CMA USA Part 1-Model Questions

What will be the effect on the financial statements in the year when slower-moving inventory items continue to be valued at historical cost instead of the lower of cost or net realizable value basis?

Madsen Pharmaceuticals has spent 15 years developing a new medication for epileptic seizures. They finally have a new FDA-approved drug and have applied for a patent. When you look at Madsen’s accounting books, what would you expect to find?

Manufactured capital, as defined under Integrated Reporting, includes all of the following items except:

The entry to record the initial recognition of a finance lease would include which of the following:

At the end its first year of operations, Hopkins Co. prepared a reconciliation between pretax financial income and taxable income as follows:

Pretax financial income                                                                  $1,500,000
Estimated litigation expense                                                          2,000,000
Extra depreciation for taxes                                                           (3,000,000)
Taxable income                                                                                 $ 500,000

The estimated litigation expense of $2,000,000 will be deductible in the following year, when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $1,000,000 in each of the next three years. The income tax rate is 30% for all years. The deferred tax asset to be recognized is

Kale purchased bonds at a discount on the open market as an investment and has both the intent and ability to hold these bonds to maturity. Kale should account for these bonds at:

Sophia Company is planning to start a project to build a new distribution center. To build the center, Sophia Company estimates that in 20×8 labor costs will be $4,000,000, material costs will be $3,000,000, legal costs will be $1,000,000, architectural/engineering costs will be $3,500,000, and a charge for corporate administrative costs will be $1,200,000. If Sophia uses the project budgeting system, what will be the total costs included in that budget?

The following sequence of steps is employed by a company to develop its annual profit plan:

• Planning guidelines are disseminated downward by top management after receiving input from all levels of
  management.
• A sales budget is prepared by individual sales units reflecting the sales targets of the various segments. This provides the basis for departmental production budgets and other related components by the various operating units. Communication is primarily lateral with some upward communication possible.
• A profit plan is submitted to top management for coordination and review. Top management’s recommendations and revisions are acted upon by middle management. A revised profit plan is resubmitted for further review to top management.
• Top management grants final approval and distributes the formal plan downward to the various operating units.
  This outline of steps best describes which one of the following approaches to budget development?

Fox Run Co. produces a product which requires 6 hours of direct labor at $25.60 per hour. During October, Fox Run’s actual payroll was $314,496 and the company used 12,600 direct labor hours to produce 2,000 units of the product. What is Fox Run’s direct labor price variance?

A company has a fixed overhead volume variance that is $10,000 unfavorable. The most likely cause for this variance is that: