ($40 + $50 + $10) = $50
Weighted average contribution margin per unit:
[($190 x 1) + ($80 x 2) + ($50 x 4)]/(1 + 2 + 4)
= ($190 + $160 + $200)/7
= $550/7 = $78.57
Breakeven volume = $1,200,000/$78.57 = 15,270 (rounded)
Choice a) Uses gross margin per unit:
$500,000/{[($170 x 1) + ($60 x 2) + ($30 x 4)]/7}
= $500,000/($410/7) = 8,540
Choice b) Uses mix of 1:1:1:
$1,200,000/[($190 + $80 + $50)/3] = $1,200,000/($320/3) = 11,250
Choice c) Uses variable cost per unit:
$1,200,000/{[($210 x 1) + ($170 x 2) + ($100 x 4)]/7}
= $1,200,000/($950/7) = 8,840
CMA Canada
Page 64
2012 Sample Entrance Examination
80.
Answer: a.
Product
Sales price
Less variable costs:
Materials
Labour
Manufacturing overhead
(1) Contribution margin per unit
(2) Direct material cost per unit
(3) Direct material cost per gram
(4) Direct material grams required per unit (2) ÷ (3)
Contribution margin per gram of material (1) ÷ (4)
A
$120
B
$180
C
$ 190
(24)
(54)
(6)
36
24
16
1.5
$ 24
(64)
(28)
(16)
72
64
16
4.0
$ 18
(32)
(110)
(8)
40
32
16
2.0
$ 20
Choice b) Incorrectly ranks based on contribution margin per unit:
A
B
C
Sales price
$120
$180 $ 190
Less variable costs:
Materials
(24)
(64)
(32)
Labour
(54)
(28)
(110)
Manufacturing overhead
(6)
(16)
(8)
Contribution Margin per Unit
$ 36
Choice c) Incorrectly calculates margin:
Product
Sales price
Less variable costs:
Materials
Labour
Manufacturing overhead
(1) Contribution margin per unit
(2) Direct material cost per unit
(3) Margin per dollar of material (1) ÷ (2)
Choice d) Incorrectly includes fixed overhead:
Product
A
Sales price
$120
Less costs:
Materials
(24)
Labour
(54)
Manufacturing overhead
(6)
Fixed overhead
(1)
Contribution Margin per Unit
CMA Canada
$ 35
$ 72
$ 40
A
$120
B
$180
C
$ 190
(24)
(54)
(6)
36
24
1.5
(64)
(28)
(16)
72
64
4.5
(32)
(110)
(8)
40
32
1.25
B
$180
C
$ 190
(64)
(28)
(16)
(38)
(32)
(110)
(8)
(7)
$ 34
$ 33
Page 65
2012 Sample Entrance Examination
81.
Answer: d.
Production resources include direct materials, direct labour and other manufacturing
overhead. Thus, units of output per dollar of production resources is a total factor
productivity measure.
Choice a) Return on investment is computed as the ratio of income to assets. Assets
are the inputs used to generate income, a comprehensive output measure.
Return on investment is a productivity measure.
Choice b) Salespersons, the input, are directly involved in generating sales revenue, the
output. Revenue per salesperson is a partial factor productivity measure.
Choice c) Units of output per direct labour hour is a partial factor productivity measure.
82.
Answer: b.
Sales mix variance = (9,200/16,000 - 10,000/15,000) x 16,000 x ($8.00 - $1.60 - $1.40)
+ (6,800/16,000 - 5,000/15,000) x 16,000 x ($5.00 - $0.75 - $0.65) = $2,053.33 (U)
Market share variance = $4.5333* x 100K x (16,000/100,000 - 20%) = $18,133.33 (U)
Market size variance = $4.5333* x (100K - 15,000/0.20) x 20% = $22,666.67 (F)
* Total budgeted contribution margin / total budgeted units
Choice a) Misinterprets both market share and market size variances.
Choice c) Misinterprets both market share and total sales mix variances.
Choice d) Misinterprets total sales mix variances.
83.
Answer: b.
Sales volume variance should be computed based on budgeted contribution margin
per unit: ($8.00 - $1.60 - $1.40) = $5.00 per unit
Sales volume variance = (9,200 - 10,000) x ($8.00 - $1.60 - $1.40) = $4,000 (U)
Choice a) Incorrectly uses budgeted gross profit per unit.
= (9,200 - 10,000) x ($8.00 - $1.60 - $1.20) = $4,160 unfavourable
Choice c) Incorrectly uses actual gross profit per unit.
= (9,200 - 10,000) x ($7.50 - $1.50 - $1.25) = $3,800 unfavourable
Choice d) Incorrectly uses actual contribution margin per unit.
= (9,200 - 10,000) x ($7.50 - $1.50 - $1.50) = $3,600 unfavourable
84.
Answer: d.
Total sales quantity variance = 10,000/15,000 x (16,000 - 15,000) x ($8.00 - $1.60 $1.40) + 5,000/15,000 x (16,000 - 15,000) x ($5.00 - $0.75 - $0.65) = $4,533.33 (F)
Choice a) Incorrectly calculates total selling price variance.
($7.50 - $8.00) x 9,200 + ($5.50 - $5.00) x 6,800 = $1,200 (U)
Choice b) Incorrectly calculates total sales volume variance.
(9,200 - 10,000) x ($8.00 - $1.60 - $1.40) + (6,800 - 5,000) x
($5.00 - $0.75 - $0.65) = $2,480 (F)
Choice c) Incorrectly calculates total sales mix variance.
(9,200/16,000 - 10,000/15,000) x 16,000 x ($8.00 - $1.60 - $1.40) +
(6,800/16,000 - 5,000/15,000) x 16,000 x ($5.00 - $0.75 - $0.65)
= $2,053.33 (U)
CMA Canada
Page 66
2012 Sample Entrance Examination
85.
Answer: a.
Gross salary $100,000 + Spouse’s travel $3,000 + Gift cards (near cash) $500
= $103,500.
Choice b) $105,000 = Gross salary + Vacation owed
Choice c) $107,000 = Gross salary + Discounts $3,500 + Spouse’s travel $3,000 +
Gift cards (near cash) $500
Choice d) $108,500 = Gross salary + Vacation pay + Either discounts or [Spouse’s
travel + Gift cards]
86.
Answer: d.
Unincorporated businesses, like sole proprietorships, are not taxable entities. Income
earned by the proprietorship is taxed in the hands of the proprietor (i.e. owner).
Choices a) to c) are all considered taxable entities.
87.
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 proceeds less selling fees: $100K - ($110K - $5K) = $5K
Choice d) Calculates as a terminal loss: $140K - $110K = $30K
88.
Answer: a.
This is a terminal loss and, as it is a rental property costing more than $50,000, it is in a
separate class and the loss must be taken into income in the year of disposition.
Choice b) This is not an option; as it is a rental property costing more than $50,000, it is
in a separate class and therefore the CCA must be taken into income.
Choice c) This is not an option for this type of property that is sold.
Choice d) This is not an option.
89.
Answer: c.
650,000 + 90,000 + 2,000 + 5,000 - 4,000 = $743,000
Income tax is added back, and accounts payable for charitable donations and
investment counsel fees are added back as these expenses are only deductible when
paid and the CCA in excess of deprecation is subtracted.
Choice a) Omits add back of income tax and investment counsel fees.
(650,000 + 2,000 - 4,000)
Choice b) Subtracts rather than adds payables.
(650,000 + 90,000 - 2,000 - 5,000 - 4,000)
Choice d) Also adds back allowances, which is not required.
(650,000 + 90,000 + 2,000 + 5,000 - 4,000 + 11,000)
CMA Canada
Page 67
2012 Sample Entrance Examination
90.
Answer: a.
This is a non-arms’-length transaction. Shauna would incur an immediate capital gain of
$175,000 (proceeds) less $100,000 (ACB) = $75,000.
Choice b) Incorrectly assumes fair market value for the transfer.
Choice c) Incorrectly assumes the difference between proceeds and fair market value.
Choice d) Assumes capital gain will be with Daniel, the son.
91.
Answer: b.
The determination is a question of fact, and the actual terms and conditions of
employment are the deciding factor.
Choice a) Ownership of tools and equipment is a factor that is considered but not the
deciding one.
Choice c) This is not always the case because the determination of the degree of
control can be difficult when examining the employment of professionals such
as engineers, doctors and IT consultants. Because of their expertise and
specialized training, they may require little or no specific direction from the
payer in their daily activities.
Choice d) This is a factor that is considered but is only one of several terms and
conditions considered.
92.
Answer: d.
The floating weighted-average method is used to determine the adjusted cost base
(ACB) for identical assets, such as the shares of a particular company. The capital gain
or loss is calculated by the following formula: proceeds of disposition minus the
aggregate of (i) adjusted cost base and (ii) expenses of the disposition.
ACB = (4,000 x $7.60) + (2,000 x $8.10) / (2,000 + 4,000)
= ($30,400 + $16,200) / 6,000 = $7.767
Capital gain = $40,000 - ($7.767 x 5,000) - $400 = $765
= $765 capital gain x 50% = $382.50 ~ $380 taxable capital gain
Choice a) Uses FIFO: 4,000 x ($8 - $7.60) + 1,000 x ($8 - $8.10)
= $1,500 gain
Choice b) Ignores selling expenses: $40,000 - ($7.767 x 5,000) = $1,165 x 50%
= $582.50 ~ $580 taxable capital gain
Choice c) Neglects the 50% capital gain rule.
CMA Canada
Page 68
2012 Sample Entrance Examination
93.
Answer: c.
Fraud can be perpetrated because there is always a trade-off between the cost and
benefits of internal controls. For example, collusion between employees and third
parties, or management and employees can circumvent normal controls. Management
override of controls can result in fraudulent financial reporting.
Choice a) False – The external auditor is primarily interested in controls over financial
reporting. The internal auditor’s responsibility can include safeguarding of
assets, efficiency and effectiveness of operations and compliance with laws
and regulations.
Choice b) False – Well-designed controls are helpful but do not ensure that the financial
statements will not be materially misstated.
Choice d) False – Small entities can institute effective controls over many aspects of the
business. For example, the top level of management (often the
owner/manager) can review journal entries, reconcile the bank statement and
open all of the mail.
94.
Answer: c.
The only control in place to stop this is the customer, and if the customer does not
notice, the control will not work.
Choice a) False – Once the funds are in the cash register and the sale has been
recorded, any shortfall of cash can be detected by comparing the cash
deposit to the cash register totals.
Choice b) False – If customers do not want a receipt, the employee can take cash
before it is recorded by the cash register. However, the transaction display on
the cash register that the customer sees is one control. The other control will
be the mismatch between sales recorded in the register and inventory.
Choice d) False – Taking merchandise does not meet the objective of stealing cash and
is more likely to be observed. Cash is liquid and easier to hide.
95.
Answer: c.
The receiving supervisor has access to the assets and the accounting records. She/he
could misappropriate inventory and cover it up with false entries to the perpetual
inventory records.
Choice a) The controller would detect unauthorized use or disbursement of cash.
Choice b) The cashier prepares the bank deposit and the accounting manager reviews
it to ensure completeness before it is deposited.
Choice d) The assistant controller authorizes payment but does not have access to the
assets (cash and cheques).
96.
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.
CMA Canada
Page 69
2012 Sample Entrance Examination
97.
Answer: a.
The internal auditors are responsible for examining and evaluating the effectiveness of
other functions within the organization. These responsibilities include assessing the
control systems, identifying areas of risk that need to be addressed in the control
system, and making recommendations for improving the internal control process.
Choice b) The responsibility for monitoring and maintaining internal controls is part of
management’s overall responsibility for the ongoing activities of the
business—it is not the internal auditor’s responsibility.
Choice c) The board of directors or the audit committee is responsible for appointing the
external auditors, not the internal auditors.
98.
Answer: c.
The auditor may rely on the internal auditor without testing the controls. However, the
external auditor would perform other procedures to assess the reliability of the internal
auditor’s tests. The nature, timing and extent of other audit procedures would be affected
by the decision to rely.
Choice a) False – Tests of controls are not usually relevant for the audit objectives:
valuation, rights and obligations, and presentation and disclosure.
Choice b) False – The auditor would test only those where there is a risk of material
misstatement.
Choice d) False – The auditor may choose to use only substantive testing but cannot
choose to rely solely on tests of controls.
99.
Answer: d.
The processes are so integrated in an ERP that they frequently trigger other processes.
For example, an unauthorized user who accesses the purchasing module could trigger
both the purchase of goods and the payment for those goods.
Choice a) False – The ERP system is so interconnected that there are more areas for
private and confidential information to be available. Applications that could be
separately maintained in a legacy system may be integrated in the ERP.
Choice b) False – The danger in using complex passwords that change frequently is
that employees cannot remember them, so they write them down in a
location nearby and accessible to others.
Choice c) False – While the integration in the ERP may result in the one user having
duties that would be considered incompatible in other systems, the focus of
supervision moves from the transaction level to overall performance.
100.
Answer: a.
The service provider would be responsible for testing all changes in the operating
systems and programs. The results would then have to be approved by the IT
department.
Choice b) False – Generally, the user departments are not directly involved in the
maintenance of operating systems.
Choice c) False – Parallel runs are typically done with application software, but not with
operating systems.
Choice d) False – Application software would not be the subject of these changes. It is
the operating software that is maintained by the service provider.
CMA Canada
Page 70
2012 Sample Entrance Examination
Supplement of Formulae and Present Value Tables
Formulae
1.
CAPITAL STRUCTURE
a)
After-Tax Marginal Cost of Debt:
kb = k(1− T) or
where
b)
k = interest rate; T = corporate tax rate; I = annual interest payment on debt; F = face value of debt
Cost of Preferred Shares:
kp =
Dp
NPp
where
c)
(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)
CMA Canada
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 = market price of a share; re = expected return on common equity
Page 71
2012 Sample Entrance Examination
iii)
Capital Asset Pricing Model:
(
Rj = Rf + β j Rm − Rf
where
d)
)
Rj = expected rate of return on security j; Rf = risk-free rate; Rm = expected return for the market portfolio
βj = beta coefficient for security j (measure of systematic risk)
Weighted Average Cost of Capital:
 B
 P
 E
k =   kb +   kp +   ke
 V
 V
 V
where
2.
B = amount of debt outstanding; P = amount of preferred shares outstanding; E = amount of common equity outstanding
V = 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
Present Value =
Sn
(1 + k )n
Sn
 dT 

 or
n −1
 d + k  (1 + k )
 dT 

, depending on cash flow assumptions
d +k 
Notation for above formulae:
C = net initial investment; UCC = undepreciated capital cost of asset; Sn = salvage value of asset realized at end of year n; T = corporate tax rate;
k = discount rate or time value of money; d = maximum rate of capital cost allowance; n = total life of investment
CMA Canada
Page 72
2012 Sample Entrance Examination
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
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
CMA Canada
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
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%
0.917
.842
.772
.708
.650
.596
.547
.502
.460
.422
.388
.356
.326
.299
.275
.252
.231
.212
.194
.178
.164
.150
.138
.126
.116
10%
0.909
.826
.751
.683
.621
.564
.513
.467
.424
.386
.350
.319
.290
.263
.239
.218
.198
.180
.164
.149
.135
.123
.112
.102
.092
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
1
(1+ i) n
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
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
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
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
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
Page 73
2012 Sample Entrance Examination
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
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
CMA Canada
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
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
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
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
Page 74