To provide candidates with a brief view of some of the types of questions on the CMA® (Certified Management Accountant) exam, the following are five questions – with correct answers and explanations for each. 

You can also check out these additional practice multiple-choice and essay questions (in PDF format) and try the new interactive practice quiz, available on the IMA® (Institute of Management Accountants) website, to test your skills and expertise.

CMA Exam Part 1:

1. A company has $100 million of debt due in March Year 3. In December Year 2, the company entered into a non-cancelable agreement with its lender to refinance the debt with the same interest rate, and the full principal is due in December Year 5. How should the debt be classified on the December Year 2 balance sheet?

a. Classified as a current liability. 
b. Classified as a long-term liability.
c. Considered as an off-balance sheet liability.
d. Classified as a contingent liability. 

Correct answer b. The debt should be classified as long-term because the company has both the intent and ability to refinance the debt and the agreement was entered into prior to the end of Year 2. Since no principal payments are due until Year 5, the entire amount should be classified as long-term.

2. A major disadvantage of a static budget is that 

a. it is more difficult to develop than a flexible budget.
b. it is developed at only one level of activity.
c. variances tend to be smaller than when flexible budgeting is used.
d. variances are more difficult to compute than when flexible budgeting is used.

Correct answer b. A static budget is based on the level of output planned at the start of the budget period and does not change no matter what the level of actual output is. Comparison of actual activities to static budget levels is difficult and often misleading.

CMA Exam Part 2:

3. Garstka Auto Parts must increase its acid test ratio above the current 0.9 level in order to comply with the terms of a loan agreement. Which one of the following actions would most likely produce the desired results?

a. Expediting collection of accounts receivable.
b. Selling auto parts on account.
c. Making a payment to trade accounts payable.
d. Purchasing marketable securities for cash.

Correct answer b. To increase its acid test ratio, Gratska should sell auto parts on account. This transaction will increase accounts receivable and thus the numerator of the ratio. Inventory is not included in the ratio, so the change in inventory will not affect the ratio.

4. For each of the next six years, Atlantic Motors anticipates net income of $10,000, straight-line tax depreciation of $20,000, a 40% tax rate, a discount rate of 10%, and cash sales of $100,000. The depreciable assets are all being acquired at the beginning of Year 1 and will have a salvage value of zero at the end of six years.

The present value of the total depreciation tax savings would be

a. $8,000.
b. $27,072.
c. $34,840.
d. $87,100.

Correct answer c. Atlantic would include the present value of the depreciation tax shield totaling $34,840 as shown below.

Annual tax shield = $20,000 x 0.4 = $8,000

Present value @ 10% = $8,000 x 4.355 = $34,840    

5. The principal purpose for the enactment of the Foreign Corrupt Practices Act of 1977 by the U.S. Congress was to 

a. discourage unethical behavior of foreigners employed by U.S. firms.
b. promote the mandates issued by the United Nations with regard to global trade between its member nations.
c. prevent the bribery of foreign officials by U.S. firms seeking to do business overseas.
d. require mandatory documentation of the evaluation of internal controls by the independent auditors.

Correct answer c. The principal purpose of the Foreign Corrupt Practices Act of 1977 was to prevent the bribery of foreign officials, foreign political parties, or candidates for political office in the foreign country by U.S. firms seeking to do business overseas.