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The Societies of Management Accountants of Alberta, Manitoba, New Brunswick, Newfoundland, Northwest Territories and Nunavut, Nova Scotia,

Ontario, Prince Edward Island, Saskatchewan, and the Yukon, Certified Management Accountants Society of British Columbia, Ordre des comptables en management accrdits du Qubec

2009 Sample Entrance Examination


(Time Allowed: 4 hours) Notes: i) ii) All answers must be indicated on the scannable multiple-choice answer sheet. Work done on the question paper and examination foolscap will NOT be marked. 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. 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.

iii)

TABLE OF CONTENTS
Examination: Instructions ......................................................................................... 1 Strategic Management ........................................................................ 3 Risk Management and Governance ................................................... 5 Performance Management ................................................................. 8 Performance Measurement .............................................................. 17 Financial Management ..................................................................... 23 Financial Reporting ........................................................................... 29 Solution: Summary .......................................................................................... 40 Solutions ........................................................................................... 41 Supplement of Formulae ......................................................................... 69
* This supplement is provided to all candidates with the examination.

2009 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 110 questions and record your answer on the multiple-choice answer sheet by blackening the appropriate answer space (i.e. oval) with a soft lead (HB) pencil. Answer all questions. Mark ONLY ONE ANSWER for each question. Sample Question: 189. (-) Market research and public relations costs are a) b) c) d) e) engineered variable costs. discretionary variable costs. committed fixed costs. discretionary fixed costs. engineered fixed costs.

Assuming you select choice d) for your answer, you should blacken the d space on line 189 in the ANSWERS area of the multiple-choice answer sheet as shown below: 189 a b c d e

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

2009 Sample Entrance Examination

Calculator Policy and Supplement The following models of calculators are authorized for use on the Entrance Examination effective January 2008: Texas Instruments Hewlett Packard Sharp TI BA II Plus (including the Professional model) HP 10bII (or HP 10Bii) EL-738C (or EL-738)

The supplement accompanying the Entrance Examination contains present value tables.

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2009 Sample Entrance Examination

Strategic Management
1. If economies of scale are an industrys primary entry barrier, a new entrants major risk is its inability to a) b) c) d) get buyers to switch to its products. access superior sources of raw materials for its products. match the pace of innovation of its established rivals. produce in sufficient volume to match the cost advantages of established industry competitors. e) ensure quality of its finished products. 2. Which of the following internal resources of a competitor is the most difficult to imitate? a) b) c) d) e) 3. Brand name. State-of-the-art manufacturing facilities. Marketing intelligence. Technological know-how. Capital.

(-) The main purpose of a companys mission statement is to provide a context and direction for a) b) c) d) e) legislative lobby groups. product/market/technology areas. inside claimants of the company. outside claimants of the company. strategy formulation.

4.

Speed of product development in uncertain, competitive environments characterizes todays competitive landscape. Which of the following organizational structures best helps a company accelerate the product development process in order to address rapid technological change? a) b) c) d) e) Multidivisional Matrix Functional Strategic Business Unit (SBU) Geographic

5.

(-) The process of measuring products, services and practices against the industry leaders and striving to match their performance is called a) b) c) d) e) Continuous improvement. Best practices strategy. The focus strategy, one of Porters competitive strategies. Total quality management. Benchmarking.

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2009 Sample Entrance Examination

6.

(-) When demand temporarily increases, the operations manager has several alternatives. Which of the following strategies is the LEAST DESIRABLE option for dealing with an increase in demand? a) b) c) d) e) Adjust the work force. Plan for late deliveries to customers. Schedule overtime. Modify vacation schedules. Build finished goods inventory to meet anticipated demand.

7.

(-) Which of the following classes of products requires little effort on the part of the customer in searching out the product, requires little need to compare alternatives in terms of price, quality or style, and involves low psychological and financial risk? a) b) c) d) e) Unsought Tangible Convenience Shopping Specialty

8.

(-) The levelling and initial decrease in sales growth of a product takes place in which stage of the product life cycle? a) b) c) d) e) The decline stage The introductory stage The maturity stage The growth stage The product development stage

9.

Which of the following statements would NOT form part of a mission statement? a) Company XYZ is a globally recognized financial institution. b) ABC Memorial Hospital provides an appropriate mix of services to the residents of ABC region and surrounding areas. c) BCD Company makes, distributes and sells the finest quality widgets. d) To build the largest and most complete antique radio community site on the Internet. e) To provide a fair return to our investors while adhering to the highest standards of integrity.

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2009 Sample Entrance Examination

Risk Management and Governance


10. The main purpose of an internal control system within an organization is to a) provide timely and relevant information to the organization about its goals and objectives. b) safeguard the assets within the organization. c) confirm the reliability and integrity of information within the organization. d) ensure efficient use of resources. e) ensure the behaviour of employees is consistent with organizational objectives and strategies. 11. (-) The primary responsibility for preventing fraud in an organization lies with a) b) c) d) e) 12. management. the internal auditor. security personnel. the audit committee of the board of directors. the external auditor.

Which of the following is LEAST LIKELY to be detected by an internal control system? a) b) c) d) e) Fraudulent actions by a group of employees Duplicate payments to suppliers Deviations from written procedures Fraudulent actions by an individual employee Unauthorized disbursements

13.

Which of the following is an example of a control procedure? a) b) c) d) e) Analyzing variances Imposing sales quotas Using standard costs in production reporting Both a) and b) above All of a), b) and c) above

14.

Effective internal control over the purchasing of raw materials should usually include which of the following procedures? a) Obtaining third-party written quality and quantity reports prior to the payment for the raw materials. b) Determining the need for the raw materials prior to preparing the purchase order. c) Systematic reporting of product changes which will affect raw materials. d) Both b) and c) above. e) All of a), b) and c) above.

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2009 Sample Entrance Examination

15.

Which of the following steps in the process of developing controls to mitigate a specific risk should be done first? a) Assess the extent to which existing controls and processes can be modified to achieve the desired objective. b) Determine the cost of implementing and maintaining various alternative controls. c) Conduct a cost/benefit analysis of various alternative controls. d) Identify alternative controls that might be introduced to mitigate the risk. e) Define the risk to be mitigated and estimate the amount and likelihood of the potential loss.

16.

Internal control over cash receipts is weakened when an employee who receives customer mail receipts also a) b) c) d) e) prepares initial cash receipts records. records credits to individual accounts receivable. prepares bank deposit slips for all mail receipts. maintains a petty cash fund. none of the above.

17.

Which of the following should be regarded as a sign that fraud may be occurring? a) b) c) d) e) The corporate controller drives an expensive luxury automobile. An accounts receivable clerk never takes vacations. The staff turnover rate for part-time cashiers is very high. A petty cash fund is replenished on a frequent basis. None of the above.

18.

Which of the following is an effective internal control measure that encourages receiving department personnel to count and inspect all merchandise received? a) Quantities ordered are excluded from the receiving department copy of the purchase order. b) Vouchers are prepared by accounts payable department personnel only after they match item counts on the receiving report with the purchase order. c) Receiving department personnel are expected to match and reconcile the receiving report with the purchase order. d) Internal auditors periodically examine, on a surprise basis, the receiving department copies of receiving reports. e) None of the above.

19.

Internal control comprised of: the plan of organization, the procedures and records that are concerned with the safeguarding of assets, and the a) b) c) d) e) decision processes of management. reliability of financial records. authorization of transactions. achievement of administrative objectives. none of the above.

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2009 Sample Entrance Examination

20.

When considering the effectiveness of a system of internal control, it should be recognized that inherent limitations do exist. Which of the following is an example of an inherent limitation in a system of internal control? a) The effectiveness of procedures depends on the segregation of employee duties. b) Procedures are designed to assure the execution and recording of transactions in accordance with managements authorization. c) In the performance of most control procedures, there are possibilities of errors arising from mistakes in judgement. d) Procedures for handling large numbers of transactions are processed by electronic data processing equipment. e) None of the above.

21.

A manufacturing plant has a quality control division. Its responsibility is to ensure that all products manufactured are within the companys quality guidelines. This division is an example of a a) b) c) d) e) preventive control. corrective control. steering control. post-action control. detective control.

22.

Preventive controls are located throughout the entire EDP system. Which of the following would NOT be considered a preventive control? a) b) c) d) e) Prenumbered forms. Logical test. Limit test or limit check. Control register. Completeness test or completeness check.

23.

Some of the more important controls that relate to automated accounting information systems are validity checks, limit checks, field checks, and sign tests. These are classified as a) b) c) d) e) control total validation routines. hash totalling. data access validation routines. output controls. input validation routines.

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2009 Sample Entrance Examination

24.

A Canadian oil drilling firm was operating in a foreign country. The government of the foreign country took ownership of the assets of the drilling firm and offered the Canadian company compensation in the form of cash and a continuing operating agreement. Which of the following best describes what happened? a) b) c) d) e) Nationalization Privatization Expropriation Repatriation Confiscation

25.

Which of the following describes the role of the board of directors in the strategic management of a company? a) To evaluate the calibre of the senior executives skills in formulating and implementing the companys strategies. b) To formulate the overall company strategy and delegate strategy implementation to corporate management. c) To oversee the companys strategic actions by critically appraising and ultimately approving strategic action plans. d) To determine the corporate vision upon which the companys strategy is based, and to oversee managements strategic action plans. e) Both a) and c) above.

Performance Management
26. The following information summarizes total production costs and number of units of product produced by Company B over the last 6 months: Month 1 2 3 4 5 6 Total Cost $24,000 $30,000 $28,000 $27,000 $25,000 $23,000 Units Produced 30,000 42,000 40,000 34,000 32,000 31,000

Using the high-low method, the estimated cost function for this product is a) b) c) d) e) Y = 9,000 + 0.500 x number of units produced. Y = 7,500 + 0.585 x number of units produced. Y = 3,285 + 0.636 x number of units produced. Y = 493 + 0.726 x number of units produced. Y = 1,500 + 0.750 x number of units produced.

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2009 Sample Entrance Examination

27.

Lampco has determined that, for its Slender model of lamp, the direct materials cost is $5 per unit and the direct labour cost is $4 per unit. Based on 20 monthly observations, the company ran a regression that projected the overhead associated with this model of lamp as follows: Overhead = 16,500 + .75x, where x is the direct labour cost. The selling price for the Slender lamp is $17 per unit. What is the expected gross margin from sales of the Slender lamp next month if sales volume is estimated to be 5,000 units? a) b) c) d) e) $36,250 $23,500 $8,500 $19,750 $25,000

28.

(-) A factory managers salary is a) b) c) d) e) an indirect labour cost. an administrative expense. a variable overhead cost. a direct labour cost. a period cost.

29.

All variable costs of a particular service vary based on direct labour hours. The following relationship pertains to a years budgeted activity regarding this service: Direct labour hours Total costs 300,000 $129,000 400,000 $154,000

What are the budgeted fixed costs for the year? a) $25,000 b) $29,000 c) $54,000 d) $75,000 e) $100,000

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2009 Sample Entrance Examination

30.

The following information is available for the manufacturing operations of ABC Ltd. for the month of March: Direct materials purchased Direct labour payroll Direct labour rate per hour Factory overhead rate per direct labour hour Opening Inventory March 1 $38,000 $18,000 $54,000 $82,000 $60,000 $7.50 $10.00

Direct materials Work in process Finished goods

Ending Inventory March 31 $30,000 $12,000 $72,000

Cost of goods manufactured for the month of March is a) b) c) d) e) 31. $248,000. $290,000. $230,000. $236,000. $218,000.

The use of a plant-wide overhead rate will a) result in appropriate inventory costs in a diverse job-order manufacturing situation if inventory is significant. b) result in appropriate inventory costs in a diverse job-order manufacturing situation regardless of inventory levels. c) provide cost data useful for pricing decisions, regardless of inventory levels, in a process manufacturing situation where there is only one main product. d) provide cost data useful for pricing decisions in a joint-cost manufacturing situation if inventories are insignificant. e) provide cost data useful for evaluating the performance of individual manufacturing operations regardless of inventory levels.

The following information pertains to questions 32 and 33.


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

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2009 Sample Entrance Examination

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. 32. (+) The loss from abnormal spoilage for the first quarter was a) b) c) d) e) 33. $16,080. $10,720. $10,400. $15,600. $26,800.

(+) In terms of conversion, what was the percentage of completion of the ending work-inprocess inventory? a) b) c) d) e) 65.4% complete 34.7% complete 54.5% complete 40.0% complete 63.4% complete

The following information pertains to questions 34 and 35.


Omega Company manufactures three chemicals in a joint process. The manufacturing costs of the joint process include $25,000 of direct materials and $35,000 of conversion costs. All three chemicals can be sold in their unrefined form immediately after the split-off point or they can be further refined before they are sold. During May, all three chemicals were further refined. The following is data regarding production for the month of May: Chemical B $25 $40 $10,000 1,600 litres 1,500 litres

Sales price per litre before refining Sales price per litre after refining Cost of refining Total output of chemical at split-off Total output of chemical after refining 34.

A $20 $35 $28,000 2,500 litres 2,300 litres

C $10 $18 $12,000 3,000 litres 2,700 litres

(+) Using the sales value at split-off method, the total joint costs allocated to Chemical A in May (rounded to the nearest hundred dollars) is a) b) c) d) e) $21,100. $25,000. $22,600. $25,500. $33,600.

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2009 Sample Entrance Examination

35.

(+) Now assume that Omega Company uses the physical measures method, that the refining process for Chemical C also produces a hazardous by-product that must be disposed of at a cost of $5 per litre, and that refining 1,000 litres of Chemical C results in 100 litres of this by-product. For the month of May, what effect would refining Chemical C have on Omega Companys profits as compared with its profits if Chemical C was sold at split-off without being further refined (rounded to the nearest hundred dollars)? a) $17,100 more profits by refining b) $20,300 less profits by refining c) $8,100 more profits by refining d) $5,100 more profits by refining e) $8,400 less profits by refining

The following information pertains to questions 36 and 37.


Markham Company uses a normal job order costing system. Overhead rates are applied on the basis of machine hours in Department 1 and direct labour hours in Department 2. Budgeted data for the two departments are as follows: Department 1 $150,000 50,000 30,000 $20 Department 2 $300,000 100,000 50,000 $30

Budgeted overhead Budgeted activity: Direct labour hours (DLH) Machine hours (MH) Direct labour wage rate per hour

The following data pertain to Job 94-669, which was completed during the year: Direct materials Direct labour hours (DLH): - Department 1 - Department 2 Machine hours (MH): - Department 1 - Department 2 36. The total factory overhead applied to Job 94-669 is a) b) c) d) e) $9,000. $15,000. $31,000. $37,000. $80,000. $350,000 1,000 2,000 5,000 2,000

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2009 Sample Entrance Examination

37.

During the year, actual direct labour wage rates and factory overhead incurred in Departments 1 and 2 were as budgeted. Also, 52,000 direct labour hours and 35,000 machine hours were used in Department 1 for production, whereas 98,000 DLH and 46,000 MH were used in Department 2. Overhead for Markham Company is a) $19,000 underapplied. b) $1,000 underapplied. c) $1,000 overapplied. d) $19,000 overapplied. e) $31,000 overapplied.

------------------------------------

38.

Axe Co. has a job order cost system. The following debits (credits) appeared in the work-in-process account for the month of May: May 1 31 31 31 31 Description Balance Direct materials Direct labour Factory overhead To finished goods Amount $ 2,000 12,000 8,000 6,400 (24,000)

Axe applies overhead to production at a predetermined rate equal to 80% of direct labour cost. Job No. 9, the only job still in process at the end of May, has been charged with direct labour of $1,000. The amount of direct materials charged to Job No. 9 was a) $12,000. b) $600. c) $2,600. d) $4,400. e) $1,500. 39. Pelletier Ltd. is a manufacturer that uses a just-in-time production system. For jobcosting purposes, the company uses a system that delays recording changes in the status of a product being produced until the good finished units are completed, i.e. it does not record work in process. This type of costing system is called a) b) c) d) e) kaizen costing. hybrid costing. product life cycle costing. backflush costing. normal costing.

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2009 Sample Entrance Examination

40.

(+) Company F has two production departments, A and B, and two service departments, janitorial and personnel. Personnel costs are allocated based on number of employees and janitorial costs are allocated based on size of the department in square metres. Department A B Janitorial Personnel Total No. of Employees 150 200 25 15 390 Sq. Metres 10,000 20,000 1,000 2,000 33,000 Direct Costs $ 750,000 600,000 25,000 18,000 $1,393,000

Under the direct allocation method, what amount of janitorial costs would be allocated to Department A (round to the nearest dollar)? a) $7,576 b) $7,813 c) $10,714 d) $8,333 e) $8,733 41. (+) A business uses the step-down method to allocate service department costs to the manufacturing departments. Assume there are two service departments and two manufacturing departments, as shown below: Service Departments Plant Custodial Admin. Services $360,000 $90,000 25,000 6,000 10,000 1,000 Manufacturing Departments Cutting $261,000 18,000 5,000 Polishing $689,000 30,000 45,000

Costs Labour hours Space occupied (m2)

Plant administration costs are allocated based on labour hours, and custodial services costs are allocated based on space occupied. The total costs of the cutting and polishing departments (rounded to the closest 000), after allocating all the service department costs, starting with the largest service provider are a) b) c) d) e) cutting - $396,000, and polishing - $914,000. cutting - $405,000, and polishing - $995,000. cutting - $381,000, and polishing - $889,000. cutting - $394,000, and polishing - $1,006,000. cutting - $380,000, and polishing - $892,000.

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2009 Sample Entrance Examination

42.

Marshland Manufacturers had set its static (master) budget sales at 25,000 units and its budgeted contribution margin at $30 per unit. Actual sales volume, however, was 28,000 units and actual contribution margin was $28 per unit. There was no selling price variance. The sales volume variance was a) b) c) d) e) $56,000 unfavourable. $84,000 unfavourable. $84,000 favourable. $90,000 unfavourable. $90,000 favourable.

The following information pertains to questions 43 to 45.


Joie Inc. produces Product X. Each unit of the product requires 0.2 hour of direct labour, 2 kilograms of material A, and 1 kilogram of material B. The company has a production capacity of 30,000 units of Product X per year, but its current production and sales are 25,000 units per year. For the current year, costs and revenues are as follows: Price per unit of Product X Direct labour cost per hour Material A cost per kilogram Material B cost per kilogram Fixed factory overhead Variable selling and administration costs All other fixed expenses 43. $13.50 $15.00 $0.80 $2.40 $50,000 $12,500 $37,500

At the current level of production, the contribution margin per unit of Product X is a) b) c) d) e) $6.50. $4.50. $6.80. $4.00. $6.00.

44.

At the current level of production, the gross margin per unit of Product X is a) b) c) d) e) $6.00. $4.50. $4.83. $3.00. $4.00.

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2009 Sample Entrance Examination

45.

Assume that variable production costs for next year will be $8.00 per unit of Product X and that all other costs will be the same as for the current year. If the selling price remains at $13.50 per unit, the breakeven volume for next year would be a) b) c) d) e) 17,500. 10,000. 18,182. 15,909. 10,294.

-----------------------------------46. (+) The following data pertain to the two products manufactured by Korn Corp.: Product Y $120 $70 Product Z $500 $200

Selling price per unit Variable cost per unit

Fixed costs total $300,000 annually. The expected sales mix in units is 6 units of product Y to 4 units of product Z. Given this sales mix, how many units of the two products together must Korn Corp. sell to break even? a) b) c) d) e) 47. 857 2,459 1,714 2,000 1,103

PTM Ltd. is a Canadian manufacturer of hardware parts. A large company is open for tenders on a three-year contract for 150,000 units of part X per year. PTM Ltd. currently supplies this model to another company for $6.50 per unit. The probabilities of PTM Ltd. being awarded the contract at various bid prices are estimated as follows: Probability 100% 90% 65% 40% 10% Bid Price Per Unit $5.00 $5.50 $6.00 $6.50 $7.00

PTM Ltd.s standard cost for producing Part X is $4.80 per unit ($3.60 variable + $1.20 fixed) at a standard activity of 375,000 units per year. The companys production capacity is 600,000 units per year. If PTM Ltd. is awarded the contract, fixed overhead costs will increase by $12,000 per year.

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2009 Sample Entrance Examination

(+) Which bid price for the three-year contract would have the most favourable expected outcome on PTM Ltd.s income? a) b) c) d) e) 48. $5.00 $5.50 $6.00 $6.50 $7.00

Downward Inc. has budgeted sales for the second quarter of $400,000 for April, $525,000 for May and $600,000 for June. Normally, 20% are cash sales and 80% of sales are on account. As well, 30% of the sales on account are normally collected during the month of sale, 50% in the following month, and 20% in the second month following sale. What is the expected cash collection for June? a) b) c) d) e) $642,500 $522,500 $264,000 $538,000 $418,000

49.

(-) Which of the following is an objective of an accounting information system as opposed to other functional business information systems? a) b) c) d) e) Customer relationship management Process control Inventory control Employee performance evaluation Manufacturing resource planning

Performance Measurement
50. A well-designed performance measurement system will include measures that a) b) c) d) e) 51. are related to the goals of the organization. primarily focus attention on immediate short-term concerns. are reasonably objective and easily quantified. both a) and c) above. all of a), b) and c) above.

(-) Which of the following statements regarding decentralization is usually FALSE? a) b) c) d) e) It facilitates the evaluation of local managers by top management. It aids in the motivation of local managers. It leads to goal congruence between local managers and top management. It reduces problems to a manageable size and provides quicker response times. Both a) and b) above.

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2009 Sample Entrance Examination

52.

Which of the following attributes tends to create centralized decision making in an organization? a) b) c) d) e) High risk Large size of organization Complex business Diverse product lines All of the above

53.

To determine the transfer price that will govern the sale of goods between divisions in different countries, in addition to respecting the laws of the countries, a firm should a) b) c) d) e) ignore the fair market value for the product. give prime consideration to the overall profit of the firm. do whatever is necessary to minimize customs duties. do whatever is necessary to maximize foreign subsidiary net income after taxes. none of the above.

54.

The role of learning in influencing organizational behaviour includes which of the following? a) Learning through reinforcement helps management steer employee behaviour to achieve desired results. b) Learning results in a relatively temporary change in behaviour; therefore, management must continually reinforce past learning to maintain desired behaviour towards achieving a particular result. c) Once employees have learned to achieve one set of results, it is relatively easy to motivate them to change their behaviour to achieve different results. d) Both a) and b) above. e) Both a) and c) above.

55.

Measuring individual performance using both financial and non-financial measures is crucial to: a) ensure compliance with the companys pre-established plan. b) demonstrate the importance of financial measures. c) provide additional means of evaluating and compensating staff, which would also lead to a greater degree of staff satisfaction. d) better align individual goals with the company objectives and strategies. e) both a) and b).

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2009 Sample Entrance Examination

56.

Which of the following actions committed by a management accountant is ethically questionable? a) Near the end of a fiscal year with lower than expected profits, suggesting that an expensive advertising campaign be delayed until the next fiscal year. b) Recommending that the highest quality and least expensive bid for a certain supply be rejected on the basis that the suppliers practices have a detrimental effect on the ecological environment. c) At the request of the division manager, using the most favourable projections to support a proposal without drawing any attention to the potentially unfavourable projections. d) Reporting to the controller a suspicion that a line manager is providing incorrect production data in an effort to increase his year-end bonus. e) Near the end of a fiscal year with lower than expected profits, suggesting that performance incentives to sales staff for the fourth quarter be increased.

57.

A subunit of an organization is referred to as a profit centre if it has a) authority to choose its markets and sources of supply. b) authority to choose its markets and sources of supply and has significant control over the amount of invested capital. c) authority to make decisions over the most significant costs of operations including choice of the sources of supply. d) authority to provide specialized support to other subunits within the organization. e) responsibility for combining the direct materials, direct manufacturing labour, and other factors of production into finished goods.

58.

A production department in charge of waste disposal met their very aggressive year-end cost reduction target. The manager of this department received a significant bonus as a result of achieving this target. Months later, Judy Brown, a staff accountant, was reviewing several files from different departments to obtain information she needed for a report requested by the director of finance. In a production department file, she found some handwritten notes that led her to believe that this department was sometimes mixing toxic waste with regular waste that was then disposed of as non-toxic material. Judy could not find any new notes in the current fiscal year indicating that these incidences had stopped. Which of the following should Judy do first? a) Seek the advice of her boss, the director of finance. b) Bring the information to the attention of a friend who is an outside member of the board of directors. c) Anonymously release the information to government officials. d) Bring the information to the attention of the production department manager. e) Do nothing because the bonus has been paid and the problem has stopped.

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2009 Sample Entrance Examination

59.

Recent studies have found that personality dimensions affect work-related behaviour and job performance. Which of the following is the most valuable personality dimension for a customer relations employee to successfully handle requests and complaints from customers? a) b) c) d) e) Conscientiousness Emotional stability Openness to experience Agreeableness Introversion

60.

ZIL Inc. operates two divisions, which are treated as investment centres. Data for each division for Year 4 are as follows (in 000s): Division A $65,000 $400,000 Division B $140,000 $850,000

Net income Total assets

The companys 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) e) 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. None of the above.

The following information pertains to questions 61 and 62.


OEM Company, which manufactures sports equipment, consists of several divisions. Each division operates as a profit centre with full autonomy. Division B informed Division A that it has changed its transfer pricing policy from variable-cost plus to full-cost plus pricing. Division A decided to purchase component EX1 outside the company when Division B increased the transfer price from $156 to $164 per unit. Information for Division A and Division B with respect to component EX1 is as follows: Outside price for component EX1 Division As annual purchases Division Bs variable manufacturing cost Division Bs fixed manufacturing cost Division Bs production capacity Division Bs capacity utilization $160 10,000 units $120 per unit $1,000,000 50,000 units 100%

All units of component EX1 produced by Division B can be sold in the market. Variable selling cost is $7 per unit for external sales. All other selling and administrative costs are fixed, regardless of whether component EX1 is sold to Division A or other external customers. Division B will sell component EX1 to external customers at the market price of $160 per unit.

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61.

Which of the following statements is true? a) Division A purchases 10,000 units of component EX1 from the outside supplier at a price of $160 and the company saves $40,000 in costs. b) Division B sells 10,000 units of component EX1 to Division A at $164 and the company income increases by $110,000. c) Division A purchases 10,000 units of component EX1 from Division B because Division B has idle capacity if Division A purchases the component externally. d) Division B sells all 50,000 units of component EX1 to external customers and the company maximizes its income. e) Division A purchases 10,000 units of component EX1 from Division B and the company income increases by $70,000.

62.

Now assume that Division B is currently selling 46,000 units externally instead of 50,000 units, and has not changed its transfer pricing policy. What is the minimum transfer price per unit that Division B would accept to provide Division A with the 10,000 units it requires? a) b) c) d) e) $120.00 $125.00 $139.80 $160.00 $144.00

-----------------------------------63. (+) Mr. Smith owns and manages a Canadian-controlled private corporation (CCPC) with a total corporate tax rate of 18.12%. The corporation has profits of $25,000 before salaries and income tax. Mr. Smith will receive his only income in the form of salary or other than eligible dividends from the CCPC he manages. Mr. Smiths personal income would be taxed at 15.5% federally and 10% provincially. The full $25,000 will be distributed either as other than eligible dividends or salary. Ignoring the effects of federal and provincial personal tax credits, if the corporate earnings are distributed in the form of other than eligible dividends rather than salary, Mr. Smith will (rounded to the nearest dollar) a) b) c) d) e) save $5,249 in personal income taxes. pay $150 more in personal income taxes. save $3,813 in personal income taxes. pay $1,594 more in personal income taxes. save $4,968 in personal income taxes.

CMA Canada

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2009 Sample Entrance Examination

64.

(-) Mr. and Mrs. Smith have two children, Angela, aged 4, and Brent, aged 2. Mr. Smith is employed by a large manufacturing company and usually works between 45 and 60 hours per week. Mr. Smiths compensation and incentive plan consists of base pay plus individual incentive, four weeks vacation and comprehensive basic and extended medical and dental coverage for his family. Mrs. Smith has been out of the job market for five years to look after her children and is considering returning to work, provided the compensation and incentive package is attractive. Which one of the following incentive packages would be most attractive to Mrs. Smith? a) b) c) d) e) Extended medical benefits Substantial opportunities for advancement A company car Job sharing and onsite child care facilities Piecework incentive bonuses

65.

Which of the following is a motivator according to Herzbergs motivator-hygiene theory as well as a growth need according to ERG theory? a) b) c) d) e) Increased job responsibility Technical competence of the boss Relationships with customers Comfortable working conditions Job security

66.

(-) Which of the following statements about performance feedback would NOT motivate higher performance? a) b) c) d) e) Feedback is specific and related to agreed upon goals. Feedback comes from a credible source. Feedback relates to specific employee behaviours. Feedback is given for a performance event that occurred in the previous year. Feedback frequency is appropriately linked to the employees familiarity with the task.

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Financial Management The following information pertains to questions 67 and 68.


Company D is considering an investment in a new more efficient machine to replace an existing machine to produce Product Q. Product Q is in the mature stage of its life cycle and Company D expects to produce and sell it for only four more years. Data pertaining to the two machines are as follows: New Machine $75,000 $75,000 $31,000 $11,000 $9,000 $89 per unit Existing Machine NA $40,000 $16,000 $6,000 $17,000 $93 per unit

Current cost Current disposal value Disposal value in four years Annual amortization Annual cash operating costs Other cash costs to produce Product Q

The company expects to produce and sell 4,500 units of Product Q per year for the next four years. Its required rate of return is 14%. For tax purposes, the two machines are considered to be in the same asset class, together with many other of the companys assets. 67. (+) Ignoring income taxes, what is the incremental net present value of the investment in the new machine (rounded to the nearest hundred)? a) b) c) d) e) 68. $70,100 $40,800 $59,100 $(2,800) $49,600

Assume that Company D has an effective income tax rate of 40%, that neither the existing nor new machine will have any disposal value at the end of four years, that both machines have a capital cost allowance (CCA) rate of 30%, and that the current undepreciated capital cost (UCC) of the old machine is $35,000. What would be the incremental CCA tax shield if the investment were made in the new machine (rounded to the nearest hundred)? a) $9,000 b) $5,600 c) $8,300 d) $9,500 e) $10,200

CMA Canada

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2009 Sample Entrance Examination

69.

The Capital Asset Pricing Model (CAPM) disregards diversifiable risk because the model a) assumes that investors are risk neutral, and 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. e) values only unsystematic risk.

70.

The revenues, expenses and capital structure of a company are as follows: Sales Variable costs (40% of sales) Fixed costs (excluding interest and taxes) Debt (at 10% annual interest) Equity (100,000 shares) $500,000 $200,000 $120,000 $800,000 $1,200,000

(+) Given the information provided above, what is the degree of operating leverage for this company? a) b) c) d) e) 71. 1.5 1.7 2.8 1.8 2.5

(+) The following is a condensed income statement for a Canadian-controlled private corporation for the year ended December 31, Year 10 (in 000s): Sales Cost of goods sold Amortization Advertising and promotion Miscellaneous Income before income taxes Income taxes Net income Other information: 1. The cost of goods sold includes a reserve for warranties in the amount of $150,000. 2. The company claims the maximum allowable capital cost allowance (CCA) each year. No capital assets were purchased or disposed of during Year 10. Undepreciated capital cost balances at the beginning of the year: Class 8 (20% CCA rate) $2,500,000 Class 10 (30% CCA rate) $1,900,000 $12,400 $7,000 1,000 1,600 1,400

11,000 1,400 560 $ 840

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2009 Sample Entrance Examination

3. The miscellaneous expenses include $90,000 for meals at business meetings and $75,000 of interest expense related to a loan used to buy shares of a suppliers company. What is the taxable income for the company for Year 10 (in 000s)? a) b) c) d) e) $1,525 $1,330 $1,570 $1,375 $1,600

72.

(+) Twoquest Inc. is considering a new investment. The following table sets out information regarding the firm and the potential project. Annual revenues for the project Annual expenses for the project Initial investment Weighted average cost of capital Corporate tax rate Market value debt/equity ratio Cost of debt $1,200,000 $740,000 $1,000,000 12% 40% 1 12%

The project has an expected life of five years. There will be no salvage value at that time. Annual revenues and expenses occur at the end of each year for the five years. Assume that the initial investment can be neither amortized nor expensed for tax purposes. What is the net present value of the project? a) $994,980 b) $658,300 c) $(336,680) d) $394,980 e) $(5,020) 73. (+) On November 1, Year 10, Ken Walker sells a capital property for $300,000. The adjusted cost base of the property is $110,000 and selling costs amount to $8,000. Ken receives an immediate cash payment for the entire sales price on November 10. The total taxable capital gain that would be included in Kens net income for tax purposes for Year 10 would be a) $118,000. b) $91,000. c) $95,000. d) $182,000. e) $190,000.

CMA Canada

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2009 Sample Entrance Examination

74.

Marston Supply Company has credit sales of $2 million/year. Collections average $8,000/day with 250 working days per year. Marston is going to reduce its internal collection processing time by 1 day. What would be its annual savings assuming a 14% cost of funds? a) b) c) d) e) $1,120 $1,000 $1,550 $8,000 $767

75.

XYZ company recently issued rights to raise financing. The shares are currently trading for $18 per share on the TSE. The subscription price for the rights offering is $14 per share and an investor will require 3 rights to purchase one share. The value of one right is a) $12.00. b) $1.67. c) $1.00. d) $0. e) $4.00.

76.

GEF Inc. believes that if it acquires HIP Ltd., the resulting combined company will experience synergistic annual operating savings of $1,000,000 before taxes. Currently, HIP Ltd. generates annual after-tax cash flows of $4,000,000. Both the current annual cash flows and the synergistic savings are expected to continue indefinitely. Assuming an income tax rate of 40% and a required rate of return of 16%, what would be the maximum amount that GEF Inc. should be willing to pay for HIP Ltd? a) b) c) d) e) $21,250,000 $31,250,000 $18,750,000 $28,750,000 $25,000,000

77.

In order for a taxpayer to exchange shares in Corporation A for shares in Corporation B for tax deferral purposes, which of the following conditions must apply? a) The transferred shares of the taxpayer must be capital property. b) Immediately prior to the exchange, the taxpayer and Corporation B must be dealing with each other at arms length. c) Immediately after the exchange, the taxpayer must not control Corporation B. d) Both b) and c) above. e) All of a), b) and c) above.

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2009 Sample Entrance Examination

78.

The following benefits are paid by a company on behalf of Joe Taxpayer, the companys controller: Membership fee for a golf and country club Tuition fee for a course related to his work Registered pension plan contribution (defined benefit) Private dental plan premiums Fee for seminar not related to his work Drug plan premium Travel allowance for public transit cost to commute to office $5,000 $2,000 $1,200 $500 $400 $150 $1,500

For federal taxation purposes, what amount would be added to Joe Taxpayers employment income as a taxable benefit? a) $6,900 b) $8,900 c) $7,550 d) $10,750 e) $5,400 79. A construction company does a large volume of its business with the federal government. With the prospect of an upcoming federal election, the company contributed $1,000 each to three political parties. If the contributions were all made in the same taxation year, the maximum tax credit that the company can claim for the political contributions in the year is a) b) c) d) e) 80. $3,000. $0. $1,000. the lower of 20% of net income for tax purposes or a total contribution of $3,000. none of the above.

An individual has the following portfolio of investments: Amount $20,000 $40,000 $70,000 $10,000 Rate of Return 8% 6% 3% 10%

Investment 1 Investment 2 Investment 3 Investment 4

What is the expected rate of return for the entire portfolio? a) 3.00% b) 5.07% c) 6.75% d) 7.00% e) 27.00%

CMA Canada

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2009 Sample Entrance Examination

81.

(+) A bond was issued on June 1, Year 1, and it matures on June 1, Year 15. The present date is June 1, Year 5, and the June 1, Year 5, coupon payment has just been paid. The bond has a face value of $1,000, a coupon rate of 8% compounded semiannually, and a current yield of 10% compounded semi-annually. Ignoring taxes, what is the current dollar price of the bond (rounded to the nearest dollar)? a) $846 b) $1,000 c) $1,135 d) $1,173 e) $875

Financial Reporting
82. (+) H Ltd., a construction company, recognizes revenue on a percentage of completion basis. H Ltd. has only one project in process for a total contracted price of $42,000,000. The project was started in Year 1 and is expected to be completed in Year 3. Data relating to the project are as follows (in 000s): Year 1 $14,000 $12,000 $24,000 Year 2 $14,000 $13,000 $15,000 Year 3 $14,000 $14,000 0

Billings Costs incurred during the year Expected costs to complete

The gross profit (loss) reported by H Ltd. in Year 2 in 000s is a) $(750). b) $2,000. c) $1,250. d) $0. e) $1,000.

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The following information pertains to questions 83 and 84.


Another World Inc. (AWI) is a foreign subsidiary of a Canadian company in its second year of operation. The following December 31 year-end balances, denominated in the host countrys foreign currency (FC), appeared in the records of AWI: Year 1 30,000 FC 45,000 FC 40,000 FC 190,000 FC 55,000 FC 10,000 FC 0 FC 550,000 FC 200,000 FC 10,000 FC 100,000 FC Year 2 150,000 FC 90,000 FC 75,000 FC 180,000 FC 25,000 FC 10,000 FC 240,000 FC 600,000 FC 250,000 FC 10,000 FC 120,000 FC

Cash Accounts receivable Inventory (FIFO basis) Capital assets Accounts payable Capital stock Retained earnings, January 1 Sales Cost of sales Amortization expense Other operating expenses

Other Information: 1) The inventory was purchased evenly over the fourth quarter of each respective year. 2) Capital assets were purchased on January 1, Year 1. 3) Capital stock was issued on January 1, Year 1. 4) Sales, purchases and expenses occurred evenly throughout each year. 5) Exchange rates were as follows: 1 FC = CDN$ Year 1 Year 2 0.36 0.30 0.30 0.34 0.33 0.32 0.31 0.35

January 1 December 31 Average for the year Average for the fourth quarter 83.

(+) If AWI is financially and operationally independent of its Canadian parent, the amounts that should appear on the Year 2 translated year-end financial statements of AWI (in Canadian dollars) are a) b) c) d) e) inventory $24,000, sales $192,000, amortization expense $3,200. inventory $25,500, sales $204,000, amortization expense $3,400. inventory $25,500, sales $192,000, amortization expense $3,200. inventory $26,250, sales $204,000, amortization expense $3,400. inventory $26,250, sales $192,000, amortization expense $3,200.

CMA Canada

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2009 Sample Entrance Examination

84.

(+) If AWI uses the current rate method, what amount of cumulative translation gain/loss should appear on AWIs December 31, Year 2, balance sheet? a) b) c) d) e) $9,800 gain $6,600 gain $4,400 gain $6,800 gain $0

-----------------------------------85. The Farell Co. Ltd. had a net loss of $160,000 last year. The following data for last year are available: Dividends paid Amortization expense Increase in accounts payable Proceeds from issuing shares Retirement of debt $40,000 $30,000 $15,000 $100,000 $50,000

What was the amount of net cash provided (or used) from operations last year? a) $(205,000) b) $(130,000) c) $(115,000) d) $65,000 e) $75,000 86. Information regarding accounting policies adopted by a company is essential to financial statement users. An example of a required disclosure for merchandise inventory is the a) b) c) d) e) identification of major customers. composition of inventory, i.e. raw material, work-in-process, and finished goods. market value of the inventory when it is lower than cost. cost of the inventory when it is lower than the market. method of determining cost of inventory.

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2009 Sample Entrance Examination

87.

The balance in all of Company Ks asset accounts combined is $100,000 on December 1. During December, the following transactions took place: Purchase of $10,000 of inventory for cash Purchase of $15,000 of machinery on account Retirement of $20,000 in bonds with cash

What is the combined December 31 balance in the asset accounts? a) $70,000 b) $80,000 c) $95,000 d) $115,000 e) $105,000 88. (+) As at January 1, Year 4, Future Stuff Inc. had a credit balance of $13,000 in its allowance for uncollectible accounts. During Year 4, Future Stuff Inc. wrote off $16,500 of uncollectible accounts, which consisted of $12,000 from sales made in Year 4 and $4,500 from sales made in Year 3. Sales for Year 4 were $6,000,000, of which $4,500,000 were credit sales. In addition, a $2,000 account receivable that had been written off in Year 3 was collected in Year 4. As at December 31, Year 4, Future Stuff Inc.s accounts receivable were as follows: Aging 0-30 days 31-60 days 61-90 days more than 91 days Amount $1,000,000 600,000 25,000 8,000 $1,633,000 Collectible 100% 90% 75% $5,000

Using the percentage of receivables method, what amount of bad debt expense should be reported in Future Stuff Inc.s income statement for the year ended December 31, Year 4? a) b) c) d) e) $54,250 $56,250 $69,250 $70,750 $72,750

CMA Canada

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2009 Sample Entrance Examination

89.

The following pertains to G Co.s temporary investment portfolio as at December 31: Temporary Investments Canadian Air shares Superior shares Volatile bonds Face Value Number of Shares 1,000 10,500 Market Value $39,375 $243,625 $92,000 Unrealized Gain(Loss) $7,875 ($3,125) ($750)

$100,000

Cost $31,500 $246,750 $92,750

What amount of net temporary investments should be reported on G Co.s December 31 balance sheet? a) b) c) d) e) 90. $378,875 $371,000 $375,000 $378,250 $367,125

On July 1, Year 10, ABC Ltd. purchased a vehicle for $30,000 cash. ABC Ltd.s fiscal year end is December 31. At the time of acquisition, the vehicle was expected to last five years with an estimated ending residual value of $2,400. ABC Ltd. uses the straight-line method to amortize its vehicles. On January 1, Year 12, ABC Ltd. changed the total estimated useful life of the vehicle from 5 years to 4 years and the estimated ending residual value from $2,400 to $3,600. In Year 12, ABC Ltd. would record amortization on the vehicle amounting to a) b) c) d) e) $5,177. $7,680. $7,728. $6,600. $7,248.

91.

On January 1, Year 1, BDS Inc. issued $100,000 of 10% bonds due in five years, with semi-annual interest payments of $5,000 payable on June 30 and December 31 each year. Because the investors were willing to accept an effective annual interest rate of only 8% (compounded semi-annually), the bonds sold for $108,111. Using the effective interest method, what would BDS Inc. record as interest expense for the period January 1 to June 30, Year 1? a) b) c) d) e) $4,324 $5,000 $5,406 $4,000 $4,189

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92.

Preparing closing entries is one step in the accounting cycle. Which of the following would qualify as a closing entry? a) b) c) d) e) Interest expense Interest payable Dividends payable Retained earnings Income tax expense Income tax payable Income summary Retained earnings All of the above. $126,000 $126,000 $332,000 $332,000 $288,000 $288,000 $432,000 $432,000

93.

(+) On January 1, Drummond Ltd. had 800,000 common shares outstanding and $1,000,000 of 7% convertible bonds outstanding. The bonds had been issued at face value and are convertible into 50,000 common shares. No bonds were converted during the year. Drummond Ltd.s net income for the year was $4,000,000 and its tax rate was 40%. What is the fully diluted earnings per share? a) b) c) d) e) $4.71 $4.76 $4.79 $5.00 $5.05

94.

(-) An independent automobile dealer acts as an agent for an automobile manufacturer on a non-consignment basis. The automobile manufacturer should normally recognize revenue when a) b) c) d) e) an order for an automobile is received from the dealer. an automobile comes off the assembly line. an automobile is shipped to the dealer. an automobile is picked up by the consumer from the dealer. payment is received from the dealer.

CMA Canada

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2009 Sample Entrance Examination

95.

In which of the following independent situations pertaining to long-term service contracts would the use of the completed contract method of accounting be used? a) The stage of completion can be reliably determined, but the amount of revenue to be received is dependant upon completing the contract on time. Over the past ten years, the company has been late in completing only 2% of its contracts. b) The company continuously works on a large number of contracts that begin and end evenly throughout the year, and the amount of the revenue depends on the outcome of the contracted service, which can vary greatly. c) The stage of completion can only be determined by estimates of costs to date and expected costs to complete. The company has a great deal of experience reliably estimating these types of costs. d) The stage of completion can be determined by reference to the number of acts to complete the contract versus the total number of acts that the contract requires (which is known). Each act of completion is of a similar magnitude in terms of cost and labour time. e) Both a) and b) above.

96.

(+) The following information relates to SEN Ltd.s defined benefit pension plan for Year 20: Actual return on pension fund assets Expected return on pension fund assets Pension benefits paid to retirees Amortization of unrecognized past service costs Amortization of unrecognized net actuarial loss Interest on accrued benefits (projected benefit obligation) Service costs What was SEN Ltd.s net pension expense for Year 20? a) $932,000 b) $1,022,000 c) $956,000 d) $800,000 e) $866,000 $160,000 $184,000 $90,000 $120,000 $66,000 $290,000 $640,000

97.

Which of the following will create a temporary difference between accounting and taxable incomes for which future income tax debits or credits must be recorded? a) b) c) d) e) Dividends received on Canadian investments Political contributions Membership dues to a country club at which clients are entertained Provision for warranty repairs None of the above

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98.

Assume you are employed as the chief accountant for DrawPro Inc., a computer software company. The company was developing a new software program called Graphics Tool. At the end of the year, the director of research estimated that $1 million was spent during the year for the Graphics Tool program. He asked you to reduce his expenses by capitalizing $1 million as development costs. Prior to capitalizing the development costs, which of the following questions would NOT be considered in ensuring that your statements would be in accordance with generally accepted accounting principles? a) b) c) d) e) Has the future market for Graphics Tool been clearly defined? Is the Graphics Tool program technology feasible? Are the costs related to research activities or development activities? Does management intend to launch the Graphics Tool program upon completion? How soon will the Graphics Tool program be ready to begin marketing?

99.

In preparing its year-end adjusting entries, the Jesson Co. Ltd. neglected to adjust the prepaid insurance account for the amount of insurance expired during the year. As a result of this error, a) net income is understated, the retained earnings balance is understated and the assets are understated. b) net income is overstated, the retained earnings balance is overstated and the assets are correctly stated. c) net income is understated, the retained earnings balance is overstated and the assets are overstated. d) net income is overstated, the retained earnings balance is overstated and the assets are overstated. e) none of the above are correct.

100.

(+) On December 9, Year 10, Company X, a Canadian company, acquired inventory from a foreign supplier for FC100,000, with payments due in Foreign Currency (FC) on January 8, Year 11. Exchange rates for the Foreign Currency were as follows: December 9, Year 10 December 31, Year 10 January 8, Year 11 FC1 = $1.50 FC1 = $1.55 FC1 = $1.57

For Company X, with a December 31 year end, these transactions resulted in a foreign currency transaction a) b) c) d) e) loss of $0 in Year 10 and loss of $7,000 in Year 11. loss of $5,000 in Year 10 and loss of $2,000 in Year 11. gain of $5,000 in Year 10 and gain of $2,000 in Year 11. gain of $0 in Year 10 and gain of $7,000 in Year 11. loss of $55,000 in Year 10 and loss of $2,000 in Year 11.

CMA Canada

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2009 Sample Entrance Examination

101.

A not-for-profit seniors home is preparing its year-end financial statements. Which of the following should be included in the current assets section of the balance sheet? a) A bank savings account with a balance of $52,000 representing a restricted capital fund for an expansion project to take place in two years. b) A $20,000 grant application for a project that has been completed. There is a 20% likelihood of the grant application being accepted; however, at the time of preparing the financial statements, no word on the grants status has been received. c) Inventory totalling $80,000 representing gift items held on consignment. When the items are sold, the seniors home receives 20% of the revenue to aid in the expansion of one of the wings of the building. d) Cash held in trust in a bank account for the residents of the seniors home. e) None of the above.

The following information pertains to questions 102 to 105.


Selected data from RCL Inc.s financial statements are presented below (in thousands): December 31 Year 1 $ 46 256 314 658 636 2,183 618 1,280 374 529

Cash Marketable securities Accounts receivable (net) Merchandise inventory Tangible fixed assets Total assets Current liabilities Total liabilities Common shares Retained earnings

Year 2 $ 57 269 345 770 810 2,331 648 1,035 429 867

Year 2 Operations Net sales (85% on account) Cost of goods sold Interest expense Income tax (excluding tax on loss on disposal of asset) Loss on disposal of asset (net of $90 tax) Net income Dividends declared and paid 102. What is the current ratio for Year 2? a) b) c) d) e) 3.60 1.39 2.22 2.25 1.04

$7,938 5,477 85 449 135 538 200

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103.

What is the accounts receivable turnover in days (using 365 days) for Year 2? a) b) c) d) e) 15.2 days 17.8 days 17.0 days 51.2 days 20.5 days

104.

What is the times interest earned for Year 2? a) 14.2 times b) 11.0 times c) 13.7 times d) 6.3 times e) 7.3 times

105.

What is the total debt-to-equity ratio for Year 2?

a) 0.30 b) 1.19 c) 2.41 d) 0.80 e) 0.44 ------------------------------------

The following information pertains to questions 106 and 107.


Acquire Ltd. is a commercial property company. On February 1, Year 9, Acquire Ltd. purchased a property and office building from Sell Co. The book values and appraisal values of the assets on February 1, Year 9, were as follows: Book Value Appraised Value Land $ 8,000,000 $12,000,000 36,000,000 Building 21,000,000 $29,000,000 $48,000,000 In exchange for the commercial property, Acquire Ltd. will give Sell Co. 3,750,000 Acquire Ltd. common shares with a market value of $11.20 per share. The corporate tax rate is 40%. The annual real net income from rental leases is expected to remain constant at $7,800,000 over the next ten years. Consider the following five options for Acquire Ltd. to record the acquisition of assets: A Debit: Land Building Credit: Common shares Gain on shares sold Taxes payable
$12,000,000 36,000,000 $48,000,000

B
$12,000,000 36,000,000 $42,000,000 6,000,000

C
$10,500,000 31,500,000 $42,000,000

D
$12,000,000 36,000,000 $42,000,000 3,600,000 2,400,000

E
$10,080,000 26,460,000 $36,540,000

CMA Canada

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2009 Sample Entrance Examination

106.

(+) Which of the above options is the correct entry for recording the acquisition of assets in Acquire Ltd.s accounts? a) b) c) d) e) Option A Option B Option C Option D Option E

107.

(+) Assume 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 an annual interest rate of 8.0%. Semi-annual interest payments are made on January 31st and July 31st each year. The brokerage firm also applies 2.5% for commission and administration charges. This bond is sold to the primary market on February 1, Year 9, with an effective interest rate of 10.0%. How much cash will Acquire Ltd. receive from the sale of this mortgage bond? a) b) c) d) e) $42,023,040 $42,124,800 $40,823,040 $41,071,680 $40,924,800

------------------------------------

The following information pertains to questions 108 and 109.


Company A is a publisher specializing in the post-secondary education market. One of Company As strategies for the upcoming year is to expand e-book development and usage. E-book usage is increasing at colleges and universities, and the company would like to increase its market share. The following table provides selected results for Company A for the past three years: Year 8 Year 9 E-books E-books Company Segment Company Segment (000s) (000s) (000s) (000s) $30,000 $2,400 $31,500 $3,150 8,400 821 8,568 1,213 3,000 235 3,240 485 Year 10 E-books Company Segment (000s) (000s) $32,400 $4,212 8,904 1,761 3,300 889

Total sales Contribution margin Net operating income

The sales volume (000s of dollars) for the e-book usage market for the past three years is as follows: Year 8 $100,000 Year 9 120,000 Year 10 144,000

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108.

(+) According to trend or horizontal analysis, which of the following statements is true? a) The company contribution margin is increasing at a greater rate than company net operating income. b) The company is increasing its share of the e-book usage market. c) The e-book segment is performing better than the company as a whole. d) Both a) and b) above. e) Both b) and c) above.

109.

Company A takes into consideration the impact on the triple bottom line (economic, environmental and social criteria) when developing its strategies. Which of the components of the triple bottom line does Company As strategy for the upcoming year emphasize? a) b) c) d) e) Economic only Environmental only Social only Both a) and b) above a), b) and c)

End of Exam

CMA Canada

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2009 Sample Entrance Examination

Solutions to Sample 2009 Entrance Examination


Answer Summary:
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 d a e b e b c c d e a a e d e b b a b c e d e c e 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 a c a c d c c d b d c d c d d d e e b a d b d c d 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 c a b a d c a a d b e c e d a d e a d b a e b a c 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 d e a b b e a c b c e c d c e a d b c b a d e d 101 102 103 104 105 106 107 108 109 e c b a d c c e d

100 b

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1.

Answer: d. Economies of scale, the primary entry barrier in the question, do not deter an entrant from accomplishing choices a), b), c) and e). If significant cost advantages result from economies of scale, it becomes difficult, if not impossible, for a new entrant to produce on a scale comparable to that of its established rivals and achieve such cost advantages. On the other hand, although a large-scale production is possible, it involves a greater risk of mammoth initial capital costs, which may easily turn into sunk costs. Answer: a. Choices b) and e) represent tangible resources which are fairly easy to imitate. Choices d) and c) represent intangible resources, but they can be imitated too, although with some difficulty because of their company-specific nature. An intangible resource, such as a brand name, is the most difficult to imitate because it symbolizes a companys reputation. Also, law prohibits competitors from imitating brand names. Answer: e. A mission statement may or may not cover legislative lobby groups, depending on the type of business the company is engaged in. Although choices b), c) and d) are embodied in a mission statement, its ultimate purpose is to integrate b), c) and d) into the companys strategy formulation process. Answer: b. Only a matrix structure allows a different mix of resources at various stages of a technologically complex product. It provides the flexibility required for the availability of a proper combination of organizational resources when products or processes change dramatically. Choices a), c), d) and e) are wrong because, under these structural choices, project-specific technological expertise cannot be combined with the vertical flows of authority and communication. Answer: e. Benchmarking is based on the concept that reinventing something that someone else is already using successfully makes no sense. It involves finding the company that is the best performer for a certain key activity (i.e. the best-in-class company), determining the difference in performance between your company and the best-in-class company, and developing tactical programs to match or improve on the best-in-class companys performance. The other choices are more general strategies, e.g. benchmarking might be a component of a continuous improvement or TQM strategy.

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6.

Answer: b.
Each option offered in the question represents change, some amount of upheaval, and the need to spend additional funds. In general, meeting delivery dates is critical to the reputation of a firm. In some industries (e.g. auto manufacturing), missing a delivery means paying heavy financial penalties and being cut off as a supplier. Therefore, the least desirable choice is to allow a delivery date to slip creating a backorder and/or stockout (choice b). Choices a), c), d) and e) represent options that could be brainstormed in a meeting followed by a search for the best choice given the situation at hand. Each of these choices comes with different financial and organizational costs (e.g. an unhappy workforce, an agitated union, the need for space to store inventory, etc.), but each choice will permit a delivery date to be met.

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2009 Sample Entrance Examination

7.

Answer: c. Convenience products are items that the consumer purchases frequently, conveniently and with a minimum of shopping effort (e.g. toothpaste). Since these products are relatively inexpensive, there is low psychological and financial risk. Other choices: a) Unsought goods are things that the consumer typically puts off because it does not satisfy an immediate want or need, like insurance. They often involve some shopping effort as well as some psychological and/or financial risk. b) Tangible goods include all classes of products. d) Shopping goods are products typically bought in an environment where the consumer can compare quality and price with competitors. e) Specialty goods are products where a good deal of time and effort is usually put into the buying process.

8.

Answer: c. New products can be seen to follow a life cycle pattern of introductory stage where customers begin to try the product and company profits on the product start in the negative range. Once consumers start to accept the product, it will enter the growth stage where we see rapid sales growth and high profitability. As more companies enter the market for that product, enticed by the high profitability, and competition thus increases, we see downward pressure on price and a squeezing of profit margins. Here sales growth for the company begins to decline and this is referred to as the maturity stage. Without new product innovation and improvement, the product will enter the decline stage of the life cycle.

9.

Answer: d A mission statement describes the current state of an organization, i.e. why the organization exists, what it believes in, who the organizations customers are, and what products/services it provides. In contrast, a vision statement creates a long-term vision of an organization and articulates an ideal state of the business. It answers the following questions: a) What will success look like? b) Why did I start this business? c) When I move out of this business, what do I want to leave behind? d) If my business could be everything I dreamed, how would it be? Choice d) appears to pertain to the future aspirations of the organization and would, therefore, be a component of a vision statement, not a mission statement.

10.

Answer: e.

a) to d) are all parts of internal control; however, in a broader sense, internal control is mainly concerned with how policies and procedures affect the total effectiveness of the management process and consistency with the organizations objectives and strategies.

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11.

Answer: a. The principal mechanism for preventing fraud is control. Primary responsibility for establishing and maintaining control rests with management. Such prevention is ultimately a matter of policies and procedures established by management. Answer: a. Fraudulent actions by a group of employees (i.e. collusion) is difficult to detect by an internal control system. Such controls can be circumvented by a group of employees who collude to defraud the company. Answer: e. Sales quotas (choice b) and standard costs (choice c) are used as targets in a management control system. Analyzing variances (choice a) is a procedure of detecting problems, which is an important control procedure. Therefore, choice e) is the correct choice. Answer: d. Both b) and c) are effective methods of monitoring and controlling purchases. Choice a) Getting third-party reports does not control purchases, as it would happen after purchases are made and likely would not be completed until after the raw material is used. Answer: e. The first step is to define, as clearly as possible, the risk to be mitigated, and then estimate the amount and likelihood of potential risk or exposure to loss. Answer: b. Answer: b. An accounts receivable clerk who never takes vacations may be lapping, i.e. keeping amounts received and later making up shortages by using new cash receipts. This type of fraud often goes undetected for long periods of time until the clerk has an unexpected absence, requiring someone else to assume the clerks duties. Answer: a. This measure would prevent receiving staff from overlooking or removing any additional merchandise that may have been received. Answer: b. Answer: c. At some point in any process, individual judgment will be relied on and is neither controllable nor always correct. Choice a) Internal controls would create the segregation of duties appropriate to maximize effectiveness. Choice b) Procedures are created to reassure management that employees are acting in accordance to proper authorization. Choice d) Electronic processing is relied on to increase control, as equipment, assuming correct setup, will be error-free.

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16. 17.

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19. 20.

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2009 Sample Entrance Examination

21.

Answer: e. This is an example of a detective control. It allows only items meeting specifications to pass through the division. Answer: d. A control register is a detective control, not a preventive control. Answer: e. These are all controls that check for correctness, meaningfulness and security of data that are input to the system. Answer: c. Expropriation is a form of nationalization where the government compensates the firm for taking over its assets. Choice a) Nationalization in general describes when a government takes over the assets of a private firm. Choice b) Privatization is the reverse of nationalization. Choice d) Repatriation would restrict the amount of profits the Canadian firm could take out of the foreign country to Canada. Choice e) Confiscation is nationalization when the government does not compensate the foreign firm in anyway. Answer: e. The lead responsibility for formulating and executing corporate strategy falls to key managers. The chief strategic role of the board of directors is to exercise oversight and see that the strategic management is done in a manner that benefits the shareholders (for investor-owned organizations) or stakeholders (for not-for-profit organizations). This is done by 1) critically appraising and ultimately approving strategic action plans (choice c), and 2) evaluating the strategic leadership skills of the CEO and others in line to succeed the incumbent CEO (choice a). Therefore, the board of directors approves, but does not actually formulate, the strategy (choice b) or the corporate vision (choice d). Answer: a. Highest activity is in month 2 and lowest activity is in month 1. Variable cost = Change in costs/Change in activity = ($30,000 - $24,000)/(42,000 - 30,000) = $6,000/12,000 = $0.50 Fixed cost = Total cost - Variable cost = $30,000 - $0.50(42,000 units) = $30,000 - $21,000 = $9,000 Therefore, the cost function is estimated as follows: Y = 9,000 + 0.5 x number of units produced

22.

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25.

26.

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27.

Answer: c. Variable cost per unit = $5 + $4 + (.75 x $4) = $12 Total contribution margin = ($17 - $12) x 5,000 = $25,000 Gross margin = $25,000 - $16,500 = $8,500 Choice a) Incorrect calculation of variable overhead and ignores fixed overhead: ($17 - $5 - $4 - $0.75) x 5,000 = $36,250 Choice b) Ignores variable overhead: ($17 - $5 - $4) x 5,000 - $16,500 = $23,500 Choice d) Incorrect calculation of variable overhead: ($17 - $5 - $4 - $0.75) x 5,000 - $16,500 = $19,750 Choice e) Contribution margin of $25,000

28.

Answer: a. The factory managers salary is an indirect cost because it is associated with the manufacturing process but does not constitute a direct labour cost. It is a fixed manufacturing cost, not a variable, period, or administrative cost. Answer: c. Calculated using the high-low method: Variable cost = ($154,000 - $129,000)/(400,000 - 300,000) = $0.25/DLH Fixed cost = $129,000 - (300,000 x $0.25) = $54,000 Answer: d. Direct materials used ($38,000 + $82,000 - $30,000) Direct labour used Factory overhead applied ($60,000/$7.50 x $10) Total manufacturing costs incurred Work in process inventory March 1 Work in process inventory March 31 Cost of goods manufactured $ 90,000 60,000 80,000 230,000 18,000 (12,000) $236,000

29.

30.

Choice a) This equals the total manufacturing costs plus the opening work in process: $230,000 + $18,000 = $248,000. Choice b) Cost of goods available for sales: $236,000 cost of goods manufactured + $54,000 opening finished goods = $290,000. Choice c) Total manufacturing costs of $230,000. Choice e) Cost of goods sold: $236,000 + $54,000 - $72,000 = $218,000. 31. Answer: c. When there is only one main product, all overhead will relate to the single product; therefore, a single plant-wide overhead rate would be appropriate for determining production costs related to the product for pricing purposes. Answer: c. 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

32.

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2009 Sample Entrance Examination

33.

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% Choice e) Incorrectly divided by the total cost per equivalent unit: ($34,000 $26.80) 2,000 = 63.4%

34.

Answer: b.
A B $20 $25 2,500 1,600 $50,000 $40,000 C $10 3,000 $30,000 Total 7,100 $120,000

Sales price per litre before refining Output at split-off (litres) Sales value at split-off

Joint costs to allocate = $25,000 + $35,000 = $60,000 Joint costs allocated to Chemical A = $60,000 x ($50,000/$120,000) = $25,000 Choice a) Uses the physical measures method: $60,000 x (2,500/7,100) = $21,127 = $21,100 (rounded) Choice c) Uses estimated net realizable value method: A B Sales price per litre after refining $35 $40 Output after refining (litres) 2,300 1,500 Final sales value $80,500 $60,000 Less: Costs of refining (separable costs) $28,000 $10,000 Net realizable value $52,500 $50,000

C $18 2,700 $48,600 $12,000 $36,600

Total 6,500 $189,100 $50,000 $139,100

Joint costs allocated to Chemical A = $60,000 x ($52,500/$139,100) = $22,646 = $22,600 (rounded) Choice d) Uses final sales value: Joint costs allocated to Chemical A = $60,000 x ($80,500/$189,100) = $25,542 = $25,500 (rounded) Choice e) Uses cost of refining (i.e. $28,000 + $10,000 + $12,000 = $50,000): Joint costs allocated to Chemical A = $60,000 x ($28,000/$50,000) = $33,600

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35.

Answer: d. The joint process costs are irrelevant to the decision. Revenue from sales of refined Chemical C = 2,700 litres x $18 = Revenue from sales of unrefined Chemical C = 3,000 litres x $10 = Incremental revenue Cost of refining 3,000 litres of Chemical C Cost of disposing by-product = 3,000 litres x 10% x $5 = Increase in profits $48,600 30,000 18,600 (12,000) (1,500) $ 5,100

Choice a) Neglects the cost of refining: Incremental revenue of $18,600 minus $1,500 cost of disposing by-product = $17,100. Choice b) Deducts joint costs: Joint costs allocated to Product C using the physical measures method = $60,000 x (3,000/7,100) = $25,352. Correct incremental profit less joint costs = $5,100 - $25,352 = $(20,252) = $(20,300) rounded Choice c) Incorrectly calculates incremental revenue: Incremental revenue = ($18 - $10) x 2,700 litres of output = $21,600 Incremental profits = $21,600 - $12,000 - $1,500 = $8,100 increase. Choice e) Uses $5 per litre of input as cost of disposal of by-product: Incremental revenue of $18,600 minus $12,000 cost of refining minus $15,000 cost of disposal of by-product (i.e. $5 x 3,000 litres) = $(8,400).

36.

Answer: c.
Department 1 overhead rate = $150,000/30,000 MH = $5 per MH Department 2 overhead rate = $300,000/100,000 DLH = $3/DLH Job 94-669 overhead = ($5 x 5,000 MH) + ($3 x 2,000 DLH) = $25,000 + $6,000 = $31,000

37.

Answer: d. Department 1 overhead applied = $5 x 35,000 MH = $175,000 Department 2 overhead applied = $3 x 98,000 DLH = $294,000 Actual Applied = ($150,000 + $300,000) ($175,000 + $294,000) = $19,000 overapplied

38.

Answer: c. The direct materials charged to Job No. 9 is calculated as follows: Balance in work-in-process ($28,400 $24,000) Less direct labour Less overhead applied ($1,000 x 80%) Direct materials $4,400 (1,000) (800) $2,600

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2009 Sample Entrance Examination

39.

Answer: d. Backflush costing is a costing system that omits recording some or all of the journal entries relating to the cycle from purchase of direct materials to the sale of finished goods. Traditional systems track costs sequentially as products pass from direct materials, to work in process, to finished goods, and finally to sales. With backflush costing, work in process is not recorded, and in some cases, direct materials inventory and/or finished goods inventory are not recorded. Backflush costing is appropriate for a just-in-time production system because inventories are minimized in such a system and the need to track costs at the various stages of production is not required. Choice a) Kaizen costing is an approach that incorporates continuous improvement. Choice b) Hybrid costing blends characteristics from both job-costing and processcosting systems. Choice c) Product life cycle costing tracks and accumulates the actual costs attributable to each product from start to finish, including initial R&D to final customer servicing & support in the marketplace. Choice e) Normal costing using the traditional system of tracking costs sequentially through each stage of the production process (materials purchases, conversion into work in process, conversion into finished goods, sale of finished goods).

40.

Answer: d. Direct method: 10,000 + 20,000 = 30,000 total sq. metres (10,000 30,000) x $25,000 = $8,333. Choice a) Includes service departments in calculations. (10,000/33,000) x $25,000 = $7,576 Choice b) Uses step-down method. (10,000/32,000) x $25,000 = $7,813 Choice c) Uses number of employees. (150/350) x $25,000 = $10,714 Choice e) Uses step-down method with personnel as first step. (10,000/30,000) x $26,200 = $8,733

41.

Answer: d. Plant administration allocation = $360,000 (6,000 + 18,000 + 30,000) = $6.667/hr. Custodial services allocation = [$90,000 + (6,000 x $6.667)] 50,000 = $2.60/m2. Cutting department costs = $261,000 + (18,000 x $6.667) + (5,000 x $2.60) = $394,000 Polishing department costs = $689,000 + (30,000 x $6.667) + (45,000 x $2.60) = $1,006,000 Choice a) Allocating only the plant administration costs using the direct method. Choice b) Using the direct method: Cutting = $261,000 + ($360,000 x 18,000/48,000) + ($90,000 x 5,000/50,000) = $261,000 + $135,000 + $9,000 = $405,000. Polishing = $689,000 + ($360,000 x 30,000/48,000) + ($90,000 x 45,000/50,000) = $689,000 + $225,000 + $81,000 = $995,000. Choice c) Allocating only the plant administration costs using the step-down method. Choice e) Using the wrong denominator for allocation in applying the direct approach.

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42.

Answer: e. Actual sales units were greater than budgeted sales units; therefore, the sales volume variance was $30 x (28,000 25,000) = $90,000 favourable. Choice a) Price variance using contribution margin instead of price: ($30 - $28) x 28,000 = $56,000 unfavourable. Choice b) Used actual contribution margin instead of budgeted contribution margin and wrong direction: $28 x (28,000 25,000) = $84,000 unfavourable. Choice c) Same as b) but the right direction. Choice d) Right amount but wrong direction.

43.

Answer: e.
Selling price Direct labour ($15.00 x .2) Material A ($0.80 x 2) Material B Variable selling & admin. ($12,500/25,000) Contribution margin $13.50 $3.00 1.60 2.40 0.50

7.50 $ 6.00

Choice a) Does not include variable selling and admin. costs: $13.50 - ($3.00 + $1.60 + $2.40) = $6.50 Choice b) Gross margin: $13.50 - $6.50 - ($50,000/25,000) = $4.50 Choice c) Uses only one gram of material A instead of 2 grams: $13.50 - ($3.00 + $0.80 + $2.40 + $0.50) = $6.80 Choice d) Deducts fixed factory overhead: $13.50 - $7.50 - ($50,000/25,000) = $4.00 44. Answer: b. Selling price Direct labour ($15.00 x .2) Material A ($0.80 x 2) Material B Fixed factory overhead ($50,000/25,000) Gross margin per unit $13.50 $3.00 1.60 2.40 2.00

9.00 $ 4.50

Choice a) $13.50 - $7.50 variable costs = $6.00 contribution margin Choice c) $13.50 - ($3.00 + $1.60 + $2.40) - ($50,000/30,000) = $4.83 (used wrong activity level for calculating fixed factory overhead cost per unit) Choice d) $13.50 - ($3.00 + $1.60 + $2.40) - ($50,000 + $37,500)/25,000 = $3.00 (included all other fixed costs in the calculation) Choice e) $13.50 - ($3.00 + $1.60 + $2.40) - ($12,500 + $50,000)/25,000 = $4.00 (deducted variable selling & administration costs)

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2009 Sample Entrance Examination

45.

Answer: a. Fixed costs = $50,000 + $37,500 = $87,500 Contribution margin = $13.50 - $8.00 variable production costs - $0.50 variable selling & administration costs = $5.00 per unit Breakeven volume = $87,500 $5.00 = 17,500 units Choice b) $50,000 $5.00 = 10,000 (did not include other fixed expenses) Choice c) ($50,000 + $12,500 + $37,500) ($13.50 - $8) = $100,000 $5.50 = 18,182 (treated variable selling & admin. as a fixed cost) Choice d) $87,500 ($13.50 - $8.00) = $87,500 $5.50 = 15,909 (omitted variable selling and administration costs) Choice e) $87,500 ($8.00 + $0.50) = $87,500 $8.50 = 10,294 (used variable costs instead of contribution margin)

46.

Answer: d. Let x be the total number of units required to break even. ($120 - $70) x .6x + ($500 - $200) x .4x = $300,000 $30x + $120x = $300,000 x = 2,000 Choice a) Uses a 1:1 ratio: $300,000/($50 + $300) = 857 Choice b) Uses variable costs instead of contribution margin: $300,000/[($70 x .6) + ($200 x .4)] = 2,459 Choice c) Uses average CM: $300,000/[($50 + $300)/2] = 1,714 Choice e) Uses revenue instead of CM: $300,000/[($120 x .6) + ($500 x .4)] = 1,103

47.

Answer: b. Since fixed costs would remain the same regardless of the bid price, they are not relevant to the decision. A Var. Cost/Unit $3.60 $3.60 $3.60 $3.60 $3.60 B C=AxB Expected Incremental CM/unit $1.40 $1.71 $1.56 $1.16 $0.34 C x 150,000 Expected Incremental Total CM $210,000 $256,500 $234,000 $174,000 $51,000

a) b) c) d) e)

Price $5.00 $5.50 $6.00 $6.50 $7.00

CM/Unit $1.40 $1.90 $2.40 $2.90 $3.40

Probability 100% 90% 65% 40% 10%

The highest expected incremental income would occur at a bid price of $5.50 per unit. 48. Answer: d. June cash sales ($600,000 x 20%) Collections from credit sales: June ($600,000 x 80% x 30%) May ($525,000 x 80% x 50%) April ($400,000 x 80% x 20%) Total expected collections

$120,000 144,000 210,000 64,000 $538,000

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2009 Sample Entrance Examination

Choice a) Uses 100% (instead of 80%) of April and May sales to determine collections on account for those months: $120,000 + (30% x $600,000) + (50% x $525,000) + (20% x $400,000) = $642,500 Choice b) Uses 100% (instead of 80%) of sales each month to determine collections on account: (30% x $600,000) + (50% x $525,000) + (20% x $400,000) = $522,500 Choice c) Includes only collections from June sales: $120,000 + $144,000 = $264,000 Choice e) Does not include June cash sales: $144,000 + $210,000 + $64,000 = $418,000 49. Answer: c. Accounting information systems record and report business transactions and other economic events. Objectives include recording and reporting the flow of funds through an organization, producing financial statements, producing forecasts of future conditions, and planning and controlling business operations, such as inventory control. Choice a) Customer relationship management is an objective of the marketing management system. Choice b) Process control is an objective of the production/operations management system. Choice d) Employee performance evaluation is an objective of the human resource management system. Choice e) Manufacturing resource planning is an objective of the production/operations management system. 50. Answer: d. A performance measurement system should relate to the goals of the organization (choice a), be reasonably objective and easily quantifiable (choice c), and should be applied consistently and regularly. It should also be designed to balance managers attention on both short- and long-term concerns. Otherwise, managers may make decisions that result in higher current year profit, for example, at the expense of investments that would result in even greater profits in future years. Therefore, choice b) is not appropriate and choice d) is correct. Answer: c. Under decentralization, the benefits of a decision for one subunit may result in greater costs to another subunit, resulting in suboptimal decision making and goal incongruence. The other choices are all true. Answer: a. Decentralized decision making is appropriate for very large, multiproduct, diverse and complex businesses. In organizations where there is high risk associated with decisionmaking, centralized decision making tends to lower the risk. For example, in a vertically integrated company, if the decisions of one division highly affect the operations of another division and the success of the organization depends on all the divisions cooperating with each other, the higher the risk associated with the decision, the more often the decision is made centrally.

51.

52.

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2009 Sample Entrance Examination

53.

Answer: b. In transfers between divisions located in different countries, the company should give prime consideration to the overall profit of the firm while also respecting the laws of the countries. Differential tax rates, tariffs, customs duties, and governments incentives are some of the factors that would influence the decision for setting transfer prices that would maximize overall company profits. Choice a) In order to respect the laws of the countries, the transfer price must often be set at the fair market value of the product. Choice c) Minimizing custom duties is one of the factors that influence overall company profits. Sometimes there is a trade-off between the cost of excise duties and the cost of taxes in determining the overall effect of transfers on company profits. Choice d) Overall company profits may be maximized by minimizing, rather than maximizing, foreign subsidiary net income after taxes.

54.

Answer: a. Learning is a relatively permanent change in behaviour as a result of a persons interaction with the environment. Behaviour modification and reinforcement theories recognize this. Therefore, management is able to use learning through reinforcement to steer employee behaviour to achieve desired results. For example, if increases in sales is the desired result, management can use bonuses as a positive reinforcement to steer sales staff to achieve sales targets (i.e. the sales staff learn that they need to find ways to achieve the sales targets in order to gain the bonus; once the effective sales techniques have been learned and used, sales staff would likely continue to use these successful techniques, even if there were no longer any bonuses). Because learning causes relatively permanent changes in behaviour, continuous reinforcement is generally not required to maintain desired behaviour (choice b). Also, once an employee learns to achieve a certain set of results, there would usually have to be some unlearning before new behaviours can be learned. Therefore, it would be relatively difficult to change behaviour to achieve different results (choice c).

55.

Answer: d. Using both financial and non-financial measures informs the employee about the drivers of current and future success which help align the employee goals with the company mission and strategy. Choice a) Measurements are intended to communicate, inform and teach, not control. Choice b) Financial measures are a critical measurement of performance; however, an integrated set of measurements that include non-financial measures links the customer, internal process and employee performance to longterm financial success. Including non-financial measures also mitigates focus from solely short-term financial objectives to long-term success, thus reducing the emphasis on strictly financial measures. Choice c) It has been demonstrated in surveys that employees put a higher value in trust, autonomy, flexibility and sharing similar values with their employer than in compensation and feedback.

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56.

Answer: c. The management accountant should ensure that the potential risks associated with a proposal be considered as well as the potential rewards. It would not be ethical to show only the most favourable potential outcomes of a proposal. To do so, even at the request of the division manager, compromises the management accountants competence, objectivity and integrity. Choice a) Delaying an expensive advertising campaign does not represent an ethically questionable action and could be a reasonable option in the circumstances. Even if the advertising expenditure was not delayed, it could be argued that the matching principle would support expensing the advertising costs in the next fiscal year, if the impact on sales is likely to be felt only in the next fiscal year. Choice b) Supporting a supplier that has practices that are detrimental to the ecological environment by accepting their bid would be unethical, even if the bid is the least expensive and of the highest quality. Choice d) This represents a correct response to a suspicion of a co-worker committing an unethical act. Choice e) Increasing performance incentives is a legitimate option for management to consider in the situation and does not represent an ethically questionable action.

57.

Answer: a. Profit centres are subunits for which both revenues and costs are reported. Profit centres normally are associated with high decentralization, but they can be highly centralized. Answer: a. The situation presents an ethical conflict for Judy. The first step Judy should take is to discuss the problem with her immediate superior, unless that person is involved in the ethical conflict. It is unlikely that the director of finance is involved, so Judy should speak with him/her. It is possible that the production department manager is a party to the conflict, so he/she should not be consulted first (choice d). Professional ethics would dictate that confidential information should not be communicated to anyone outside the organization (choices b and c). It would also be inappropriate to take the problem to the board of directors unless it could not be resolved at lower organizational levels (choice b). To do nothing (choice e) is also inacceptable because employees need feedback when inappropriate behaviour occurs. By not taking corrective action, there is nothing to prevent the occurrence from happening again. Consequently, the most appropriate action is to notify the director of finance of these findings (choice a). Answer: d. Agreeableness includes the traits of being courteous, good-natured, emphatic, and caring. People with a high degree of agreeableness are very good at effectively handling customer relations and conflict-based situations. Choice a) Conscientiousness refers people who are careful, dependable, selfdisciplined and set high goals for themselves. While this is a useful personality dimension for a customer relations employee, it is not as important as agreeableness.

58.

59.

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2009 Sample Entrance Examination

Choice b) People with high emotional stability are poised, secure, and calm. While this is a useful personality dimension for a customer relations employee, it is not as important as agreeableness. Choice c) Openness to experience generally refers to the extent that people are sensitive, flexible, creative and curious. While this is a useful personality dimension for a customer relations employee, it is not as important as agreeableness. Choice e) Introversion refers to people who are quiet, shy and cautious. These are not ideal traits for a customer relations employee. 60. 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) = $7,500 Division B has a higher ROI and RI. 61. Answer: e. From the companys perspective, when all 50,000 units of component EX1 are sold at $160 to external customers: Contribution margin from sales of 50,000 units $1,650,000 ($160 - ($120 + $7)) x 50,000 units Cost of purchasing 10,000 units from external supplier 1,600,000 $160 x 10,000 units Net contribution $ 50,000 From the companys perspective, when 40,000 units of component EX1 are sold at $160 to external customers and 10,000 units are supplied to Division A: Contribution margin from sales of 40,000 units ($160 - ($120 + $7)) x 40,000 units Incremental costs of supplying 10,000 units to Division A $120 x 10,000 units Net contribution $1,320,000 1,200,000 $ 120,000

Division A should purchase 10,000 units from Division B at $164 because there is an increase in income of $70,000 for the company as a whole.

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Choice a) There is a cost saving of $40,000 (($164 - $160) x 10,000 units) to Division A if Division A purchases the 10,000 units from an external supplier. The statement is FALSE. Choice b) There is an increase in income of $110,000 (($164 - ($160 - $7)) x 10,000 units) to Division B if Division B sells the 10,000 units to Division A. The statement is FALSE. Choice c) There is no idle capacity in Division B when Division A purchases the 10,000 units from an external supplier, because Division B can sell all units produced, i.e. 50,000 units, in the market. The statement is FALSE. Choice d) The companys income is not maximized when Division B sells 50,000 units to external customers, because Division A also has to purchase 10,000 units from an external supplier. The companys income is maximized when Division B sells 40,000 units to external customers and transfers 10,000 units to Division A. The statement is FALSE. 62. Answer: c. In order to supply Division A with the units it requires, Division B will lose some of its external sales. The transfer price must take into account the contribution margin lost on the external sales as well as the variable selling cost savings: Contribution margin per unit on lost sales = ($160 - $120 - $7) x 6,000 units / 10,000 units = $19.80 Transfer price = Variable cost per unit less variable selling cost savings + lost contribution margin per unit = $120 + $19.80 = $139.80. Choice a) Does not take into account the lost sales or the variable selling cost savings: transfer price = variable costs = $120. Choice b) Includes fixed manufacturing cost when calculating the lost contribution margin: CM per unit lost = [$160 - $120 - ($1,000,000 / 50,000)] x 6,000 units / 10,000 units = $12; transfer price = $120 - $7 + $12 = $125. Choice d) Uses the external selling price as the transfer; transfer price = $160. Choice e) Disregards the variable selling cost savings: transfer price = $120 + $24 = $144.

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2009 Sample Entrance Examination

63.

Answer: e. Salaries are distributed out of before-tax profits and dividends are distributed out of aftertax profits. Dividends received = after-tax profits: $25,000 - ($25,000 x 18.12%) = $25,000 - $4,530 = $20,470 Grossed-up dividends: $20,470 x 5/4 = $25,587.50 Taxes on dividends: [Grossed-up dividends x (combined federal and provincial tax rates)] - [Grossed-up dividends x (combined federal and provincial dividend tax credit)] = [$25,587.50 x (15.5% + 10%)] - [$25,587.50 x (13 1/3% + 6 2/3%)] = $6,524.81 - $5,117.50 = $1,407.31 Salary received = $25,000 Taxes on salary = Salary x (combined federal and provincial tax rates) = $25,000 x (15.5% + 10%) = $6,375.00 Net increase (savings) in taxes = Taxes on dividends - taxes on salary = $1,407.31 - $6,375.00 = ($4,967.69) or ($4,968) rounded Choice a) Dividend gross-up is ignored Taxes on dividends: [Dividends x (combined federal and provincial tax rates)] [Dividends x (combined federal and provincial dividend tax credit)] = [$20,470 x (15.5% + 10%)] - [$20,470 x (13 1/3% + 6 2/3%)] = $5,219.85 - $4,094.00 = $1,125.85 Net increase (savings) in taxes = Taxes on dividends - taxes on salary = $1,125.85 - $6,375.00 = ($5,249.15) or ($5,249) rounded Choice b) Dividend tax credit is ignored Taxes on dividends: [Grossed-up dividends x (combined federal and provincial tax rates)] = [$25,587.50 x (15.5% + 10%)] = $6,524.81 Net increase (savings) in taxes = Taxes on dividends - taxes on salary = $6,527.81 - $6,375.00 = $149.81 or $150 rounded Choice c) Incorrectly assume salaries were distributed out of after-tax income: Salary received = $25,000 - ($25,000 x 18.12%) = $25,000 - $4,530 = $20,470 Taxes on salary = Salary x (combined federal and provincial tax rates) = $20,470 x (15.5% + 10%) = $5,219.85 Net increase (savings) in taxes = Taxes on dividends - taxes on salary = $1,407.31 - $5,219.85 = ($3,812.54) or ($3,813) rounded Choice d) Ignore corporate taxes and the dividend tax credit: Dividends received = before-tax profits: $25,000 Grossed-up dividends: $25,000 x 5/4 = $31,250 Taxes on dividends: [Grossed-up dividends x (combined federal and provincial tax rates)] = [$31,250 x (15.5% + 10%)] = $7,968.75 Net increase (savings) in taxes = Taxes on dividends - taxes on salary = $7,968.75 - $6,375.00 = $1,593.75 or $1,594 rounded

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64.

Answer: d. Onsite child care facilities and the opportunity to job share would be appealing to a mother with a four-year-old and a two-year-old, especially if her husband works long hours. Choice a) Would have little appeal since Mr. Smith has benefits. Choice b) May have less appeal as advancement would mean more responsibilities and more time at work. Choice c) A company car would be a taxable benefit and likely not the most suitable for transporting children. Choice e) In order to achieve bonuses, Mrs. Smith may be required to work longer, hours which would be less appealing.

65.

Answer: a. Increased job responsibility provides greater job satisfaction which is a motivator according to Herzberg and satisfies growth needs according to the ERG theory. The other choices are hygiene factors that according to Herzberg would act as demotivators or dissatisfiers if they were not present. Choices b), c) and e) are relatedness needs according to ERG theory. Choice d) is an example of an existence need according to ERG theory. Answer: d. Feedback should be available as soon as possible so that employees see a clear association between their behaviour and its consequences. Therefore, feedback for events should be provided during the year the event occurred, not in the following year. Statements a), b), c) and e) would all contribute to motivating higher performance. Answer: e. Annual savings in cash operating costs ($17,000 - $9,000) Annual savings in other production costs ($93 - $89) x 4,500 Present value factor (4 year annuity, 14%) Present value of operating cash inflows Less net capital cost ($75,000 - $40,000) Plus present value of difference in disposal values at end of 4 years ($31,000 - $16,000) x .592 Net present value $ 8,000 18,000 26,000 x 2.914 75,764 (35,000 40,764 8,880 $49,644

66.

67.

Choice a) Deducts the difference in the annual amortization costs instead of the initial capital cost = [$26,000 - ($11,000 - $6,000)] x 2.914 + $8,880 = $70,074 Choice b) Ignores the disposal value = ($26,000 x 2.914) - $35,000 = $40,764 Choice c) Ignores the disposal value of the old machine = $40,764 + ($31,000 x .592) = $59,116 Choice d) Ignores the annual savings from other production costs = ($8,000 x 2.914) $35,000 + $8,880 = $(2,808)

CMA Canada

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68.

Answer: a. CCA tax shield = [($75,000 - $40,000) x .3 x .4] (.14 + .3) x [(2 + .14) 2(1 + .14)] = $4,200 .44 x (2.14/2.28) = $8,959 Choice b) Uses the tax rate instead of the CCA rate in the denominator = [($75,000 - $40,000) x .3 x .4] (.14 + .4) x (2.14/2.28) = $5,632 Choice c) Does not apply the half-year rule to the current disposal value of the existing machine = [$75,000 x .3 x .4 .44 x (2.14/2.28)] - [$40,000 x .3 x .4 .44] = $19,199 - $10,909 = $8,290 Choice d) Ignores the half-year rule = [($75,000 - $40,000) x .3 x .4] (.14 + .3) = $9,545 Choice e) Uses UCC of existing machine instead of the disposal value to determine the net capital cost to plug into the formula = [($75,000 - $35,000) x .3 x .4] .44 x (2.14/2.28) = $4,800 .44 x (2.14/2.28) = $10,239

69.

Answer: d. The CAPM links nondiversifiable 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 investor portfolios will be diversified to minimize risk. Choice c) This response has no bearing on why the model disregards diversifiable risk. Choice e) The model values systematic risk.

70.

Answer: b. Operating leverage reflects the extent to which fixed assets and their associated fixed costs are utilized in a firm. The degree of operating leverage may be defined as the percentage change in operating income that occurs as a result of a percentage change in sales volume. The following are two ways to calculate the degree of operating leverage. EBIT = $500,000 - $200,000 - $120,000 = $180,000. 1) 1 + (Fixed costs EBIT) = 1 + ($120,000 $180,000) = 1.7 2) (Sales - Variable costs) EBIT = ($500,000 - $200,000) $180,000 = 1.7 Choice a) EBIT Fixed costs = $180,000 $120,000 = 1.5 Choice c) Sales EBIT = $500,000 $180,000 = 2.8 Choice d) EBIT (EBIT - Interest) = $180,000 ($180,000 - $80,000) = 1.8 (financial leverage) Choice e) Contribution margin Fixed costs = $300,000 $120,000 = 2.5

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71.

Answer: a. Net income Income taxes Amortization expense Reserve for warranties Non-deductible portion of business meals ($90,000 x .5) CCA ($2,500 x .2 + $1,900 x .3) Taxable income $ 840 560 1,000 150 45 (1,070) $1,525

Choice b) Adjusts for income taxes and amortization/CCA only: $840 + $560 + $1,000 - $1,070 = $1,330 Choice c) Adds back 100% of meals instead of 50%: $1,525 + $45 = $1,570 Choice d) Neglects to add the reserve for warranties: $1,525 - $150 = $1,375 Choice e) Adds back interest expense: $1,525 + $75 = $1,600 72. Answer: e. NPV = PV of after-tax cash flows - the original investment. Annual after-tax cash flows = ($1,200,000 - $740,000) x (1 - .4) = $276,000. PV of after-tax cash flows for 5 years at 12% = $276,000 x 3.605 = $994,980. Net present value = $994,980 - $1,000,000 = $(5,020). Choice a) PV of after-tax cash flows for 5 years at 12% = $276,000 x 3.605 = $994,980 Choice b) Annual after-tax cash flows = ($1,200,000 - $740,000) = $460,000. PV of after-tax cash flows for 5 years at 12% = $460,000 x 3.605 = $1,658,300. Net present value = $1,658,300 - $1,000,000 = $658,300. Choice c) Annual after-tax cash flows = ($1,200,000 - $740,000) x 0.4 = $184,000. PV of after-tax cash flows for 5 years at 12% = $184,000 x 3.605 = $663,320. Net present value = $663,320 - $1,000,000 = $(336,680). Choice d) Annual after-tax cash flows = ($1,200,000 - $740,000) = $460,000. PV of after-tax cash flows for 5 years at 12% = $460,000 x 3.605 = $1,658,300. Net present value = $1,658,300 - $1,000,000 = $658,300. After tax: $658,300 * (1-.4) = $394,980. Answer: b. Proceeds of disposition Less: Adjusted cost base Disposition costs Total capital gain Non-taxable (50%*) Total taxable capital gain $300,000 $110,000 8,000

73.

118,000 $182,000 91,000 $ 91,000

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2009 Sample Entrance Examination

74.

Answer: a. $8,000 x 14% = $1,120 Answer: c. Value right = ($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. Choice e) Ignores the number of rights: $18 - $14 = $4

75.

76.

Answer: d. The maximum amount that GEF Inc. should be willing to pay for HIP Ltd. would be the amount that provides GEF Inc. with exactly a 16% return on investment (or a net present value of zero using a 16% discount rate). This amount is calculated as follows: [$4,000,000 + ($1,000,000 x .6)]/.16 = $4,600,000/.16 = $28,750,000. Choice a) After-tax operating savings are subtracted instead of added: ($4,000,000 - $600,000)/.16 = $21,250,000 Choice b) Uses before-tax operating savings: ($4,000,000 + $1,000,000)/.16 = $31,250,000 Choice c) Before-tax savings operating savings are subtracted instead of added: ($4,000,000 - $1,000,000)/.16 = $18,750,000 Choice e) Ignores synergistic savings: $4,000,000/.16 = $25,000,000

77.

Answer: e. Subsection 85.1 permits a tax-free rollover to a shareholder of a corporation who exchanges shares on one company for shares of another company if certain conditions are met. Choices a), b) and c) are three of these conditions. Answer: a. The membership fee for a golf and country club is taxable as it is unlikely that such club membership by the controller would benefit the company. Tuition fee for course related to work is exempt, because it would benefit the employer. The registered pension plan contribution is specifically exempt. Private dental plan and drug plan premiums are exempt. The fee for the seminar is not related to his work; therefore, it is a taxable benefit. Travel expenses for travel between home and usual place of work are considered to personal expenses; therefore, the travel allowance is a taxable benefit. Therefore, the taxable benefit would be $5,000 + $400 + $1,500 = $6,900. Choice b) Incorrectly includes the tuition fee for course related to his work: $5,000 + $2,000 + $400 + $1,500 = $8,900 Choice c) Incorrectly includes the dental and drug plan premiums: $5,000 + $500 + $400 + $150 + $1,500 = $7,550 Choice d) Includes all the benefits: $5,000 + $2,000 + $1,200 + $500 + $400 + $150 + $1,500 = $10,750

78.

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Choice e) Incorrectly excludes the travel allowance: $5,000 + $400 = $5,400 79. Answer: b. Only individuals can make a contribution to a federally registered party.

Canada Elections Act PART 18. DIVISION 2: GENERAL FINANCIAL PROVISIONS

Contributions Ineligible contributors 404. (1) No person or entity other than an individual who is a citizen or permanent resident as defined in subsection 2(1) of the Immigration and Refugee Protection Act shall make a contribution to a registered party, a registered association, a candidate, a leadership contestant or a nomination contestant. 80. Answer: b. ($20,000/$140,000 x 8%) + ($40,000/$140,000 x 6%) + ($70,000/$140,000 x 3%) + ($10,000/$140,000 x 10%) = 5.07%. Answer: e. Price = Present value of face value + Present value of semi-annual interest payments. = ($1,000 x PVIF20,5%) + ($40 x PVIFA 20,5%) = ($1,000 x .377) + ($40 x 12.462) = $875 Answer: a. Gross profit reported in Year 1: $12,000 costs to date + $24,000 expected costs to complete = $36,000 total expected cost % complete in Year 1 = $12,000/$36,000 = 33.3% Gross profit reported in Year 1 = 33.3% x ($42,000 - $36,000) = 33.3% x $6,000 = $2,000 Gross profit reported in Year 2: $12,000 Year 1 costs + $13,000 Year 2 costs + $15,000 estimated costs to complete = $40,000 total expected costs % complete in Year 2 = $25,000/$40,000 = 62.5% Gross profit reported in Year 2 = [62.5% x ($42,000 - $40,000)] - $2,000 recognized in Year 1 = 62.5% x $2,000 - $2,000 = $1,250 - $2,000 = $(750) (i.e. a loss of $750)

81.

82.

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2009 Sample Entrance Examination

83.

Answer: c. Since AWI is financially and operationally independent of its Canadian parent, it is a selfsustaining foreign operation and its statements should be translated using the current rate method. Under the current rate method, assets and liabilities should be translated using the December 31, Year 2, exchange rate of 0.34 and income statement items should be translated using the 0.32 average rate for Year 2: inventory = 75,000 FC x .34 = $25,500; sales = 600,000 FC x .32 = $192,000; amortization = 10,000 FC x .32 = $3,200. Choice a) Uses the average rate for Year 2 of .32 for all. Choice b) Uses the Dec. 31, Year 2, rate of .34 for all. Choice d) Uses the Year 2, 4th quarter average for inventory (.35) and the Dec. 31, Year 2, rate of .34 for sales and amortization. Choice e) Uses the Year 2, 4th quarter average rate for inventory (.35) and the Year 2 average rate of .32 for sales and amortization.

84.

Answer: b. Year 2 150,000 FC 90,000 FC 75,000 FC 180,000 FC 25,000 FC 10,000 FC 240,000 FC 600,000 FC 250,000 FC 10,000 FC 120,000 FC Rate .34 .34 .34 .34 .34 .36 .33 .32 .32 .32 .32 Translated $ 51,000 dr 30,600 dr 25,500 dr 61,200 dr 8,500 cr 3,600 cr 79,200 cr 192,000 cr 80,000 dr 3,200 dr 38,400 dr 6,600 dr

Cash Accounts receivable Inventory (FIFO basis) Capital assets Accounts payable Capital stock Retained earnings, January 1 Sales Cost of sales Amortization expense Other operating expenses Cumulative translation gain

Choice a) Uses the temporal method. Choice c) Capital stock and retained earning translated at the year-end rate for Year 2 of 0.34. Choice d) Capital stock translated at the year-end rate for Year 2 of 0.34. Choice e) Assumes all accounts are translated at the same rate. 85. Answer: c. Net loss from operations Add back amortization Add back increase in accounts payable Cash provided (used) from operations 86. $(160,000) 30,000 15,000 $(115,000)

Answer: e. According to section 3030.10 of the CICA Handbook, the method of determining cost of inventory (e.g. FIFO, LIFO, average cost) is a required disclosure. The composition of inventory (choice b) is desirable, but not required.

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87.

88.

Answer: c. Opening balance $100,000 Purchase of inventory (increase inventory, decrease cash) Purchase of machinery (increase assets, increase liabilities) + 15,000 Retirement of bonds (decrease liabilities, decrease cash) 20,000 Closing balance (December 31) $ 95,000 Answer: d. [(10% x $600,000) + (25% x $25,000) + ($8,000 - $5,000)] - $13,000 + $16,500 - $2,000 = $70,750 Choice a) [(10% x $600,000) + (25% x $25,000) + ($8,000 - $5,000)] - $13,000 $2,000 = $54,250 Choice b) [(10% x $600,000) + (25% x $25,000) + ($8,000 - $5,000)] - $13,000 = $56,250 Choice c) [(10% x $600,000) + (25% x $25,000) + ($8,000 - $5,000)] = $69,250 Choice e) [(10% x $600,000) + (25% x $25,000) + ($8,000 - $5,000)] - $13,000 + $16,500 = $72,750

89.

Answer: c. Temporary investments should be reported at fair value at each balance sheet date. The fair value of the temporary investments = $39,375 + $243,625 + $92,000 = $375,000. Choice a) Uses highest value: $39,375 + $246,750 + $92,750 = $378,875 Choice b) Uses cost: $31,500 + $246,750 + $92,750 = $371,000 Choice d) Uses cost of shares and face value of bonds: $31,500 + $246,750 + $100,000 = $378,250 Choice e) Uses lower of cost or market: $31,500 + $243,625 + $92,000 = $367,125

90.

Answer: e. Year 10 amortization = ($30,000 - $2,400)/5 x 50% = $5,520 x 50% = $2,760 Year 11 amortization = $5,520 Year 12 amortization = ($30,000 - $3,600 - $2,760 - $5,520)/2.5 = $18,120/2.5 = $7,248. Choice a) Uses 3.5 years instead of 2.5 years in the calculation: $18,120/3.5 = $5,177 Choice b) Assumes the vehicle was purchased on Jan. 1 instead of July 1: ($30,000 $3,600 - $5,520 - $5,520)/2 = $15,360/2 = $7,680 Choice c) Uses the old residual value: ($30,000 - $2,400 - $2,760 - $5,520)/2.5 = $7,728 Choice d) Ignores amortization already recorded in years 10 and 11: ($30,000 $3,600)/4 = $6,600

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91.

Answer: a. The effective interest for the first six months = $108,111 x 8% x year = $4,324. Choice b) Choice c) Choice d) Choice e) $100,000 x 10% x = $5,000 $108,111 x 10% x = $5,406 $100,000 x 8% x = $4,000 ($100,000 x 10% x ) - ($8,111 premium 10 payment periods) = $5,000 - $811 = $4,189

92.

Answer: d. At the end of an accounting period, entries are made to reduce all the temporary accounts to zero, and transfer the net income (loss) to an equity account (retained earnings for a corporation). These are called closing entries. Choice d) represents an appropriate closing entry. Choice a) This is an adjusting entry to record accrued interest expense. Choice b) An appropriate closing entry would be the recording of a dividend payment. However, the entry would debit retained earnings and credit dividends payable. Choice c) This is an adjusting entry to record income taxes payable for the year.

93.

Answer: b. Fully diluted earnings per share = (net income + net interest on bonds) (fully diluted weighted average number of shares outstanding) = [$4,000,000 + ($1,000,000 x 7% x .6)] (800,000 + 50,000) = $4.76. Answer: c. The revenue recognition principle dictates that revenue gets recognized when the risks and rewards of ownership are transferred and reasonable assurance exists regarding the amount and collectability of the consideration for the goods. Because the dealer acts as an agent for the manufacturer on a non-consignment basis, the risks and rewards of ownership are transferred when an automobile is shipped to the dealer. Also, there is reasonable assurance that the agent will pay a price that was likely agreed upon prior to placing the order. Answer: b. For choice b), the company would be able to determine the stage of completion, but the amount of revenue is uncertain; therefore, it would be appropriate to use the completed contract method for this situation. For choices a), c) and d), the stage of completion can be determined and the amount of revenue to be received is fairly certain; therefore, the percentage-of-completion method should be used for these situations.

94.

95.

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96.

Answer: a. Pension expense = service costs + interest on accrued benefits - expected return on pension fund assets + amortization of past service costs + amortization of net actuarial unrecognized loss = $640,000 + $290,000 - $184,000 + $120,000 + $66,000 = $932,000. Choice b) Includes pension benefits paid to retirees: $640,000 + $290,000 $184,000 + $120,000 + $66,000 + $90,000 = $1,022,000 Choice c) Includes actual return on pension fund assets instead of the expected return: $640,000 + $290,000 - $160,000 + $120,000 + $66,000 = $956,000 Choice d) Deducts the amortization of unrecognized net actuarial gain (i.e. treats it like a loss): $640,000 + $290,000 - $184,000 + $120,000 - $66,000 = $800,000 Choice e) Does not include amortization of unrecognized net actuarial loss: $640,000 + $290,000 - $184,000 + $120,000 = $866,000

97.

Answer: d. Provisions for warranty repairs are not deductible for tax purposes. Only costs actually incurred for warranty repairs during the year are deductible. Therefore, a provision for future repair costs will create a timing difference whereby non-deductible expenses in one year will be deductible in a future year when the actual expenditure is incurred. Choices a), b) and c) represent permanent differences. Answer: e. In accordance with generally accepted accounting principles, development costs (but not research costs) can be capitalized if certain criteria are met. Choices a), b) and d) relate to three of the specified criteria for capitalizing development costs. Choice c) must be answered before even considering the criteria. Only choice e) is not one of the criteria for capitalizing development costs. Answer: d. Since the insurance was not adjusted: insurance expense is too low (=overstated income); prepaid insurance is too high (=assets are overstated). Answer: b. When a foreign currency transaction gives rise to a receivable or a payable, a change in the exchange rate between the functional currency and the currency in which the transaction is denominated is a foreign currency transaction gain or loss that should be included as a component of income from continuing operations in the period in which the exchange rate changes. The transaction was recorded at $1.50 per Foreign Currency. At December 31, Year 10, the exchange rate had risen to $1.55, so Company X should recognize a loss of $5,000 [i.e. ($1.55 - $1.50) x FC100,000] in Year 10. The Year 11 recognized loss is $2,000 [i.e. ($1.57 - $1.55) x FC100,000].

98.

99.

100.

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2009 Sample Entrance Examination

101.

Answer: e. Choice a) is a restricted fund that can only be used for a specific project to take place in two years; therefore, it is not liquid. The project costs in choice b) must be expensed in the year because the grant is not guaranteed and cannot be recorded as a receivable. For choice c), the seniors home does not have ownership of the gift items; therefore, they cannot be recorded as assets. For choice d), the account is held in trust and is therefore not accessible to the seniors home. Therefore, choice e) is the correct answer. Answer: c. Current ratio = (Cash + Marketable securities + Receivables + Inventory)/Current liabilities = ($57 + $269 + $345 + $770)/$648 = 2.22 Choice a) Choice b) Choice d) Choice e) Uses total assets in numerator: $2,331/$648 = 3.60 Uses total liabilities in the denominator: $1,441/$1,035 = 1.39 Uses total assets and total liabilities: $2,331/$1,035 = 2.25 Quick ratio: ($57 + $269 + $345)/$648 = 1.04

102.

103.

Answer: b. Accounts receivable turnover in days = 365/[Net credit sales/Average net accounts receivable] or Average net accounts receivable/Net credit sales x 365 days = 365/{($7,938 x 85%)/[($345 + $314)/2]} = 17.8 days Choice a) Uses total sales instead of credit sales: 365/{$7,938/[($315 + $286)/2]} = 15.2 days Choice c) Uses Year 1 accounts receivable: 365/[($7,938 x 85%)/$314] = 17.0 days Choice d) Uses gross margin and year-end accounts receivable: 365/[($7,938 $5,477)/$345] = 51.2 days Choice e) Neglects to convert to days: ($7,938 x 85%)/[($345 + $314)/2] = 20.5 days

104.

Answer: a. Times interest earned = Income before interest & taxes Interest = ($538 + $135 + $449 + $85)/$85 = 14.2 times Choice b) Treats the loss as a gain: ($538 - $135 + $449 + $85)/$85 = 11.0 times. Choice c) Ignores pre-tax loss on disposal of asset: ($538 + $90 + $449 + $85)/$85 = 13.7 times Choice d) Uses net income: $538/$85 = 6.3 times Choice e) Use net income before interest but after taxes: ($538 + $85)/$85 = 7.3 times

105.

Answer: d. Total debt-to-equity ratio = Total liabilities/Total shareholders equity = $1,035/($429 + $867) = $1,035/$1,296 = 0.80 Choice a) Choice b) Choice c) Choice e) Uses long-term debt: ($1,035 - $648)/$1,296 = 0.30 Uses retained earnings only: $1,035/$867 = 1.19 Uses common shares only: $1,035/$429 = 2.41 Uses total assets instead of equity: $1,035/$2,331 = 0.44

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106.

Answer: c. The general standard for determining cost in an exchange of non-monetary assets is that the asset should be measured at the fair value of the asset given up, unless the fair value of the asset received is more clearly evident, with the resulting gain or loss recognized in income. In this case, the fair value of the shares given up is more clearly evident than the fair value of the asset received (it is an estimate, not an appraised value). Therefore, the value of the shares (i.e. $11.20 x 3,750,000 = $42,000,000) should be prorated to the assets acquired, based on their estimated value: Land = $12,000,000 / $48,000,000 x $42,000,000 = $10,500,000; Building = $36,000,000 / $48,000,000 x $42,000,000 = $31,500,000. Choice a) Choice b) Incorrectly records the assets at their estimated value and adds the gain on sale of the shares to the value of the shares. Incorrectly records the assets at their estimated value and recognizes in income a gain on sale of the shares that were exchanged (i.e. gain = $48,000,000 - $42,000,000 = $6,000,000. Incorrectly records the assets at their estimated value and recognizes in income a gain on sale of the shares that were exchanged. As well, a tax liability (i.e. tax = $6,000,000 x 40% = $2,400,000) should not exist. Prorates the value of the shares to the assets acquired based on their book values.

Choice d)

Choice e) 107. Answer: c

B = Gross Value from bond sale at time zero I = 4.0% (= 8.0% / 2) n = 20 payments (coupon payments are semi-annual) M = $48,000,000 k = 10.0% p.a. B = (M x I x PVIFA, 4% @ n terms) + (M x PVIF, 5% @ 20 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) = $23,927,040 + $18,096,000 = $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

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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 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 Choice e) Uses annual interest payments with correct commission figure: B = $42,124,800 Brokerage Charge = $48,000,000 x 2.5% = $1,200,000 Net proceeds from sale of bond = $42,124,800 - $1,200,000 = $40,924,800 108. Answer: e. Horizontal analysis indicates that the company contribution margin in Year 10 is 106% of the contribution margin in Year 8, while the net operating income in Year 10 is 110% of the net operating income in Year 8. Therefore, choice a) is false because the net operating income is increasing at a greater rate than the contribution margin for the company. Trend analysis indicates that Company As share of the e-book usage market has increased from 2.4% in Year 8 to 2.6% in Year 9 and 2.9% in Year 10. Therefore, choice b) is true. The following table shows the e-book segment as a proportion of the company: Year 8 8.0% 9.8% 7.8% Year 9 10.0% 14.2% 15.0% Year 10 13.0% 19.8% 26.9%

Total sales Contribution margin Net operating income

The e-book segment is contributing more as a percentage of the total company results in sales, contribution margin and net operating income each year. Therefore, choice c) is true. Since choice b) and choice c) are both true, choice e) is the correct answer. Choice d) is incorrect because choice a) is false. 109. Answer: d. Expanding e-book usage emphasizes the economic component (choice a), the environmental component (choice b) by reducing paper usage, but not the social component (choice c). Therefore, choice d) is correct and choice e) is not.

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Supplement of Formulae and Tables


1. CAPITAL STRUCTURE
a) After-Tax Marginal Cost of Debt:

kb = k(1 T) or
where k T I F

(1 T)I F

= interest rate = corporate tax rate = annual interest payment on debt = face value of debt

b) Cost of Preferred Shares:


kp = Dp NPp

where Dp = stated annual dividend payment on shares NPp = net proceeds on preferred share issue c) Cost of Common Equity: i) Cost of Common Shares (Capitalization of Dividends with Constant Growth Rate):
ke = D 1 +g NP e

where D1 = dividend expected for period 1 NPe = net proceeds on common share issue g = annual long-term dividend growth rate ii) Cost of Retained Earnings:
kre = re = D 1 +g P e

where Pe = market price of a share re = expected return on common equity iii) Capital Asset Pricing Model:
Rj = Rf + j Rm Rf

where Rj Rf Rm
j

= expected rate of return on security j = risk-free rate = expected return for the market portfolio = beta coefficient for security j (measure of systematic risk)

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2009 Sample Entrance Examination

d) Weighted Average Cost of Capital:


B P E k = kb + kp + ke V V V

where B P E V

= amount of debt outstanding = amount of preferred shares outstanding = amount of common equity outstanding = B + P + E = total value of firm

2. PRESENT VALUE OF TAX SHIELD FOR AMORTIZABLE ASSETS


a) Present Value of Total Tax Shield from CCA for a New Asset
Present Value = CdT 2 + k CdT 1+ 05k . = d + k 2(1+ k) d+ k 1+ k

b) 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 =

(1+k)

Sn

n d+k

dT

or

(1+k)

Sn

n1

dT , depending on cashflow 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

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Table 1 Present Value of One Dollar Due at the End of n Years


P= 1

(1+ i) n

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

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

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2009 Sample Entrance Examination

Table 1 (contd) Present Value of One Dollar Due at the End of n Years
P= 1

(1+ i) n

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

11% 0.901 .812 .731 .659 .593 .535 .482 .434 .391 .352 .317 .286 .258 .232 .209 .188 .170 .153 .138 .124 .112 .101 .091 .082 .074

12% 0.893 .797 .712 .636 .567 .507 .452 .404 .361 .322 .287 .257 .229 .205 .183 .163 .146 .130 .116 .104 .093 .083 .074 .066 .059

13% 0.885 .783 .693 .613 .543 .480 .425 .376 .333 .295 .261 .231 .204 .181 .160 .142 .125 .111 .098 .087 .077 .068 .060 .053 .047

14% 0.877 .769 .675 .592 .519 .456 .400 .351 .308 .270 .237 .208 .182 .160 .140 .123 .108 .095 .083 .073 .064 .056 .049 .043 .038

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

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Table 1 (contd) Present Value of One Dollar Due at the End of n Years
P= 1

(1+ i) n

n 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

21% 0.826 .683 .564 .467 .386 .319 .263 .218 .180 .149 .123 .102 .084 .069 .057 .047 .039 .032 .027 .022 .018 .015 .012 .010 .009

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

26% 0.794 .630 .500 .397 .315 .250 .198 .157 .125 .099 .079 .062 .050 .039 .031 .025 .020 .016 .012 .010 .008 .006 .005 .004 .003

27% 0.787 .620 .488 .384 .303 .238 .188 .148 .116 .092 .072 .057 .045 .035 .028 .022 .017 .014 .011 .008 .007 .005 .004 .003 .003

28% 0.781 .610 .477 .373 .291 .227 .178 .139 .108 .085 .066 .052 .040 .032 .025 .019 .015 .012 .009 .007 .006 .004 .003 .003 .002

29% 0.775 .601 .466 .361 .280 .217 .168 .130 .101 .078 .061 .047 .037 .028 .022 .017 .013 .010 .008 .006 .005 .004 .003 .002 .002

30% 0.769 .592 .455 .350 .269 .207 .159 .123 .094 .073 .056 .043 .033 .025 .020 .015 .012 .009 .007 .005 .004 .003 .002 .002 .001

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2009 Sample Entrance Examination

Table 1 (contd) Present Value of One Dollar Due at the End of n Years
P= 1

(1+ i) n

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

31% 0.763 .583 .445 .340 .259 .198 .151 .115 .088 .067 .051 .039 .030 .023 .017 .013 .010 .008 .006 .005 .003 .003 .002 .002 .001

32% 0.758 .574 .435 .329 .250 .189 .143 .108 .082 .062 .047 .036 .027 .021 .016 .012 .009 .007 .005 .004 .003 .002 .002 .001 .001

33% 0.752 .565 .425 .320 .240 .181 .136 .102 .077 .058 .043 .033 .025 .018 .014 .010 .008 .006 .004 .003 .003 .002 .001 .001 .001

34% 0.746 .557 .416 .310 .231 .173 .129 .096 .072 .054 .040 .030 .022 .017 .012 .009 .007 .005 .004 .003 .002 .002 .001 .001 .001

35% 0.741 .549 .406 .301 .223 .165 .122 .091 .067 .050 .037 .027 .020 .015 .011 .008 .006 .005 .003 .002 .002 .001 .001 .001 .001

36% 0.735 .541 .398 .292 .215 .158 .116 .085 .063 .046 .034 .025 .018 .014 .010 .007 .005 .004 .003 .002 .002 .001 .001 .001 .001

37% 0.730 .533 .389 .284 .207 .151 .110 .081 .059 .043 .031 .023 .017 .012 .009 .006 .005 .003 .003 .002 .001 .001 .001 .001 .001

38% 0.725 .525 .381 .276 .200 .145 .105 .076 .055 .040 .029 .021 .015 .011 .008 .006 .004 .003 .002 .002 .001 .001 .001 .001 .001

39% 0.719 .518 .372 .268 .193 .139 .100 .072 .052 .037 .027 .019 .014 .010 .007 .005 .004 .003 .002 .001 .001 .001 .001 .001 .001

40% 0.714 .510 .364 .260 .186 .133 .095 .068 .048 .035 .025 .018 .013 .009 .006 .005 .003 .002 .002 .001 .001 .001 .001 .001 .001

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Table 2 Present Value of One Dollar Per Year n Years at i%


1 1 1+ i n ) ( P = n 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

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

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2009 Sample Entrance Examination

Table 2 (contd) Present Value of One Dollar Per Year n Years at i%


1 1 1+ i n ) ( P = n 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

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

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Table 2 (contd) Present Value of One Dollar Per Year n Years at i%


1 1 1+ i n ) ( P = n i

n 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

21% 0.826 1.510 2.074 2.540 2.926 3.245 3.508 3.726 3.905 4.054 4.177 4.279 4.362 4.432 4.489 4.536 4.576 4.608 4.635 4.657 4.675 4.690 4.703 4.713 4.721

22% 0.820 1.492 2.042 2.494 2.864 3.167 3.416 3.619 3.786 3.923 4.035 4.127 4.203 4.265 4.315 4.357 4.391 4.419 4.442 4.460 4.476 4.488 4.499 4.507 4.514

23% 0.813 1.474 2.011 2.448 2.804 3.092 3.327 3.518 3.673 3.799 3.902 3.985 4.053 4.108 4.153 4.189 4.219 4.243 4.263 4.279 4.292 4.302 4.311 4.318 4.323

24% 0.807 1.457 1.981 2.404 2.745 3.021 3.242 3.421 3.566 3.682 3.776 3.851 3.912 3.962 4.001 4.033 4.059 4.080 4.097 4.110 4.121 4.130 4.137 4.143 4.147

25% 0.800 1.440 1.952 2.362 2.689 2.951 3.161 3.329 3.463 3.571 3.656 3.725 3.780 3.824 3.859 3.887 3.910 3.928 3.942 3.954 3.963 3.971 3.976 3.981 3.985

26% 0.794 1.424 1.923 2.320 2.635 2.885 3.083 3.241 3.366 3.465 3.543 3.606 3.656 3.695 3.726 3.751 3.771 3.786 3.799 3.808 3.816 3.822 3.827 3.831 3.834

27% 0.787 1.407 1.896 2.280 2.583 2.821 3.009 3.156 3.273 3.364 3.437 3.493 3.538 3.573 3.601 3.623 3.640 3.654 3.664 3.673 3.679 3.684 3.689 3.692 3.694

28% 0.781 1.392 1.868 2.241 2.532 2.759 2.937 3.076 3.184 3.269 3.335 3.387 3.427 3.459 3.483 3.503 3.518 3.529 3.539 3.546 3.551 3.556 3.559 3.562 3.564

29% 0.775 1.376 1.842 2.203 2.483 2.700 2.868 2.999 3.100 3.178 3.239 3.286 3.322 3.351 3.373 3.390 3.403 3.413 3.421 3.427 3.432 3.436 3.438 3.441 3.442

30% 0.769 1.361 1.816 2.166 2.436 2.643 2.802 2.925 3.019 3.092 3.147 3.190 3.223 3.249 3.268 3.283 3.295 3.304 3.311 3.316 3.320 3.323 3.325 3.327 3.329

CMA Canada

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2009 Sample Entrance Examination

Table 2 (contd) Present Value of One Dollar Per Year n Years at i%


1 1 1+ i n ) ( P = n 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

31% 0.763 1.346 1.791 2.131 2.390 2.588 2.739 2.854 2.942 3.009 3.060 3.100 3.129 3.152 3.170 3.183 3.193 3.201 3.207 3.211 3.215 3.217 3.219 3.221 3.222

32% 0.758 1.332 1.766 2.096 2.345 2.534 2.678 2.786 2.868 2.930 2.978 3.013 3.040 3.061 3.076 3.088 3.097 3.104 3.109 3.113 3.116 3.118 3.120 3.121 3.122

33% 0.752 1.317 1.742 2.062 2.302 2.483 2.619 2.721 2.798 2.855 2.899 2.931 2.956 2.974 2.988 2.999 3.007 3.012 3.017 3.020 3.023 3.025 3.026 3.027 3.028

34% 0.746 1.303 1.719 2.029 2.260 2.433 2.562 2.658 2.730 2.784 2.824 2.853 2.876 2.892 2.905 2.914 2.921 2.926 2.930 2.933 2.935 2.937 2.938 2.939 2.939

35% 0.741 1.289 1.696 1.997 2.220 2.385 2.508 2.598 2.665 2.715 2.752 2.779 2.799 2.814 2.826 2.834 2.840 2.844 2.848 2.850 2.852 2.853 2.854 2.855 2.856

36% 0.735 1.276 1.674 1.966 2.181 2.339 2.455 2.540 2.603 2.650 2.683 2.708 2.727 2.740 2.750 2.758 2.763 2.767 2.770 2.772 2.773 2.775 2.775 2.776 2.777

37% 0.730 1.263 1.652 1.936 2.143 2.294 2.404 2.485 2.544 2.587 2.618 2.641 2.658 2.670 2.679 2.685 2.690 2.693 2.696 2.698 2.699 2.700 2.701 2.701 2.702

38% 0.725 1.250 1.630 1.906 2.106 2.251 2.356 2.432 2.487 2.527 2.556 2.576 2.592 2.603 2.611 2.616 2.621 2.624 2.626 2.627 2.629 2.629 2.630 2.630 2.631

39% 0.719 1.237 1.609 1.877 2.070 2.209 2.308 2.380 2.432 2.469 2.496 2.515 2.529 2.539 2.546 2.551 2.555 2.557 2.559 2.561 2.562 2.562 2.563 2.563 2.563

40% 0.714 1.225 1.589 1.849 2.035 2.168 2.263 2.331 2.379 2.414 2.438 2.456 2.469 2.478 2.484 2.489 2.492 2.494 2.496 2.497 2.498 2.499 2.499 2.499 2.499

78

CMA Canada