CMA Exam Practice Questions

To provide candidates with a brief view of some of the types of questions on the CMA^® (Certified Management Accountant) exam, below 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 interactive practice quiz, available on the IMA^® (Institute of Management Accountants) website, to test your skills and expertise.

CMA Exam Part 1:

1. Bertram Company had a balance of $100,000 in retained earnings at the beginning of the year and $125,000 at the end of the year. Net income for the year was $40,000. Bertram’s statement of financial position indicated that dividends payable had decreased by $5,000 throughout the year, although both cash dividends and a small stock dividend were declared. The amount of the stock dividend was $8,000. When preparing its statement of cash flows for the year, Bertram should show cash paid for dividends as:

1. $20,000.
2. $15,000.
3. $12,000.
4. $5,000.

Correct answer: c. Bertram's cash paid for dividends is $12,000 as calculated below:

2.  The major objectives of budgeting are to:

1. foster the planning of operations, provide a framework for performance evaluation, and promote communication and coordination among the organization’s segments.
2. foster the planning of operations, facilitate the identification of blame for missed budget predictions, and ensure goal congruence between superiors and subordinates.
3. define responsibility centers, provide a framework for performance evaluation, and promote communication and coordination among the organization’s segments.
4. define responsibility centers, facilitate the identification of blame for missed budget predictions, and ensure goal congruence between superiors and subordinates.

Correct answer: a. A budget is a realistic plan for the future expressed in quantitative terms. The process of budgeting forces a company to establish goals, determine the resources necessary to achieve those goals, and anticipate future difficulties in their achievement. A budget is also a control tool because it establishes standards and facilitates comparison of actual and budgeted performance. Since a budget establishes standards and accountability, it motivates good performance by highlighting the work of effective managers. Moreover, the nature of the budgeting process fosters communication of goals to company subunits and coordination of their efforts. Budgeting activities by entities within the company must be coordinated because they are interdependent.

3.  Arkin Co.’s controller has prepared a flexible budget for the year just ended, adjusting the original static budget for the unexpected large increase in the volume of sales. Arkin’s costs are mostly variable. The controller is pleased to note that both actual revenues and actual costs approximated amounts shown on the flexible budget. If actual revenues and actual costs are compared with amounts shown on the original (static) budget, what variances would arise?

1. Both revenue variances and cost variances would be favorable.
2. Revenue variances would be favorable, and cost variances would be unfavorable.
3. Revenue variances would be unfavorable, and cost variances would be favorable.
4. Both revenue variances and cost variances would be unfavorable.

Correct answer: b. If a company experiences an increase in sales volume, the actual revenue will be greater than the master budget revenue (favorable variance) and the actual costs will be greater than the master budget costs (unfavorable variances).

CMA Exam Part 2:

4.  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 is most likely to produce the desired results?

1. Expediting collection of accounts receivable.
2. Selling auto parts on account.
3. Making a payment to trade accounts payable.
4. Purchasing marketable securities for cash.

Correct answer: b. To increase its acid test ratio, Gartska 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.

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

1. discourage unethical behavior by foreigners employed by U.S. firms.
2. promote the mandates issued by the United Nations with regard to global trade between its member nations.
3. prevent the bribery of foreign officials by U.S. firms seeking to do business overseas.
4. 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 foreign countries by U.S. firms seeking to do business overseas.