CMA 2013 SampleEntranceExam Revised May 15 2013

2013 Sample
Entrance Examination
(Time Allowed: 4 hours)
Notes:
i) All answers must be indicated on the multiple-choice answer sheet. Work done
on the question paper and examination foolscap will NOT be marked.
ii) Included in the examination envelope is a supplement consisting of formulae and

tables. It is a standard supplement that may be useful for answering questions on
this paper.
iii) Examination materials must NOT BE REMOVED from the examination

writing centre. All examination materials (i.e. answer sheet, used and unused
foolscap sheets, envelope, supplement and question paper) must be submitted
to the presiding officer before you leave the examination room.
Updated May 15, 2013
© 2013 The Society of Management Accountants of Canada. All rights reserved.

®/™ Registered Trade-Marks/Trade-Marks are owned by The Society of Management Accountants of Canada.
No part of this document may be reproduced in any form without the permission of the copyright holder.
2013 Sample Entrance Examination
TABLE OF CONTENTS
Examination:
Instructions ......................................................................................... 1
Questions ............................................................................................ 3
Solution:
Solutions ........................................................................................... 36
Supplement of Formulae ......................................................................... 71
* This supplement is provided to all candidates with the examination.
© 2013 The Society of Management Accountants of Canada. All rights reserved.

®/™ Registered Trade-Marks/Trade-Marks are owned by The Society of Management Accountants of Canada.
No part of this document may be reproduced in any form without the permission of the copyright holder.
INSTRUCTIONS:
Use the multiple-choice answer sheet provided to record your answers to the questions.
Be sure to enter your four-digit envelope number on the multiple-choice answer sheet.
Select the BEST answer for each of the following 100 questions and record your
answer on the multiple-choice answer sheet by blackening the appropriate answer
space (i.e. oval) with a soft lead (HB) pencil. Answer all questions. Mark ONLY ONE
ANSWER for each question.
Sample Question:
89. (-) Market research and public relations costs are
a) engineered variable costs.

b) discretionary variable costs.
c) committed fixed costs.
d) discretionary fixed costs.
Assuming you select choice d) for your answer, you should blacken the “d” space on
line 89 in the “ANSWERS” area of the multiple-choice answer sheet as shown below:
89 a b c d
Question Weighting:
Your performance will be based on the total weighted value of the questions answered
correctly. Note that all questions are assigned the same weight, except for those
specified with a plus (+) sign (i.e. has a higher weight) or minus (-) sign (i.e. has a lower
weight). In the above example, there is a minus sign at the beginning of the question,
signifying that the question has a lower weighted value than the average question.
Singular Versus Plural Phrasing:
For simplicity of wording, all questions are phrased as though there is a single correct
answer, even when there are multiple correct answers. For example, the correct answer
to a question that is worded, “Which of the following is...,” may be the choice that refers
to two or more of the other choices, e.g. “Both a) and b) above.”
CMA Canada Page 1

Calculator Policy and Supplement
The following models of calculators are authorized for use on the Entrance Examination:
Texas Instruments TI BA II Plus (including the Professional model)

Hewlett Packard HP 10bII+ (or HP 10bII)
Sharp EL-738C (or EL-738)
The supplement accompanying the Entrance Examination contains present value

tables.
CMA Canada Page 2

Corporate Finance
1. (+) JK Inc. is considering the acquisition of IBA Inc. to expand its business. Through
the acquisition, JK expects to benefit from IBA’s cash flows before tax and interest of:
i) $180,000 per year for the first two years;

ii) $240,000 per year from the fourth year into perpetuity;
iii) $700,000 cash inflow at the end of the fifth year.
Assume that the cash flows occur at the end of each year, the tax rate is 35% for both
companies, and JK’s after-tax required rate of return is 12%. What is the maximum
amount that JK is willing to pay to acquire IBA (rounded to the nearest thousand)?
a) $2,125,000
b) $1,381,000
c) $1,989,000
d) $1,756,000
2. Which of the following statements about preferred stock is NOT correct?
a) Preferred shareholders receive a dividend before the common shareholders are

entitled to dividend.
b) Preferred shareholders generally do not have voting rights.
c) Cash dividends paid to preferred shareholders are not an allowable deduction for
tax purposes.
d) In case of bankruptcy, preferred shareholders have a claim on the company’s
assets that ranks ahead of the common shareholders and bondholders.
3. KLN Co. plans to purchase new equipment in order to increase productivity of its
manufacturing division and save repair costs that are required for the old equipment.
Old Equipment New Equipment

Purchase price $100,000 $200,000
Salvage value today $30,000 n/a
Salvage value in 5 years $5,000 $100,000
Repairs immediately $9,000 n/a
Repairs at the end of 3 years $10,000 n/a
Annual operating costs $12,000 $10,000
Annual revenue $70,000 $90,000
Remaining life 5 years 5 years
Based on a cost of capital of 6%, assuming tax is not considered, what is the net
present value in favour of purchasing the new equipment?
a) $(18,971)
b) $11,029
c) $19,429
d) $28,365
CMA Canada Page 3

4. Which of the following is most likely to increase shareholder’s wealth in the short
term?
a) Stock dividend
b) Stock split
c) Special dividend
d) Reverse split
5. ARI Corp. has annual sales of $800,000 and cost of goods sold of $500,000 as of
December 31, Year 2. On January 1, Year 3, ARI Corp. announced that it will
decrease its days receivable from 28 days to 23 days and increase its days payable
from 20 days to 28 days.
ARI Corp. forecasts that its annual sales and cost of goods sold are increasing by 5%
and 6% respectively in Year 3. How much additional cash will this change in policy
bring to the company in Year 3?
a) $11,507
b) $23,123
c) $11,616
d) $21,918
6. GS Bank is offering a certificate of deposit with a 12% quoted annual interest rate. If
the bank compounds the interest monthly and you deposit $150,000 into the certificate
of deposit, what is the value after one year?
a) $168,000
b) $168,540
c) $168,825
d) $169,020
7. An investor purchased $70,000 worth of 10-year bonds with a coupon rate of 12% on
December 31, Year 1, for $65,450. The interest payment dates are June 30 and
December 31 each year. On July 1, Year 4, the investor decided to sell the bonds.
These bonds currently yield 8% in the market. How much will the bonds sell for
(rounded to the nearest hundred dollars)?
a) $70,000
b) $112,000
c) $84,000
d) $124,600
8. (-) Which of the following is an example of a secondary market financial instrument?
a) Publicly traded stocks on the stock exchange

b) Initial public offering (IPO) stocks
c) Seasoned offering
d) Private placement
CMA Canada Page 4

9. MAC Inc. is considering issuing preferred shares that have a market value of $120
and a cumulative dividend of $8.50. The expected issue cost is $4.25 per share and is
tax-deductible. The current tax rate of MAC is 38%.
If the company issues the preferred shares, what is the percentage cost of the
preferred shares?
a) 7.24%
b) 7.08%
c) 4.49%
d) 7.34%
10. Sandra is considering the purchase of stocks in the following three companies:
i) Company A – a beta of 1.5, no dividend history and a current share price of

$35.
ii) Company B – $6.00 in annual dividends that will continue indefinitely and a
current share price of $45.
iii) Company C – $3.80 in current dividends that are expected to grow 1.5% per
year and a current share price of $38.
The current risk-free rate is 3% and the market return is 7.5%. Sandra would like an
annual return of 12% on her investment. If taxes are not considered, which shares will
meet her expectation?
a) Company A
b) Company B
c) Company C
d) None of above
11. YSJ Inc. has the following financial information:
Current liabilities $1,500,000

Total liabilities $8,500,000
Preferred shares $3,000,000
Common equity $10,000,000
The long-term debt consists of a single bond issue paying 6% interest annually. The
annual yield for similar bonds in the market is currently 8%. The current cost of the
preferred shares is 6% and the current cost of the common shares is 17%. The
company’s tax rate is 37%. What is YSJ’s weighted average cost of capital (WACC)
(rounded to the nearest tenth of a percent)?
a) 10.7%
b) 11.2%
c) 12.2%
d) 10.3%
CMA Canada Page 5

12. The shares of Sunshine Ltd. are currently trading at $54.65 per share and have a beta
of 1.5. If the risk-free rate of return is 2.0% and the risk premium is 4.5%, what is the
expected rate of return on Sunshine’s shares?
a) 8.75%
b) 6.75%
c) 11.75%
d) 5.75%
13. JYP Inc. is evaluating two projects and has gathered the following data about the two
projects. JYP has a 10% required rate of return for both projects.
Project A Project B
Initial costs $16,000 $20,000
Project life 5 years 4 years
Cash flow $7,000 per year $7,500 per year
If the projects are mutually exclusive and taxes are ignored, the company should
a) accept Project A and reject Project B.

b) reject Project A and accept Project B.
c) accept both projects.
d) reject both projects.
14. JM Ltd. has a single product that has a gross profit margin ratio of 60% per unit and
had total sales of $1,200,000 last year. JM has a degree of total leverage of 2.10 and
a degree of operating leverage of 1.20 for the current year. If the earnings before
interest and tax (EBIT) were to increase by 15% this coming year, what would be the
expected percentage change in earnings per share (rounded to the nearest percent)?
a) 18%
b) 32%
c) 9%
d) 26%
CMA Canada Page 6

15. XYZ Ltd. recently reported the following results at the end of Year 3.
Revenue $3,800,000
EBIT $900,000
Earnings per share $1.12
Net assets $5,100,000
Common shares outstanding 500,000
The book value of the net identifiable assets is equal to its fair market value. XYZ is
currently trading at $12.67 per share in the market. XYZ expects its dividend to remain
constant indefinitely, and the required return on common shares is 6%. What is the
price-earnings multiple for XYZ’s stock?
a) 7.04
b) 9.11
c) 11.31
d) 14.19
16. The financial markets often witness a target firm take a “poison pill” as a defensive
tactic against the hostile takeover attempt made by another firm. Which of the
following is an example of a target firm taking a poison pill?
a) Changing the target firm’s corporate charter such that a merger must receive
approval from 80% of the target firm’s shareholders.
b) Repurchasing some of its shares at a substantial premium from the firm attempting
the takeover.
c) Selling off the assets that originally made it a desirable takeover target.
d) Issuing rights to current shareholders that entitle them to exchange their current
shares for those of the acquirer on a 2-for-1 basis in the case of a merger.
17. (-) Which of the following statements regarding systematic risk is correct?
i) Systematic risk is a risk that influences a large number of assets.

ii) Systematic risk can be eliminated by diversification.
iii) An asset’s systematic risk is measured by its variance of returns.
iv) Beta coefficient measures how much systematic risk a particular asset has
relative to an average asset.
a) i), iii), iv)

b) ii), iii), iv)
c) i), iv)
d) All of the above
CMA Canada Page 7

18. CapeSpencer Co. recently issued rights to raise financing. Its shares are currently
trading for $30 per share on the TSE. An investor will require 4 rights plus the
subscription price of $24 to purchase one share. What is the value of one right?
a) $0
b) $3.20
c) $1.50
d) $1.20
Financial Accounting
19. In Year 4, Brenda purchased several computers for $6,000. On December 31, Year 4,
the computers had a book value of $4,300. On January 1, Year 5, Brenda donated the
computers to Hill Charity, a not-for-profit organization, for no cost. At that time, the
computers had a fair value of $5,000. Hill Charity had revenues of over $2,000,000 in
Year 5. At what amount should Hill Charity record the computer assets, as at
January 1, Year 5?
a) $0
b) $4,300
c) $5,000
d) $6,000
CMA Canada Page 8

The following information pertains to questions 20 to 22.

Selected data from JYK Inc.’s financial statements are presented below (in thousands):
Year 2
Net sales $300
Cost of goods sold 80
Gross margin 220
Depreciation expense 45
Amortization of intangibles 2
Other expenses 44
Interest expense 18
Income tax expense 47
Net income $64
Year 2 Year 1
Cash $30 $16
Short-term investments 2 3
Accounts receivable (net) 41 50
Inventory 34 30
Property, plant and equipment (net) 78 74
Intangible assets 53 55
Total assets $238 $228
Current liabilities 60 50
Total liabilities 111 152
Common shares 80 70
Retained earnings $47 $6
20. (-) What is the current ratio for Year 2?
a) 1.21
b) 1.78
c) 2.14
d) 3.96
21. What is the times interest earned for Year 2?
a) 3.55 times
b) 6.17 times
c) 7.17 times
d) 16.7 times
22. (-) What is the accounts receivable turnover in days (using 365 days) for Year 2?
a) 37.40 days
b) 49.88 days
c) 55.36 days
d) 60.83 days
CMA Canada Page 9

23. RRE Inc. builds a department store in the city centre of SJ. The contract price of the
job is $50,000,000. Information about costs is as follows:
($’000s) Year 1 Year 2 Year 3

Costs incurred during the year $5,000 $19,000 $15,000
Estimated costs to complete $35,000 $13,500 $0
The company uses the percentage of completion method to account for long-term
construction contracts. How much profit will be recognized in Year 2?
a) $6,750,000
b) $8,000,000
c) $10,231,000
d) $12,500,000
24. On January 1, Year 2, YGO Inc. purchased 60,000 shares (45%) of the common
shares of DNO Inc. for $600,000. During Year 2, DNO declared and paid $150,000 of
cash dividends. On December 31, Year 2, the shares of DNO had a fair value of
$11.50, and the company reported net income of $95,000 for the year.
Assuming YGO has significant influence over DNO’s strategic polices, what would be
the balance in the investment in DNO at December 31, Year 2, on the books of YGO?
a) $710,250
b) $665,250
c) $642,750
d) $575,250
25. Anne-Marie, an accountant, prepared the annual financial statements for Treetop
Charity, a not-for-profit organization, for no cost. In the previous year, Treetop paid
$2,000 for this service and would have paid $2,000 this year. Which is the correct
method for recording this contribution?
a) Treetop must record the contribution at $2,000, since there is a fair value for the
contribution.
b) Treetop must record $0 for the contribution, since no money was exchanged.
c) Treetop may record the contribution at $2,000.
d) Treetop may record the contribution at the price that Anne-Marie charges for her
service.
CMA Canada Page 10

26. (+) In January, Year 7, FRI Ltd. and END Ltd. decided to combine their operations into
one company, and FRI will acquire END’s assets for $111,000 in cash. The
statements of financial position of the two companies at the end of Year 6 were as
follows:
FRI Ltd. END Ltd.

Current assets $140,000 $ 85,000
Non-current assets 85,000 55,000
Total Assets $225,000 $140,000
Liabilities $15,000 $ 29,000

Common stock 160,000 76,000
Retained earnings 50,000 35,000
Total Liabilities and Equity $225,000 $140,000
The carrying values of all identifiable assets and liabilities equal their fair values. After
the acquisition, what would be the common stock balance for FRI?
a) $236,000
b) $271,000
c) $160,000
d) $210,000
27. LLU Ltd., a publicly traded company, has estimated its warranty costs to be 0.5% of
sales and in Year 1 had $650,000 in sales. On January 1, Year 2, LLU had a warranty
liability credit of $1,900. At the end of Year 2, LLU found an error in the original
estimate, and the estimate should have been 0.4% of sales instead of 0.5%. Ignoring
taxes, what should the warranty liability be for Year 2 if sales were $700,000?
a) $2,800
b) $4,700
c) $5,350
d) $4,050
CMA Canada Page 11

28. White Ltd. had the following financial results:
Year Taxable Income Income Tax Paid

4 $50,000 $15,000
5 $167,500 $50,250
6 $40,000 $12,000
7 $72,000 $21,600
8 $55,000 $16,500
In Year 9, White had a taxable loss of $200,000. The tax rate has been 30% since
Year 4. Assuming White is going to maximize its tax recovery in Year 9, what is the
tax loss carry back amount for Year 9?
a) $60,000
b) $38,100
c) $16,500
d) $50,100
29. Bevtex Ltd. has a defined benefit pension plan for its employees. Various assumptions
go into determining the pension-related expense. The controller is attempting to
determine what impact, if any, there would be if certain assumptions were changed.
The pension-related expenses would increase if there is an increase in the
a) number of retirees during the year.

b) amount contributed to the pension plan during the year.
c) market value of the pension plan assets.
d) interest rate on the pension obligation.
30. On January 1, Year 1, RJC Ltd. started to use its new pipelines that the company
spent $1,000,000 to build. At that time, RJC estimated that the pipelines will be used
for 25 years and retired at the end of 25 years. When the assets are retired, RJC is
obligated to spend $200,000 to restore the sites to meet environmental regulations.
On January 1, Year 16, the environmental regulations changed, and it was estimated
that an additional $100,000 will be required to restore the sites.
Assuming the interest rate is 6% and the company uses the effective interest rate
method for measuring obligation, the liability related to the site restoration from the
pipelines on December 31, Year 16, is (rounded to the nearest hundred)
a) $118,400.
b) $177,600.
c) $59,200.
d) $300,000.
CMA Canada Page 12

31. GMS Ltd. is a small manufacturing company. Its balance sheet at book value at
December 31, Year 5, was as follows (in thousands):
Cash $ 45
Accounts receivable 100
Land 300
Trucks (net) 170
Equipment (net) 2,600
Building (net) 1,085
Total Assets $4,300
Accounts payable $ 90
Long-term note payable 2,700
Mortgage payable 760
Common shares 530
Retained earnings 220
Total Liabilities and Shareholders’ Equity $4,300
GB Ltd., a medium-sized manufacturing company, required additional capacity in

production in order to meet increasing demand, and it decided to acquire 100% of
GMS. At the time of the acquisition, GMS’ equipment was undervalued by $230,000
while the building and trucks were overvalued by $140,000 and $50,000, respectively.
GB paid $1,600,000 to purchase GMS. How much did GB pay for goodwill?
a) $750,000
b) $810,000
c) $850,000
d) $865,000
32. YG Ltd., a Canadian company, purchased merchandise from a US-based company on

August 31, Year 2, for $100,000 USD. Payment is due on January 31, Year 3, in US
dollars. YG has a September 30 year-end, and the relevant exchange rates for the US
dollar were as follows:
August 31, Year 2 $1.00 USD = $1.25 CAD

September 30, Year 2 $1.00 USD = $1.20 CAD
January 31, Year 3 $1.00 USD = $1.32 CAD
For YG, these transactions resulted in a foreign currency transaction
a) loss/gain of $ 0 in Year 2 and loss of $7,000 in Year 3.

b) loss/gain of $ 0 in Year 2 and loss of $12,000 in Year 3.
c) gain of $5,000 in Year 2 and loss of $7,000 in Year 3.
d) gain of $5,000 in Year 2 and loss of $12,000 in Year 3.
CMA Canada Page 13

33. Prior to recording the December 31, Year 2, year-end adjusting entries for JK Inc., its
revenues exceed expenses by $90,000. The following information was known at
December 31, Year 2:
i) Sales of products amounting to $30,000 have not been billed or recorded yet.
The cost of goods sold is 60% of the sale.
ii) Rent of $24,000 was paid on November 30, Year 2, in advance for six months
from January to June, Year 3. The payment was expensed on November 30,
Year 2.
iii) New equipment costing $10,000 with an estimated useful life of five years was
purchased on July 1, Year 2, and the amortization of the equipment has not yet
been recorded. The company uses straight line amortization for book
purposes.
iv) The December, Year 2, bank reconciliation shows that the bank deducted
interest expense of $3,500 on a line of credit on December 31, Year 2, but the
company recorded this amount on January 3, Year 3.
Assuming the company prepares financial statements only at year-end, what is its
operating income for Year 2?
a) $121,500
b) $139,500
c) $120,500
d) $97,500
34. IOL had the following results from its operating segments for the year ended
December 31, Year 2 (in millions):
Operating
Segment Revenue Profit (Loss) Assets
A $83 $12 $249
B $38 $11 $125
C $9 $(4) $31
D $8 $1 $29
Total $138 $20 $434
Based on the quantitative thresholds, which segments would be reported separately?
a) A and B only.
b) B and C only.
c) A, B and C only.
d) All segments would be reported separately.
CMA Canada Page 14

35. Innov Ltd. started development of a new product in January, Year 8. In November,
Year 8, Innov was preparing to begin selling the new product, but final testing of the
product was unsuccessful; subsequently, the product could not be released for sale.
Innov incurred the following costs for the new product in Year 8:
Materials to build a prototype $75,000

Market feasibility study $20,000
Testing materials $10,000
Advertising material $20,000
What amount of these costs can Innov capitalize in Year 8?
a) $0
b) $105,000
c) $125,000
d) $85,000
36. In Year 1, Noel Mechanical sold an air conditioning (A/C) unit for $300,000, which
included a service agreement to maintain the A/C unit for 3 years starting in Year 2. If
sold separately, the A/C unit would have sold for $240,000 and the service agreement
would have sold for $80,000. The customer paid the full $300,000 in Year 1.
For Year 1, what amount would Noel recognize as deferred revenue if it uses the fair
value method?
a) $75,000
b) $0
c) $80,000
d) $60,000
37. YN retail Ltd. uses the gross profit method to estimate ending inventory for its monthly
reports. Information for July, Year 2, follows:
Inventory, June 30, Year 2 $150,000

Merchandise purchases $800,000
Freight-in $30,000
Sales $1,400,000
Purchase discounts $14,000
Gross profit on sales based on historical data 45%
Using the gross profit method, inventory in July 31, Year 2, would be estimated to be
a) $136,000.
b) $180,000.
c) $196,000.
d) $336,000.
CMA Canada Page 15

38. SDG Inc. had the following activities during Year 1:
January 1 150,000 shares of common stock outstanding.

April 1 Issued 30,000 shares of common stock.
August 1 Issued 5% stock dividend.
October 1 Issued 2,000, 12% bonds that are convertible into 20 shares
of common stock per bond.
Assuming the convertible bonds are dilutive, what is the weighted average number of
shares to be used in calculating diluted EPS?
a) 182,500
b) 186,250
c) 191,125
d) 220,000
39. (-) The management discussion and analysis (MD&A) is best described as a
supplement that
a) explains items in the financial statements.

b) has a forward-looking orientation.
c) attests as to whether the financial statements are free from material
misstatements.
d) describes accounting policies used for the financial statements.
40. Rich Corp. adheres to IFRS and on January 1, Year 1, acquires 400,000 shares of
XYZ Ltd. at $25 per share. This represents 35% of XYZ’s common shares. On
December 31, Year 1, XYZ reports net income of $1,000,000, and the share price of
XYZ is $26 per share. Assuming Rich Corp. has significant influence over XYZ, what
amount should Rich Corp. report for investment income as a result of its ownership of
XYZ in Year 1?
a) $0
b) $350,000
c) $400,000
d) $750,000
41. LSJ Inc. has a December 31 fiscal year-end. Based on past experience, 2% of LSJ’s
credit sales are uncollectible. As at December 31, Year 1, the company had a credit
balance of $10,000 in the allowance for uncollectible accounts. Sales for Year 2 were
$3,000,000, and 70% of the sales were credit sales. During Year 2, LSJ wrote off
$12,000 of uncollectible accounts from sales in Year 1 and received $6,500 as
payment of an account receivable that had been written off as uncollectible in Year 1.
Using the percentage-of-sales method, what credit balance should LSJ report for the
allowance for uncollectible accounts in its December 31, Year 2, balance sheet?
a) $40,000
b) $42,000
c) $46,500
d) $58,500
CMA Canada Page 16

42. (+) Presented below are the transactions of Absolute Inc. that occurred during
Year 10:
i) A tract of land was purchased for $18,000 cash.

ii) Sold machinery for $42,200 and recorded a loss of $5,200.
iii) Long-term notes payable in the amount of $27,800 were paid off in cash.
iv) Inventory decreased from $110,000 to $95,000.
v) Recorded net income of $32,000.
vi) Accounts payable increased by $26,000.
vii) Accounts receivable increased by $56,000.
viii) Recorded depreciation expense of $25,000.
What would be the net increase or decrease in cash from operating activities reported
on the Statement of Cash Flows for the year ended December 31, Year 10?
a) $107,200 increase
b) $47,200 increase
c) $1,400 increase
d) $13,200 decrease
43. (+) Cross Aid Charities (CAC) received the following in Year 5:
i) $6,000 of restricted donations for water and irrigation project;

ii) $30,000 of restricted donations for building clinics;
iii) $10,000 of restricted contributions for the acquisition of land;
iv) $18,000 of unrestricted grants for the general fund; and
v) $20,000 of endowment contributions.
During Year 5, the following expenses were incurred:
i) $4,000 spent on water and irrigation project; and

ii) $17,000 spent on Year 5 general operating activities.
CAC uses the deferral method of accounting for contributions and does not set up a
separate fund for restricted donations. What is the total amount that CAC should
report as revenue in the statement of operations for Year 5?
a) $22,000
b) $24,000
c) $52,000
d) $84,000
CMA Canada Page 17

44. GBSJ Refining, a publicly traded company, has entered into an agreement with FP
Inc. to lease a specialized piece of equipment. Significant modification would be
required to make this equipment available to others after the lease has expired. Terms
of the lease are as follows:
Lease term 8 years

Expected life of the equipment 10 years
Implicit interest rate 6%
GBSJ’s borrowing rate 4%
Annual lease minimum payment $80,000 (made at the beginning of the year)
Fair value of the equipment $600,000
Based on the information given, GBSJ would recognize the equipment in the first year
of the lease as
a) an operating lease of $80,000.

b) a finance lease of $496,800.
c) a finance lease of $526,600.
d) a finance lease of $600,000.
45. TL Company purchased a machine with an estimated 6-year useful life on January 1,
Year 12, for $12,000. TL Company incorrectly expensed this machine in Year 12, and
the error was discovered in Year 13. Assuming TL Company uses straight-line
depreciation and the Year 13 books are not closed, what would be the impact on
retained earnings on December 31, Year 13, to correct this error?
a) No impact on retained earnings.

b) Decrease retained earnings by $4,000.
c) Increase retained earnings by $8,000.
d) Increase retained earnings by $10,000.
46. (+) Erin Company is a publicly traded company. The following information is available
for Erin Company’s defined benefit pension plan for Year 13:
Service costs $13,800

Accrued benefit obligation, January 1, Year 13 $298,000
Fair value of plan assets, January 1, Year 13 $172,500
Actual earnings on plan assets $25,000
Post-retirement benefits paid $35,000
Discount rate 9%
Expected earnings on plan assets for Year 13 10%
Cash paid into pension plan $75,000
What is the balance in pension assets on December 31, Year 13?
a) $237,500
b) $229,750
c) $272,500
d) $398,000
CMA Canada Page 18

Internal Control
47. Which of the following is NOT a component of the audit risk model?
a) Inherent risk
b) Detection risk
c) Control risk
d) Enterprise risk
48. The practice of preparing bank reconciliations every month is an example of a
a) detective control.
b) preventative control.
c) corrective control.
d) compensating control.
49. The Board of Governors of Canadian University (CU) is addressing various risk
management issues. One issue of concern is the use of unlicensed, unauthorized or
pirated software on CU computers. Management was instructed to identify specific
programs to address the legal issues pertaining to the use of software governed by
copyright laws.
Which of the following would be LEAST likely to support the Board’s objectives?
a) Management develops and provides a policy to all employees that the use of
unauthorized or illegally copied software or data is not acceptable.
b) The IT department implements a program that tracks the expiry date of all software
licenses. Department managers must apply for renewal of existing licenses;
otherwise, IT staff will remove the software from affected computers.
c) Department managers must keep an inventory of all software purchased, including
information such as the date of purchase, serial number, pertinent license
information, and how outdated software is destroyed.
d) The IT department implements a program of unannounced annual software audits.
At least annually, IT staff will examine each university computer to ensure all
software is authorized.
50. Which of the following is a requirement of the Sarbanes-Oxley Act? Company

management must
a) certify the accuracy and completeness of financial statements.

b) describe material changes to internal controls.
c) verify the existence of adequate internal controls.
d) all of the above.
CMA Canada Page 19

51. In order for a fraud to be perpetrated, three conditions exist; these conditions are
described as the fraud triangle. Which of the following is true?
a) The primary tool used by internal audit to detect fraud is to identify risks indicated
by the fraud triangle.
b) Pressure on management to achieve financial targets is an example of a risk
factor that may lead to misappropriation of assets.
c) Appropriate controls are designed to remove the fraud factors in the fraud triangle.
d) The components in the fraud triangle include pressures, opportunities and
rationalization.
52. The responsibility for establishing internal controls rests with the
a) internal auditor.
b) external auditor.
c) company’s management.
d) audit committee.
53. A strong accounting information and communication system will satisfy the
transaction-related audit objectives, which include the following EXCEPT
a) completeness.
b) segregation of duties.
c) classification.
d) accuracy.
54. The primary responsibility of the external auditor is to
a) review an organization for efficiency and effectiveness.

b) analyze controls to ensure operational performance in the future.
c) recommend changes to procedures to improve operations.
d) determine whether the financial statements are fairly presented.
CMA Canada Page 20

Management Accounting
55. Bird Ltd. has the following information for the past four quarters:
Quarter Maintenance Costs Machine-hours

1 $120,500 1,200
2 $132,000 1,550
3 $118,750 1,210
4 $126,200 1,445
Bird believes the cost driver is machine-hours. Using the high-low method, what is the
total estimated maintenance cost for the next quarter if it uses 1,300 machine-hours
(rounded to the nearest hundred)?
a) $122,300
b) $123,800
c) $119,600
d) $110,700
56. DIY Manufacturing Company produces two types of power lawn mowers, the basic
and the self-propelled. Its master budget (based on expected sales) for the second
quarter is as follows:
Basic Self-Propelled Total

Sales (units) 30,000 60,000 90,000
Sales $6,000,000 $18,000,000 $24,000,000
Variable expenses 2,400,000 8,100,000 10,500,000
Contribution margin $3,600,000 $ 9,900,000 $13,500,000
Fixed operating expenses 7,200,000
Operating Income $ 6,300,000
DIY’s income tax rate is 40%. Given the sales mix and expected sales of the basic
mower and self-propelled mower in the master budget, what is DIY’s margin of safety
ratio for the second quarter (rounded to three decimal places)?
a) 0.467
b) 0.875
c) 0.481
d) 0.929
CMA Canada Page 21

The following information pertains to questions 57 and 58.

On August 13, LRG Ltd. had a fire at its manufacturing plant that completely destroyed the plant
and its contents. Fortunately, certain accounting records were kept in another building, and
those records revealed the following for the period from July 1 to August 13:
Direct materials purchased $360,000

Work-in-process inventory, July 1 $640,000
Direct materials, July 1 $24,000
Finished goods, July 1 $82,000
Indirect manufacturing costs $420,000
Sales $1,960,000
Direct manufacturing labour 30% of conversion costs
Prime costs $490,000
Gross margin percentage based on sales 40%
Cost of goods available for sale $1,500,000
The loss was fully covered by insurance, and the insurance company wants to know the
historical cost of the inventories as part of negotiating a settlement.
57. What is the amount of finished goods inventory lost in the fire?
a) $100,000
b) $324,000
c) $242,000
d) $406,000
58. What is the amount of work-in-process inventory lost in the fire?
a) $50,000
b) $230,000
c) $312,000
d) $132,000
------------------------------------
59. Whale Ltd. manufactures chairs and earned a gross margin of $80,000 in May,
Year 13. Its cost of goods manufactured in May was $120,000, and it had the
following inventory data:
May 1 May 31
Work-in-process $110,000 $90,000
Finished goods $80,000 $70,000
What was the revenue for May, Year 13?
a) $200,000
b) $210,000
c) $190,000
d) $230,000
CMA Canada Page 22

60. (-) A target-pricing approach is best described as
a) setting a price that focuses management on achieving a specific cost.

b) adding a desired markup to a predetermined cost to set a price.
c) charging certain customers a different price.
d) charging a higher price at peak demand periods.
61. Reed sells widgets for $100 each. The variable cost for each widget is $65, Reed’s
annual fixed costs are $125,000 and the tax rate is 30%. How many widgets does
Reed need to sell to generate a net income of $140,000 (rounded up to the nearest
ten)?
a) 9,290
b) 8,780
c) 3,250
d) 5,000
62. QC Ltd. sells three models of gizmos with a budgeted sales mix of 5:3:1 for the Entry,
Regular and Premium models, respectively. Additional model information follows:
(per unit) Entry Regular Premium

Sales price $50 $65 $90
Variable costs $20 $30 $45
Assuming the same sales mix and ignoring taxes, if QC’s total fixed costs are
$600,000, how many units of the Regular model must be sold to break even?
a) 9,231
b) 6,000
c) 5,455
d) 18,000
CMA Canada Page 23

63. The budgeted operating income for RST Ltd. for next year is as follows:
Sales – 125,000 units @ $40 $5,000,000

Variable manufacturing costs $2,000,000
Fixed manufacturing costs 1,250,000
Sales commissions – $2.60 per unit 325,000
Fixed selling and administration expenses 950,000 4,525,000
Operating Income $ 475,000
Assume that a regular customer has asked RST to provide a quote for a special order
of 20,000 units. RST has sufficient capacity to fill the order and would be required to
pay only $8,000 in sales commissions for the order. If RST would like the special
order to make a contribution to operating income of $48,000, the sales price per unit
that should be quoted to the customer for the special order is
a) $40.00.
b) $20.20.
c) $28.80.
d) $18.80.

Cruise Ltd. has two support departments, A and B, and two production departments, Y and Z.
Production is conducted in sequence from Y to Z. The distribution of actual service and
production for December is as follows:
A B Y Z
Department costs $120,000 $180,000 $630,000 $850,000
Employees 3 8 50 60
Maintenance hours 80 400 2,000 2,000
Allocation base Maintenance Units Units
(cost driver) Employees hours produced produced
64. Using the direct method of common cost allocation, what are the total production costs
for Department Y?
a) $762,665
b) $774,915
c) $774,545
d) $780,000
CMA Canada Page 24

65. Using the step-down method of common cost allocation and assuming the costs of
Department A are allocated first, what are the total production costs for
Department Z?
a) $1,005,085
b) $996,533
c) $940,000
d) $945,454
------------------------------------
66. The Leather Division is transferring 12,000 units of leather to the Stitching Division.
Costing from the Leather Division is as follows:
Direct material $150,000

Direct labour 36,000
Variable overhead 24,000
Variable selling and administration 60,000
Total variable costs $270,000
Fixed overhead 165,000
Fixed selling and administration $ 65,000
Total fixed costs 230,000
Total Costs $500,000
Selling price per unit $80
There was no beginning or ending inventory in the Leather Division. Based on

absorption costing, the 12,000 units of leather would be transferred at a total cost of
a) $351,000.
b) $435,000.
c) $375,000.
d) $500,000.
67. A manufacturer had sales of $1,000,000. Its cost of goods sold was $600,000, of
which 85% were variable costs and 15% were fixed costs. What was the company’s
contribution margin?
a) $490,000
b) $400,000
c) $910,000
d) $600,000
CMA Canada Page 25


Orange Ltd. manufactures juice with two different ingredients: 100% of Ingredient A is added at
the beginning of the production process; 100% of Ingredient B is added when the juice is 60%
complete. Conversion costs are added uniformly throughout the entire production process.
Quality testing is conducted at the 60% conversion point prior to adding Ingredient B. Rejected
units at quality testing are accounted for as spoilage, and spoilage is included in equivalent units
of output. Production data for May, Year 5, are as follows:
Work-in-process inventory, May 1 (20% converted) 40,250 units

Started in production 85,000 units
Completed production 90,000 units
Work-in-process inventory, May 31 (80% converted) 34,950 units
68. (+) Assume Orange Ltd. uses a first-in, first-out (FIFO) process costing system. For
May, what are the equivalent units of production for conversion costs?
a) 85,940
b) 109,910
c) 110,090
d) 150,160
69. (+) For May, direct material costs incurred and in beginning work-in-process inventory
totalled $220,000 for Ingredient A and $350,000 for Ingredient B. Using weighted-
average, what is the cost per equivalent unit for Ingredient A and Ingredient B?
a) $2.59 and $2.80

b) $1.76 and $2.80
c) $2.59 and $3.89
d) $2.44 and $3.89
------------------------------
70. Normal costing is the method that allocates overhead costs by using the
a) estimated overhead allocation rate and the actual quantity of the allocation base.
b) actual overhead allocation rate and the actual quantity of the allocation base.
c) actual overhead allocation rate and the estimated quantity of the allocation base.
d) estimated overhead allocation rate and the estimated quantity of the allocation
base.
71. A company had monthly sales of $612,000 with a favourable static-budget variance of
$50,000 and a favourable selling-price variance of $10,000. If the sales-volume
variance was $60,000 favourable, what was the flexible-budget variance?
a) $70,000 favourable
b) $100,000 favourable
c) $20,000 unfavourable
d) $10,000 unfavourable
CMA Canada Page 26

72. Mary is the manager of Division A, which makes widgets. Division A is classified as a
cost centre. Which of the following would be the most appropriate performance
measurement for Mary?
a) Residual income of Division A.

b) Direct material costs of the widgets.
c) Gross margin of the widgets.
d) Return on assets of Division A.

HWW Inc. has a job-order costing system. The company uses predetermined overhead rates in
applying manufacturing overhead cost to individual jobs. The predetermined overhead rate in
Department A is based on machine-hours, and the rate in Department B is based on direct
materials cost. The company has the following estimates for the year:
Department A B
Machine-hours 50,000 68,000
Direct labour-hours 45,000 60,000
Direct materials cost $250,000 $220,000
Direct labour cost $300,000 $280,000
Manufacturing overhead cost $395,000 $455,000
Job 2013 was completed on May 31 with the following cost information:
Department A B
Machine-hours 500 550
Direct materials cost $27,000 $20,000
Direct labour cost $31,000 $32,000
73. What are the predetermined overhead rates for Department A and Department B?
a) $7.20 and 1.809

b) $8.78 and 2.068
c) $7.20 and 1.625
d) $7.90 and 2.068
74. Now assume the predetermined rate for Department A is $8 and for Department B,
2.15. What is the total cost applied to Job 2013?
a) $105,000
b) $172,450
c) $157,000
d) $118,400
CMA Canada Page 27

75. OEM Company 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 $160

Division A’s annual purchases 10,000 units
Division B’s variable manufacturing cost $120 per unit
Division B’s fixed manufacturing cost $1,000,000
Division B’s production capacity 50,000 units
Division B’s capacity utilization 100%
All units of component EX1 produced by Division B can be sold in the open market.
Variable selling cost is $7 per unit for external sales. All other selling and
administrative costs are fixed, regardless of the customer. Division B will sell
component EX1 to external customers at the market price of $160 per unit.
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 A purchases 10,000 units of component EX1 from Division B, and the
company income increases by $70,000.

Maryville Company uses three types of chemicals in manufacturing lawn fertilizer. The standard
amount of chemicals X, Y and Z used in manufacturing one bag of lawn fertilizer is 5 kg, 7 kg
and 8 kg, respectively. The budgeted purchase prices of chemicals X, Y and Z are $1.00 per kg,
$0.40 per kg and $0.20 per kg, respectively.
Actual operating data for 20,000 bags of lawn fertilizer produced in May are as follows:
Input Quantity (kg) Input Price

Chemical X 97,900 $1.05
Chemical Y 132,000 $0.36
Chemical Z 210,100 $0.18
CMA Canada Page 28

76. What is the direct materials efficiency (quantity) variance for all three chemicals in
total?
a) $15,320 unfavourable
b) $3,933 unfavourable
c) $11,120 unfavourable
d) $4,720 unfavourable
77. Which of the following is true?
a) Direct materials price variance for Chemical X is favourable.

b) Direct materials mix variance for Chemical Y unfavourable.
c) Direct materials yield variance for all three chemicals in total is unfavourable.
d) All of the above.
------------------------------------
78. WCD Inc., a manufacturer of consumer products, has adopted the following cost-
leadership strategy: achieve low costs relative to competitors through productivity and
efficiency improvement, elimination of waste and tight cost controls. In designing a
balanced scorecard to measure the performance of the company, which of the
following objectives would be appropriate from the internal business perspective?
a) Develop advanced manufacturing capabilities to produce custom products.

b) Reduce all inventory levels.
c) Increase market share.
d) Develop employee communication skills.
79. (+) TIH Ltd. has the following results for two of its divisions.
North Division Central Division

Revenues $1,750,000 $2,900,000
Operating income $450,000 $600,000
Average operating assets $1,950,000 $2,395,000
Target rate of return 15% 18%
After analysis of these results, you conclude that the:
a) Central Division outperformed the North Division because it had a higher profit
margin.
b) North Division outperformed the Central Division because it required fewer assets
to achieve its targets.
c) North Division outperformed the Central Division because it generated a better
return on investment and residual income.
d) Central Division outperformed the North Division because it generated a better
return on investment and residual income.
CMA Canada Page 29

80. RG Inc. operates as a decentralized multidivisional company. The West Division

purchases most of its assembly parts from the East Division, which currently has
sufficient excess capacity to meet the West Division’s parts requirements. The East
Division’s incremental costs for manufacturing the parts are $50 per unit, and the
current market price is $90. Assuming the divisions are treated as profit centres, which
of the following statements is true?
a) The minimum transfer price the East Division is willing to accept on sales to the
West Division is $50.
b) The minimum transfer price the East Division is willing to accept on sales to the
West Division is $90.
c) The maximum transfer price the West Division is willing to pay on purchases from
the East Division is $90.
d) Both a) and c) above.

Petro Ltd. refines raw oil into several different products and in one month produces 50,000 units
of Product A and 40,000 units of Product B. Each unit of A can be sold for $14 and each unit of
B can be sold for $20. The monthly joint costs are $600,000. All units produced are sold, and
there is no beginning inventory.
81. Using the sales value at split-off method, what are the joint allocation costs for
Product B (rounded to the nearest thousand)?
a) $280,000
b) $353,000
c) $320,000
d) $267,000
82. Using the physical measure method, what are the joint allocation costs for Product A
(rounded to the nearest thousand)?
a) $333,000
b) $267,000
c) $280,000
d) $353,000
CMA Canada Page 30

83. A company has the following unit production data for June:
Work-in-process inventory, June 1 118,000

Started in production 254,500
Completed production 251,500
Work-in-process inventory, June 30 111,950
The company expects normal spoilage of 2% of completed goods. What is the

abnormal spoilage for June?
a) 5,030
b) 3,000
c) 4,020
d) 9,050
84. (-) For a manufacturing company, which of the following statements is true?
a) Wages paid to manufacturing labour are period costs.

b) Salaries paid to the sales manager are product costs.
c) Wages paid to the receptionist in the human resources office are period costs.
d) Stationery and supplies used by the bookkeeping clerk in the accounting office are
product costs.
85. A company has the following quarterly sales information:
Q1 (Actual) Q2 (Budgeted)
Cash sales $150,000 $175,000
Credit sales $325,000 $330,000
60% of credit sales are collected in the quarter of the sale, and remaining credit sales
are collected in the quarter after that. The company expects 3% of credit sales to be
uncollectable. What is the budgeted cash received in Q2?
a) $318,160
b) $503,000
c) $367,060
d) $493,160
CMA Canada Page 31


Liza’s Flowers had the following unit sales results for February:
Budgeted Actual
Budgeted Contribution Actual Contribution
Sales Margin Sales Margin
Roses 5,500 $1.25 6,500 $1.15
Tulips 6,500 $0.75 6,000 $0.80
86. What is the favourable sales-volume variance for roses?
a) $1,250
b) $1,150
c) $550
d) $650
87. What is the favourable sales-mix variance (rounded to the nearest dollar)?
a) $123
b) $250
c) $385
d) $500
------------------------------------
88. Glory Ltd. sells tires. In March it sold 5,000 tires and had an inventory of 3,500 tires on
March 1. For April, budgeted sales are 5,250 tires and budgeted ending inventory is
3,000 tires. If there were 3,300 tires in inventory on March 31, how many tires should
Glory purchase in April?
a) 4,950
b) 8,250
c) 4,450
d) 1,750
89. If total sales volume variance is $2,100 unfavourable, total sales mix variance is $900
favourable, and market share variance is $500 favourable, then the market size
variance is
a) $2,500 unfavourable.
b) $1,700 unfavourable.
c) $700 unfavourable.
d) $3,500 unfavourable.
CMA Canada Page 32

90. XY Manufacturing Ltd. had the following inventory data for July, Year 14:
July 1 July 31
Direct materials $140,000 $135,000
Work-in-process $40,000 $42,000
Finished goods $65,000 $70,000
Actual costs incurred in July include direct materials purchases of $100,000, direct
labour of $250,000 and manufacturing overhead of $125,000. What is the cost of
goods manufactured for July using absorption costing?
a) $478,000
b) $480,000
c) $473,000
d) $355,000
91. DHC Ltd. produces X, Y and Z through a joint production process. It can further refine
all of Product X into X-Plus. The following information is available:
i) Selling price per unit of X-Plus

ii) Cost of the additional refining to produce X-Plus
iii) Joint costs to produce X
iv) Selling price of X
Which of the above information is relevant to the decision to further refine Product X?
a) i) only
b) i) and ii) only
c) iii) and iv) only
d) i), ii) and iv) only
92. A company is considering the following projects:
J M V
Annual after-tax cash inflows $950,000 $1,000,000 $1,100,000
Initial project cost $5,000,000 $5,000,000 $5,000,000
Cost of capital 7% 10% 12%
Project life 7 years 8 years 7 years
Based only on profitability index, which project(s) should the company invest in?
a) Only J
b) Only M
c) Only V
d) All three projects
CMA Canada Page 33

Taxation
93. BG Ltd. is a large grocery store. Which of the following would be considered income
from property for BG?
a) Gross profit from sales of groceries.

b) Dividends received from investments in bonds.
c) Proceeds from a sale of a BG delivery truck.
d) Rebate received from a supplier.
94. On July 1, Year 7, Michelle sold a piece of land for $300,000 that had an adjusted cost
base of $150,000. Michelle received payment of $150,000 on July 1, Year 7, and will
receive $150,000 on July 1, Year 8. Costs incurred to sell the land were $15,000.
What is the minimum net taxable capital gain that Michelle could legitimately claim in
Year 7?
a) $33,750
b) $67,500
c) $0
d) $75,000
95. Gord Green is an employee of his wife’s business that is operated as a proprietorship.
He is paid an annual salary of $50,000 plus 10% vacation pay. Gord received a prize
of a weekend holiday valued at $1,000 for having the highest sales for the second
quarter. What is Gord’s employment income?
a) $51,000
b) $55,000
c) $55,500
d) $56,000
96. (+) RHM Ltd. had income for accounting purposes before taxes of $2,500,000 in
Year 10. In calculating this amount, expenses included $325,000 for depreciation,
$10,000 in charitable donations, $80,000 accounting loss on disposal of an asset, and
$40,000 in entertainment expenses. The capital cost allowance claimed for Year 10 is
$247,000. The company’s net income for tax purposes for Year 10 is
a) $2,678,000.
b) $2,668,000.
c) $2,688,000.
d) $2,532,000.
CMA Canada Page 34

97. A Class 8 asset (20% rate) was originally purchased on January 1, Year 1, at a cost of
$125,000. During Year 12 the asset was disposed of for proceeds of $10,000. The
UCC balance on January 1, Year 12, was $15,000. This was the only asset remaining
in the pool. What is the impact of this transaction on the Year 12 taxable income?
a) A recapture of $5,000 will be added to taxable income.

b) Capital cost allowance of $3,000 and a terminal loss of $5,000 may be deducted
against other taxable income.
c) A terminal loss of $5,000 may be deducted against other taxable income.
d) Capital cost allowance of $3,000 and a recapture of $5,000 will be added to
taxable income.
98. Willow Company qualifies for the small business deduction. At the end of Year 12,
Willow had active business income of $330,000 and taxable income of $315,000.
What is Willow’s small business deduction for Year 12?
a) $56,100
b) $15,000
c) $170,000
d) $53,550
99. Which of the following would be considered a “deemed disposition” under the
provisions of the Income Tax Act?
a) Bill sells equipment to Joan and will receive payment in weekly installments.
b) Jack exchanges a sofa for a bed with Jill.
c) Ruth sells shares on the public stock exchange and earns a capital gain of $1,000.
d) Sally starts a driver training school and uses her personal car entirely for
instruction.
100. A company paid $80,000 in Year 1 for a customer list. In calculating its taxable income
for Year 1, what is the maximum deduction that it can claim relating to this
expenditure?
a) $4,200
b) $0
c) $2,800
d) $5,600
End of Exam
CMA Canada Page 35

SOLUTIONS
1. Answer: b.
The maximum amount that JK Inc. is willing to pay is the present value of the
incremental cash flows using a discount rate of 12%.
Years 1 to 2 – present value of operating after-tax cash flows

= $180,000 x (1-35%) x 1.690 = $197,730
Year 4 and beyond – present value of operating after-tax cash flows brought back to
end of Y3/beginning of Y4
= [$240,000 x (1-35%)] / 0.12 x 0.712 = $925,600
Year 5 – present value of operating after-tax cash inflows
= [$700,000 x (1-35%)] x 0.567 = $257,985
Net present value = $197,730 + $925,600 + $257,985

= $1,381,315 = $1,381,000 (rounded)
Choice a) Use before tax amount

= ($180,000 x 1.690) + ($240,000 / 0.12 x 0.712) + ($700,000 x 0.567)
= $304,200 + $1,424,000 + $396,900 = $2,125,100 = $2,125,000
Choice c) Does not use PV
= ($180,000 x (1-35%) x 2) + ($240,000 x (1-35%) / 0.12) + (700,000 x
(1-35%))
= $234,000 + $1,300,000 + 455,000 = $1,989,000
Choice d) Does not use PV for $240,000
= ($180,000 x (1-35%) x 1.690) + ($240,000 x (1-35%) / 0.12) + ($700,000
x (1- 35%) x 0.567) = $197,730 + $1,300,000 + $257,985 = $1,755,715
= $1,756,000
2. Answer: d.
In the case of bankruptcy, the claim of the creditors on the company’s assets takes
precedence over the claim of the preferred shareholders, and the claim of the
preferred shareholders takes precedence over the claim of the common shareholders.
Therefore, bondholders have priority over preferred shareholders in a claim of the
assets.
Choices a) and b) Both are the true statements of the preferred stock features.
Choice c) Preferred stock is a hybrid security, containing characteristics of both debt
and common equity. Like common equity, cash dividends paid to preferred
shareholders are not an allowable deduction for tax purposes; however,
interests paid on debt are tax-deductible for the firm.
CMA Canada Page 36

3. Answer: b.
PV PV of Cash
Year Cash Flow Factor Flows
Buy New Equipment
Cost of new equipment 1 $(200,000) 1 $(200,000)
Salvage value of old equipment 1 $30,000 1 $30,000
Salvage value of new equipment 5 $100,000 0.747 $74,700
Annual operating costs 1-5 $(10,000) 4.212 $(42,120)
Revenue 1-5 $90,000 4.212 $379,080
Total $241,660
Keep Old Equipment

Repairs immediately 1 $(9,000) 1 $(9,000)
Repairs at the end of 3 years 3 $(10,000) 0.84 $(8,400)
Annual operating costs 1-5 $(12,000) 4.212 $(50,544)
Revenue 1-5 $70,000 4.212 $294,840
Salvage value of old equipment 5 $5,000 0.747 $3,735
Total $230,631
NPV in favour of buying new equipment $11,029
Choice a) Excludes salvage value of old equipment:

= $11,029 - $30,000 = $(18,971)
Choice c) Excludes repairs at the end of 3 years:
= $11,029 + $8,400 = $19,429
Choice d) Does not use present value factors for operating costs and revenue:
Buy new equipment = -$200,000 + $30,000 + $74,700 - $50,000 +
$450,000 = $304,700
Keep old equipment = -$9,000 - $8,400 - $60,000 + $3,735 + $350,000
= $276,335
NPV in favor of buying new equipment: $304,700 - $276,335 = $28,365
4. Answer: c.
Special dividends are most likely to increase shareholder’s wealth because they are
usually used to distribute the excess profits to shareholders after a period of unusually
high earnings.
Choices a) and b) Stock dividends and stock splits are distribution of additional shares
to a firm’s shareholder. As a result, the number of shares will increase,
and the price per share will decrease. Therefore, there is no impact on
overall shareholder’s wealth.
Choice d) Reverse splits are the opposite of stock splits. The number of outstanding
shares is reduced by issuing the new shares in exchange for old shares.
Because the number of shares is reduced, the price per share will
increase; therefore, this will likely have no impact on overall shareholder’s
wealth.
CMA Canada Page 37

5. Answer: b.
Additional cash saved is calculated as follows:

Annual A/R savings: [(28 days - 23 days) / 365 days] x ($800,000 x 1.05)
= $11,506.85
Annual A/P savings: [(28 days - 20 days) / 365 days] x ($500,000 x 1.06)
= $11,616.44
Additional cash savings in Year 3: $23,123.29
Choice a) Calculated by factoring solely the change in the days in A/R.

Choice c) Calculated by factoring solely the change in the days in A/P.
Choice d) Does not use increased amount of annual sales and cost of goods sold:
Annual A/R savings: [(28 days - 23 days) / 365 days] x $800,000
= $10,958.9
Annual A/P savings: [(28 days - 20 days) / 365 days] x $500,000
= $10,958.9
Total savings in Year 3: $21,917.81
6. Answer: d.
Effective annual rate (EAR) = [1+(Quoted rate/m)]m-1
Monthly compounding: [1 + (12%/12)]12 - 1 = 0.1268 = 12.68%;

Total amount = $150,000 x 1.1268 = $169,020
Choice a) Stated/Quoted annual interest rate: 12%;

Total amount = $150,0000 x 1.12 = $168,000
Choice b) Compound semi-annually: (1+12%/2)2 - 1 = 0.1236 = 12.36%;
Total amount = $150,000 x 1.1236 = $168,540
Choice c) Compound quarterly: (1+12%/4)4 - 1 = 0.1255 = 12.55%;
Total amount = $150,000 x 1.1255 = $168,825
7. Answer: c.
The price of the bonds when the investor purchased them is not relevant to the current
market price. The current market value is equal to the present value of the future cash
flow, using 13 periods at 4%: (N=13, i=4%, PMT=$4,200, FV=70,000)
($70,000 x 0.601) + ($4,200 x 9.986) = $42,070 + $41,941.20 = $84,011.20
= $84,000 (rounded)
Choice a) Uses the coupon rate: ($70,000 x 0.469) + ($4,200 x 8.853)

= $32,830 + $37,182.60 = $70,012.60 = $70,000 (rounded)
Choice b) Does not use PV of the principal: $70,000 + ($4,200 x 9.986)
= $111,941.20 = $112,000 (rounded)
Choice d) Uses the face value only: $70,000 + (13 x $4,200) = $124,600
8. Answer: a.
Secondary market: Market in which already issued securities are traded among
investors.
Choices b) to d) are examples of primary market instruments.
CMA Canada Page 38

9. Answer: a.
The total cost of the preferred shares:

Par value: $ 120
Issue cost: $ (2.63) $4.25 x (1 - 0.38)
Net proceeds: $117.37
Dividend per share: $8.50

Cost per share = $8.50/$117.37 = 7.24%
Choice b) Does not consider the issue cost: $8.50 / $120 = 7.08%
Choice c) After-tax dividend is used for the calculation: $8.50 x (1 - 0.38) / $117.37
= 4.49%
Choice d) No tax considered: $8.50 / ($120 - $4.25) = 7.34%
10. Answer: b.
Company A = 3% + [1.5 x (7.5%-3%)] = 9.8%; this does not meet the expectation of
12%.
Company B = $6.00/12% = $50; as the share price is $45, this meets the expectation.
Company C = ($3.80x1.015)/(12%-1.5%) = $36.73; as the share price is $38, this
does not meet the expectation.
11. Answer: b.
After-tax cost of debt = 8% x (1 - 0.37) = 5%; Cost of preferred shares = 6%;
Cost of common shares = 17%
Total long-term debt (Total liability - Current liability) + Equity
= $7M + $3M + $10M = $20M
WACC = (5% x 7/20) + (6% x 3/20) + (17% x 10/20)
= 1.75% + 0.90% + 8.5% = 11.15% ~ 11.2%
Choice a) Uses total liability:

WACC = (5% x 8.5/21.5) + (6% x 3/21.5) + (17% x 10/21.5)
= 1.98% + 0.84% + 7.91% = 10.73% ~ 10.7%
Choice c) Ignores tax on debt:
WACC = (8% x 7/20) + (6% x 3/20) + (17% x 10/20)
= 2.80% + 0.90% + 8.5% = 12.20%
Choice d) Uses average of all three rates: (8+6+17)/3 = 10.33% ~ 10.3%
12. Answer: a.
CAPM = Rf + β (Rm-Rf)
= 2.0% + 1.5(4.5%) = 8.75%
Choice b) Ignores risk-free rate:

= 1.5(4.5%) = 6.75%
Choice c) Calculation was done by adding together the risk premium and Rf:
= 2.0% + 1.5(4.5% + 2.0%) = 11.75%
Choice d) The risk premium was treated as market return:
= 2.0% + 1.5(4.5% - 2.0%) = 5.75%
CMA Canada Page 39

13. Answer: a.
Mutually exclusive means that only one project in a set of possible projects can be
accepted and that the projects compete with each other. Therefore, the project with
the highest NPV should be accepted.
PV of Project A: ($7,000x3.791)=$26,537 (N=5, i=10%, CF=$7,000)

NPV of Project A: $26,537-$16,000=$10,537
PV of Project B: ($7,500x3.170)=$23,775
NPV of Project B: $23,775-$20,000=$3,775 (N=4, i=10%, CF=$7,500)
Choice b) Incorrectly compares NPV.

Choice c) Accepts projects with positive NPVs – considering the projects as
independent projects.
Choice d) Incorrectly applies NPV concept.
14. Answer: d.
Current Degree of Total Leverage (DTL)
= Degree of Operating Leverage (DOL) x Degree of Financial Leverage (DFL)
DTL = DOL x DFL
2.10 = 1.20 x DFL
DFL = 2.10 / 1.20 = 1.75
DFL = Percentage change in EPS/Percentage change in EBIT
Therefore, Percentage change in EPS = 1.75 x 15% = 26.25%
Choice a) Uses DOL x increase = 1.20 x 15% = 18%

Choice b) Uses DTL x increase = 2.10 x 15% = 31.5% = 32% (rounded)
Choice c) Uses gross profit margin % and increase = 60% x 15% = 9%
15. Answer: c.
P/E ratio = Market Value per Share/Earnings per Share (EPS)
$12.67/$1.12 = 11.31
Choice a) Uses EBIT to get EPS: $12.67/($900,000/500,000) = $12.67/$1.80 = 7.04

Choice b) Uses book value: ($5,100,000/500,000)/$1.12 = $10.20/$1.12 = 9.11
Choice d) Uses formula incorrectly: $1.12x$12.67 = 14.19
16. Answer: d.
A poison pill is a financial device designed to make the target firm’s stock less
attractive to the acquirer. It entails issuing special securities to existing shareholders
that entitle them to unusual rights and privileges (such as unusual voting rights,
lucrative redemption features or generous conversion options) if the issuing firm
becomes the target of a takeover bid. Choice d) is an example of such a financial
device.
Choice a) This is an example of a “supermajority amendment.”

Choice b) This is an example of “greenmail.”
Choice c) This is an example of “crown jewels.”
CMA Canada Page 40

17. Answer: c.
i) and iv) are correct statements regarding systematic risks:
i) Systematic risk is a risk that influences a large number of assets. Because

systematic risks have market-wide effects, they are also called market risks.
iv) The beta coefficient indicates how sensitive the return of a particular asset is with
respect to the general market condition and measures how much systematic risk a
particular asset has relative to an average asset (i.e. an average asset has a beta
of 1).
Choices a), b) and d) – ii) and iii) are not correct statements regarding systematic
risks:
ii) Unlike unsystematic risks, systematic risks cannot be eliminated by diversification.

A systematic risk affects almost all assets to some degree; as a result, no matter how
many assets are put into a portfolio, the systematic risk cannot be eliminated.
iii) The variance is the average squared deviation between the actual return and the
average total return of assets. It is a measure of total risks, which includes both
systematic and unsystematic risk.
18. Answer: d.
Value of a right = ($30-$24)/(4+1) = $1.20
Choice a) This is correct if the market price of a share is less than the subscription
price of a share with four rights.
Choice b) Multiplies the cash required by the number of rights and divides by the
current value of the shares: ($24 x 4)/$30=$3.20
Choice c) Incorrectly uses the number of rights as a denominator: ($30-$24)/4=$1.50
19. Answer: c.
Since Hill Charity earned over $2,000,000 (or a minimum average of $1,000,000 in the
last two years), it is not exempt from the capital assets rule. Therefore, the contributed
capital assets should be recorded at fair value.
20. Answer: b.
Current ratio = (cash + short-term investments + accounts receivable + inventory) /
current liabilities = ($30+$2+$41+$34)/$60 = 1.78
Choice a) Uses quick ratio instead: ($30 + $41 + $2)/$60 = 1.21

Choice c) Uses total assets and total liabilities: $238/$111 = 2.14
Choice d) Uses total assets in numerator: $238/$60 = 3.96
CMA Canada Page 41

21. Answer: c.
Times interest earned = Income before interest and taxes ÷ Interest
= ($64+$47+$18)/$18 = 7.17 times
Choice a) Uses net income: $64/$18 = 3.55 times

Choice b) Uses net income before tax but after interest expense: ($64+$47)/$18
= 6.17 times
Choice d) Uses sales instead of income before interest and taxes: $300/$18
= 16.7 times
22. Answer: c.
Accounts receivable turnover in days = 365/[Net sales/Average net accounts
receivable] or Average net accounts receivable/Net credit sales x 365 days
= 365/{($300)/[($41 + $50)/2]} = 55.36 (55.3583) days
Choice a) Uses formula incorrectly: $300/{(365)/[($41 + $50)/2]}

= 37.40 (37.397) days
Choice b) Uses Year 2 accounts receivable: 365/($300/$41) = 49.88 days
Choice d) Uses Year 1 accounts receivable: 365/[$300/$50] = 60.83 days
23. Answer: a.
Expected Profit Calculation
[Year 1]
% of completion = $5,000/($5,000+$35,000) = 12.50%
Expected profit = $50,000 - ($5,000+$35,000) = $10,000 x 12.50% = $1,250
[Year 2]
% of completion = ($5,000+$19,000)/($5,000+$19,000+$13,500) = 64%
Expected profit = $50,000 - ($5,000+$19,000+$13,500) = $12,500 x 64% = $8,000
$8,000 is cumulative profit to the end of Year 2
$8,000 - $1,250 (the expected profit in Year 1) = $6,750
Choice b) Does not deduct the profit in Year 1 = $8,000

Choice c) Uses only Year 2 cost information and ignores cost and profit in Year 1
% of completion = $19,000 / ($19,000+$13,500) = 58.46%
Expected profit = $50,000 - ($19,000+$13,500) = $17,500 x 58.46%
= $10,231
Choice d) No calculation for % of completion and no consideration about the profit
recognized in Year 1
= $50,000 - ($5,000+$19,000+$13,500) = $12,500
CMA Canada Page 42

24. Answer: d.
Since YGO Inc. has significant influence over DNO Inc., the investment must be
accounted for using the Equity Method.
The investment in DNO Inc.
= $600,000 (initial) - 45% x $150,000 (dividends) + 45% x $95,000 (income)
= $600,000 - $67,500 + $42,750 = $575,250
Choice a) The dividends are added instead of being deducted: $600,000 + $67,500
+ $42,750 = $710,250
Choice b) The current value is used for initial investment: ($11.50 x 60,000) -
$67,500 + $42,750 = $665,250
Choice c) The dividends are not considered: $600,000 + $42,750 = $642,750
25. Answer: c.
HB 4410: An organization may choose to recognize contributions of materials and
services, but should do so only when a fair value can be reasonably estimated and
when the materials and services are used in the normal course of the organization's
operations and would otherwise have been purchased.
26. Answer: c.
Since the combination is occurring with an exchange of cash the new balance sheet
will be:
FRI Ltd.
Current assets ($140k+$85k-$111k) $114,000
Non-current assets ($85k+$55k) 140,000
Total Assets $254,000
Liabilities ($15k+$29k) $ 44,000

Common stock (FRI Ltd.) 160,000
Retained earnings (FRI Ltd.) 50,000
Total Liabilities and Equity $254,000
Choice a) Common stock of both companies = $160k + $76k = $236k

Choice b) Common stock of both companies and END Ltd.’s retained earnings
= $160k + $76k + $35k = $271k
Choice d) Uses total assets less liabilities of combined companies for common stock
= $225 + $140 - $111 - $15 - $29 = $254 - $44 = $210k
CMA Canada Page 43

27. Answer: d.
Warranty liability and warranty expense recorded in Year 1: $650,000 x 0.5% = $3,250
Warranty liability balance at the end of Year 1 / beginning of Year 2: $1,900 Cr.
Warranty repairs incurred and recorded in Year 1: $3,250 - $1,900 = $1,350
Year 1 warranty liability with a correct estimate: $650,000 x 0.4% = $2,600

Therefore, warranty liability was overstated by: $3,250 - $2,600 = $650
The beginning warranty liability balance of Year 2 after adjustment is: $1,900 - $650
= $1,250 Cr.
Year 2 warranty liability = $700,000 x 0.4% = $2,800 Cr.

Year 2 ending balance = $2,800 + $1,250 = $4,050 Cr.
Choice a) Ignores Year 2 beginning balance: $2,800

Choice b) Ignores adjustment: $2,800 + $1,900 = $4,700
Choice c) Adds the adjustment:
Year 2 beginning balance: $1,900 + $650 = $2,550
Year 2 ending balance: $2,800 + $2,550 = $5,350
28. Answer: d.
Tax loss carry backs can go back up to three years.
Year Taxable Income Income Tax Recovery
6 $40,000 $12,000
7 $72,000 $21,600
8 $55,000 $16,500
Total $167,000 $50,100
Choice a) Does not use the three-year rule and recovers additional tax from Year 5.
Year Taxable Income Income Tax Recovery
5 $33,000 $9,900
6 $40,000 $12,000
7 $72,000 $21,600
8 $55,000 $16,500
Total $200,000 $60,000
Choice b) Recovers back only two years: $21,600 + $16,500 = $38,100
Choice c) Recovers back only one year.
CMA Canada Page 44

29. Answer: d.
The pension-related expense is increased by the interest cost accrued to employees
on the pension obligation. Therefore, increasing the interest rate would increase the
net interest cost and hence the pension-related expense.
Choice a) decreases the value of the pension plan assets and the accrued pension
benefits (net defined benefit liability) by the same amount. There is no
effect on the pension-related expense.
Choice b) increases the value of the pension plan assets, indirectly reducing the
pension-related expense for the year.
Choice c) would result in an actuarial gain from the pension fund assets. This gain
would either have no effect on the pension-related expense (if it is a small
amount), or would effectively decrease the pension-related expense under
ASPE. Under IFRS it would affect other comprehensive income, not an
expense account on the P&L.
30. Answer: b.
Site restoration obligation at December 31, Year 16:
= $300,000 FV, n = 9 years, I = 6%)
= ($200,000 + $100,000) x .592 = $177,600
Choice a) The additional ARO is not considered:

= $200,000 FV, n=9, i=6%
= $200,000x0.592=$118,400
Choice c) Only PV for the additional ARO:
= $100,000 FV, n=9, i=6%
= $100,000x0.592=$59,200
Choice d) No PV for all ARO:
= $100,000+200,000
31. Answer: b.
Purchase Price $1,600,000

- Net Assets Acquired $(750,000)
= Purchase Price Discrepancy $850,0000
- FV Adjustments (-230,000+140,000+50,000) $(40,000)
= Goodwill $810,000
Choice a) Uses retained earnings and common shares as goodwill:

= $220 + $530 = $750
Choice c) Uses net identifiable assets at book value:
Book value of the net identifiable assets = $4,300 - $3,550 = $750
Goodwill = $1,600 - $750 = $850
Choice d) Uses long-term assets and liabilities only:
= ($300 + $120 + $2,830 + $945) - ($2,700 + $760) = $735
Goodwill = $1,600 - $735 = $865
CMA Canada Page 45

32. Answer: d.
YG Ltd. will record the transactions as follows:

Dr. Cr.
August 31, Year 2
Inventory (USD 100,000 x $1.25 CAD) 125,000
A/P 125,000
September 30, Year 2
A/P ([$1.25 - $1.20] x USD 100,000) 5,000
FX gain/loss 5,000
January 31, Year 3
A/P (125,000 - 5,000) 120,000
FX gain/loss 12,000
Cash ($1.32 x 100,000) 132,000
Choice a) Only considers the exchange rate at the time of payment:

FX gain/loss = ($1.25 - $1.32) x USD 100,000 = -$7,000 in Year 3, no FX
gain/loss in Year 2
Choice b) Only considers the exchange difference at time of payment:
FX gain/loss = ($1.20 - $1.32) x USD 100,000 = -$12,000 in Year 3, no FX
gain/loss in Year 2
Choice c) Uses initial exchange rate to compare the exchange rate at the time of
payment. FX gain/loss = ($1.25 - $1.32) x USD 100,000 = -$7,000 in
Year 3
= ($1.25 - $1.20) x 100,000 = $5,000 in Year 2
33. Answer: a.
Operating income = $90,000 + $30,000 (accrued sales) - $18,000 (COGS)
+ $24,000 (prepaid rent for Year 3) - $1,000 (prorated amortization expense)
- $3,500 (interest expense)
= $121,500
Prorated amortization = $10,000/5 = $2,000/year
= $2,000 x ½ = $1,000 for 6 months (July 1 to December 31, Year 2)
Choice b) COGS was not deducted:

= $90,000 + $30,000 (accrued sales) + $24,000 (prepaid rent for Year 3)
- $1,000 (amortization) - $3,500 (interest expense) = $139,500
Choice c) The amortization was calculated for the whole year:
= $90,000 + $30,000 (accrued sales) - $18,000 (COGS) + $24,000
(prepaid rent for Year 3) - $2,000 (amortization) - $3,500 (interest
expense) = $120,500
Choice d) The rent was not added back:
= $90,000 + $30,000 (accrued sales) - $18,000 (COGS) - $1,000
(amortization) - $3,500 (interest expense) = $97,500
CMA Canada Page 46

34. Answer: c.
IFRS 8 requires an entity to report financial and descriptive information about its
reportable segments. Reportable segments are operating segments or aggregations
of operating segments that meet specified criteria: [IFRS 8.13]
• its reported revenue, from both external customers and intersegment sales or
transfers, is 10 per cent or more of the combined revenue, internal and external, of
all operating segments; or
• the absolute measure of its reported profit or loss is 10 per cent or more of the
greater, in absolute amount, of:
o (i) the combined reported profit of all operating segments that did not report a
loss and (ii) the combined reported loss of all operating segments that reported a
loss; or
• its assets are 10 per cent or more of the combined assets of all operating
segments.
Segment Revenue Operating Profit (Loss) Assets

A 60.1% O 12/24=50% O 57.3% O
B 27.5% O 11/24=45.8% O 28.8% O
C 6.5% X 4/24=16.7% O 7.1% X
D 5.8% X 1/24=4.2% X 6.7% X
Total 100% 100%
Since segments A, B and C meet the quantitative thresholds, choice c) is the correct
answer.
Segment D does not meet the quantitative thresholds; therefore, choice d) is incorrect.
35. Answer: a.
Since Innov is unable to sell the new product, it cannot be recognized as an asset.
Therefore, all costs must be expensed.
Choice b) Assumes all costs except advertising can be capitalized.

Choice c) Assumes all costs can be capitalized.
Choice d) Assumes materials to build and test can be capitalized.
36. Answer: a.
It is necessary to apply the recognition criteria to the separately identifiable
components of a single transaction in order to reflect the substance of the transaction.
Therefore, the revenue from the equipment should be recognized separately from the
service agreement. Using the fair value method:
Revenue from service agreement = $300,000 x [$80,000/($240,000 + $80,000)]

= $75,000
Choice b) Assumes nothing is deferred.

Choice c) Assumes fair value of the service contract is deferred.
Choice d) Assumes the difference is deferred: $300,000 - $240,000 = $60,000
CMA Canada Page 47

37. Answer: c.
Ending inventory = opening inv. + (purchases + freight - purchase discount) - cost of
goods sold (COGS) = sales x (1 - gross profit)
COGS = $1.4M x 0.55 = $770,000
Ending inventory = 150,000 + (800,000 + 30,000 - 14,000) - 770,000 = $196,000
Choice a) Deducts freight-in instead of adding it:

Ending inventory = $150,000 + ($800,000 - $30,000 - $14,000) - $770,000
= $136,000
Choice b) Freight and discount are not considered:
Ending inventory = $150,000 + $800,000 - $770,000 = $180,000
Choice d) 45% is used for COGS instead of 1-45% (55%)
COGS = $1.4M x 0.45 = $630,000
Ending inventory = $150,000 + ($800,000 + $30,000 - $14,000) - $630,000
= $336,000
38. Answer: c.
Basic shares = {[150,000x(12/12)] + [30,000x(9/12)]} x 1.05 = 181,125

Diluted shares = 181,125 + [40,000x(3/12)] = 191,125
Choice a) Does not consider retroactive treatment of stock dividend:

Basic shares = [150,000x(12/12)] + [30,000x(9/12)] = 150,000 + 22,500 = 172,500
Diluted shares = 172,500 + [40,000x(3/12)] = 182,500
Choice b) The stock dividend is weighted:

Basic shares = [150,000x(12/12)] + [30,000x(9/12)] + [180,000x0.05x(5/12)]
= 150,000 + 22,500 + 3,750 = 176,250
Diluted shares = 176,250 + [40,000x(3/12)] = 186,250
Choice d) Does not use weighted average method:

Basic shares = 150,000 + 30,000 = 180,000
Diluted shares = 180,000 + 40,000 = 220,000
39. Answer: b.
One of the disclosure principles in the Guidance on Preparation and Disclosure states
that the MD&A should be forward-looking.
Choice a) This is an objective of the financial statement disclosure notes.

Choice c) This is an objective of the auditor’s report.
Choice d) This is contained in the financial statement disclosure notes.
40. Answer: b.
Rich Corp. must use the equity method.
Investment income = 35% of XYZ’s net income = $350,000
Choice a) Assumes nothing is reported since nothing has been received or sold.
Choice c) Uses the difference in share price: ($26 - $25) x 400,000 shares
= $400,000
Choice d) Sums up the 35% of net income plus change in stock price.
CMA Canada Page 48

41. Answer: c.
The allowance for uncollectible accounts:
$10,000 Beg.
Write-off $12,000 $6,500 Collection
$42,000 Allownc. for Year 2*
$46,500 Ending Bal.
* Credit sales = $3,000,000 x 70% x 2%
Choice a) The Year 1 written-off receivable that was collected in Year 2 is not added
back: $10,000 - $12,000 + $42,000 = $40,000
Choice b) Assumes the allowance equals only the allowance related to Year 2 sales:
$42,000
Choice d) Written-off amount is not considered: $10,000 + $6,500 + $42,000
= $58,500
CMA Canada Page 49

42. Answer: b.
The amounts would be reported under Operating Activities on the Statement of Cash
Flows:
Net income earned $32,000

Add back depreciation 25,000
Add back loss on sale of capital asset 5,200
Decrease in inventory 15,000
Increase in accounts payable 26,000
Increase in accounts receivable (56,000)
Increase (decrease) in cash from operating activities $47,200
Choice a) incorrectly deducts accounts payable and adds accounts receivable:
Net income earned $ 32,000

Increase in accounts payable (26,000)
Increase in accounts receivable 56,000
Increase (decrease) in cash from operating activities $107,200
Choice c) incorrectly includes all transactions as operating activities:

Retirement of long-term payable (27,800)
Purchase of land (18,000)
Increase (decrease) in cash from operating activities $ 1,400
Choice d) incorrectly deducts loss on sale of machinery and the amortization:

Deduct depreciation (25,000)
Deduct loss on sale of capital asset (5,200)
Increase (decrease) in cash from operating activities $(13,200)
CMA Canada Page 50

43. Answer: a.
Restricted contributions – Match revenues to expenses for the period; revenues to be

used against expenses for future periods should be deferred.
Recognize $4,000 of restricted contributions for water and irrigation project as the
expense was incurred in Y5.
Restricted contributions for expenses for future periods are deferred and recognized
as revenue in the same periods as related expenses incurred. Since expenses for the
building clinics are not incurred in Y5, the revenue is not recognized in the current
period.
If the restricted contribution is for capital, revenue is recognized to correspond with

amortization. However, if the capital asset is not subject to amortization, there will be
no expenses to match against. Therefore, restricted capital asset contributions of this
type are reflected in the statement of changes in net assets in the same manner of
endowment contributions.
Unrestricted contributions are reported as revenue in the period received or receivable

because there are no particular related expenses associated with them. Therefore
$18,000 of unrestricted grants for the general fund should be recognized in the current
period.
Endowment contributions are not shown in the statement of operations but are
reflected in the statement of changes in net assets. It is because endowment
contributions will not have related expenses.
Therefore, for Year 5, revenue = $4,000 + $18,000 = $22,000.
Choice b) Recognizes the entire amount of contributions for water and irrigation
project: $6,000 + $18,000 = $24,000
Choice c) Incorrectly recognizes restricted fund for land and endowment as revenue:
$4,000 + $10,000 + $18,000 + $20,000 = $52,000
Choice d) Recognizes all the contributions: $6,000 + $30,000 + $10,000 + $18,000
+ $20,000 = $84,000
CMA Canada Page 51

44. Answer: c.
Under IFRS, GBSJ Refining should record this as a finance lease and not an
operating lease because the leased asset is specialized, so that, without major
modification, it is of use only to GBSJ. Also, the lease term is long enough that the
lease will receive substantially all of the benefits that are expected to be derived from
using the leased property over its life (i.e. the lease term is for the major part of the
economic life of the asset even if title is not transferred). The implicit interest rate is
used, and not the lower of the two rates, as IFRS specifies that the discount rate to be
used in calculating the present value of the minimum lease payments is the interest
rate implicit in the lease, if this is practicable to determine.
The value of the finance lease is the lower of fair value and the present value of the
minimum lease payments.
PV of the minimum lease payments = $80,000 + ($80,000 x 5.582) = $526,560

= $526,600 (rounded)
Since this is lower than the FV of $600,000, $526,560 is what should be recorded for
the lease.
Choice a) Mistakenly assumes an operating lease.

Choice b) Ignores the fact that the payment is made in the beginning of the year:
$80,000 x 6.210 = $496,800
Choice d) Uses the fair value as the amount to capitalize: $600,000
45. Answer: d.
The entry to correct this error is shown below:
Machinery $12,000
Amortization expense (Year 13) $2,000
Retained earnings $10,000
Accumulated depreciation (2 years x $12,000 / 6 years ) $4,000
Since the Year 13 books are still open, amortization expense should be recorded for
Year 13, and therefore, retained earnings increase by $10,000.
Choice a) This is an incorrect statement – the retained earnings will be impacted by

the error correction.
Choice b) Incorrectly assumes that impact on retained earnings is the same amount
as the adjustment on accumulated depreciation (2 years x $12,000 /
6 years = $4,000).
Choice c) Incorrectly estimates the impact on retained earnings by assuming
Year 13 books are closed:
Machinery $12,000
Retained earnings $8,000
Accumulated depreciation (2 years x $12,000 / 6 years) $4,000
CMA Canada Page 52

46. Answer: a.
Pension assets on December 31, Year 13:
Opening balance in plan assets (Jan. 1, Y13) $172,500
Actual earnings on plan assets $25,000
Post-retirement benefits paid $(35,000)
Cash paid into pension plan $75,000
Ending balance in plan assets (Dec. 31, Y13) $237,500
Choice b) Incorrectly uses the expected earning rates to calculate the balance:
$172,500 + $17,250 - $35,000 + $75,000 = $229,750
Choice c) Excludes benefit paid: $172,500 + $25,000 + $75,000 = $272,500
Choice d) Incorrectly uses raw data: $298,000 + $25,000 + $75,000 = $398,000
47. Answer: d.
The audit risk model = inherent risk x detection risk x control risk. Enterprise risk is not
a component of the model.
48. Answer: a.
Unauthorized cheques and withdrawals, and previously unrecorded deposits would be
caught during the bank reconciliation process. The bank reconciliation process serves
to “catch” or detect these errors.
Choice b) The bank reconciliation process does nothing to ensure that unauthorized
bank transactions do not occur.
Choice c) While unauthorized bank transactions would be caught during the
reconciliation process, it does nothing to correct or reverse the
unauthorized transaction. The detection of this error, however, would
signal a need to correct the company’s books through a journal entry.
Choice d) Compensating controls entail redundancy and segregation of duties. No
reference is made to either of these in the question.
49. Answer: c.
The inventory list is insufficient because it cannot stop the installation of unauthorized
software. Even if a department knows what software is legal, CU is still liable for any
unauthorized software on its computers. In addition, all software purchases should be
made through the IT department, not directly by user departments.
Choices a), b) and d) would all contribute to making the culture at the university one
that does not tolerate illegal software or copyright infringement.
50. Answer: d.
All of the listed are requirements under the Sarbanes-Oxley Act (SOX).
CMA Canada Page 53

51. Answer: d.
The three factors are incentive/pressures, opportunities and attitudes/rationalization.
Choice a) This is false – identifying the risk factors may help prevent or deter fraud,
but would not be helpful in detection.
Choice b) This is false – this is an example that may lead to fraudulent financial
reporting.
Choice c) This is false – controls may remove opportunity, but incentive and
rationalization are personal circumstances and values.
52. Answer: c.
Management has the responsibility to establish and maintain internal controls.
53. Answer: b.
The transaction-related audit objectives are occurrence, completeness, accuracy,
classification and cutoff. Segregation of duties is not an objective but a control activity.
54. Answer: d.
The external auditor conducts an audit to attest that the financial statements of the
auditee are fairly presented and stated in accordance with specified accounting
principles.
55. Answer: b.
Variable cost: ($132,000 - $120,500) / (1,550 - 1,200) = $11,500/350 = $32.857
Total costs = fixed costs + variable costs

At high:
$132,000 = FC + $32.857 x 1,550
FC = $132,000 - $50,928.35 = $81,071.65 ~ $81,072
Similarly at low:
$120,500 = FC + $32.857 x 1,200
FC = $81,071.60 ~ $81,072
Next quarter:
Total costs = $81,072 + ($32.857 x 1,300)
= $123,786.10 ~ $123,800
Choice a) Uses third quarter for the low.

Variable cost: ($132,000 - $118,750) / (1,550 - 1,210) = $13,250/340
= $38.971
Fixed cost: $132,000 - ($38.971 x 1,550) = 71,594.95 ~ $71,595
Next quarter: $71,595 + ($38.971 x 1,300) = $122,257.30 ~ $122,300
Choice c) Uses an average of maintenance cost per machine-hour.
$497,450 / 5,405 = $92.035/machine-hour
Next quarter: 1,300 x $92.035 = $119,645.70 ~ $119,600
Choice d) Assumes all costs are variable and uses the high.
$132,000/1,550 x 1,300 = $110,709 ~ $110,700
CMA Canada Page 54

56. Answer: a.
Contribution margin ratio = $13,500,000 / $24,000,000 = 0.5625
Breakeven sales = $7,200,000 / 0.5625 = $12,800,000
Margin of safety ratio = ($24,000,000 - $12,800,000) / $24,000,000 = 0.467
Choice b) Uses the wrong denominator.

Margin of safety ratio = ($24,000,000 - $12,800,000) / $12,800,000
= 0.875
Choice c) Contribution margin per package with two basic and one self-propelled
= ($3,600,000 / 30,000 units x 2 + $9,900,000 / 60,000 units x 1) = $405
Contribution margin ratio
= $405 / ($6,000,000 / 30,000 units x 2 + $18,000,000 / 60,000 units x 1)
= 0.5786
Breakeven sales = $7,200,000 / 0.5786 = $12,444,444
Margin of safety ratio = ($24,000,000 - $12,444,444) / $24,000,000
= 0.481
Choice d) Calculates the same incorrect breakeven figure as in choice c) and uses
the wrong denominator.
Margin of safety ratio = ($24,000,000 - $12,444,444) / $12,444,444 = 0.929
57. Answer: b.
Sales - CGS = Gross margin (40% of sales), where CGS = cost of goods sold
CGS = 60% of sales
CGS = 60% x $1,960,000
= $1,176,000
Finished goods inventory, August 13
= cost of goods available for sale - CGS = $1,500,000 - $1,176,000 = $324,000
Choice a) Miscalculates CGS as: CGS = sales / 140%

CGS = $1,960,000 / 140% = $1,400,000
Finished goods inventory, August 13 = $1,500,000 - $1,400,000
= $100,000
Choice c) Subtracts beginning inventory: CGS = 60% of sales
CGS = 60% x $1,960,000 = $1,176,000
= cost of goods available for sale - CGS - finished goods inventory, July 1
= $1,500,000 - $1,176,000 - $82,000 = $242,000
Choice d) Adds July 1 inventory
= cost of goods available for sale - CGS + finished goods inventory, July 1
= $1,500,000 - $1,176,000 + $82,000 = $406,000
CMA Canada Page 55

58. Answer: d.
Let OH = indirect manufacturing costs
Cost of goods completed
= Cost of goods available for sale - Finished goods inventory, July 1
= $1,500,000 - $82,000
= $1,418,000
Work-in-process inventory, August 13

= Work-in-process inventory, July 1 + Prime costs + OH - Cost of goods
completed
= $640,000 + $490,000 + $420,000 - $1,418,000
= $132,000
Choice a) Work-in-process inventory, August 13

= Work-in-process inventory, July 1 + Prime costs + OH - Cost of goods
available for sale
= $640,000 + $490,000 + $420,000 - $1,500,000 = $50,000
Choice b) Direct labour (DL) = 30% CC
DL = 30% (DL + OH), then 70% DL = 30% OH
DL = (30% / 70%) x $420,000 = $180,000
= Work-in-process inventory, July 1 + Prime costs + DL + OH - Cost of
goods available for sale
= $640,000 + $490,000 + $180,000 + $420,000 - $1,500,000 = $230,000
Choice c) Cost of goods completed:
= Cost of goods available for sale - Finished goods inventory, July 1
= $1,500,000 - $82,000 = $1,418,000
= Work-in-process inventory, July 1 + Prime costs + DL + OH - Cost of
goods completed
= $640,000 + $490,000 + $180,000 + $420,000 - $1,418,000 = $312,000
CMA Canada Page 56

59. Answer: b.
Finished goods, beginning $ 80,000
Cost of goods manufactured 120,000
Finished goods, ending (70,000)
Cost of goods sold 130,000
Add: gross margin 80,000
Revenues $210,000
Choice a) Adds cost of goods manufactured with gross margin.
Choice c) Adds ending inventory and subtracts beginning.

Finished goods, beginning $ (80,000)
Finished goods, ending 70,000
Revenues $190,000
Choice d) Includes WIP.

Finished goods, beginning $ 80,000
Finished goods, ending (70,000)
WIP, beginning 110,000
WIP, ending (90,000)
Revenues $230,000
60. Answer: a.
This is the most appropriate description of target pricing.
Choice b) This is a description of cost-plus pricing.

Choice c) This is a description of price discrimination.
Choice d) This is a description of peak-load pricing.
61. Answer: a.
Contribution margin per widget: $100 - $65 = $35
Target revenue = $125,000 + [$140,000 / (1 - 30%)] = $325,000
Units sold = $325,000/$35 = 9,285.7 ~ 9,290
Choice b) Miscalculates tax: $125,000 + [$140,000 x (1 + 30%)] = $307,000

Units sold = $307,000 / $35 = 8,771 ~ 8,780
Choice c) Ignores variable costs: $325,000 / $100 = 3,250
Choice d) Uses variable costs instead of contribution margin: $325,000 / $65 = 5,000
CMA Canada Page 57

62. Answer: b.
Contribution margin per unit:
Per Unit Entry Regular Premium
Sales price $50 $65 $90
Variable costs $20 $30 $45
Contribution margin $30 $35 $45
Weighted Average Contribution Margin per Unit: ($30 x 5/9) + ($35 x 3/9) + ($45 x1/9)
= $33.333 per unit
Total Breakeven unit = $600,000 / $33.333 = 18,000 unit
Regular model units at Breakeven point = 18,000 x (3/(5+3+1)) = 6,000 units
Choice a) Considers only Regular model sales price: $600,000/$65 = 9,230.77

Choice c) Ignores sales mix: $600,000 / ($30 + $35 + $45) = 5454.55
Choice d) Incorrectly uses total breakeven units: 18,000 units.
63. Answer: d.
RST Ltd. has sufficient capacity to fill the order; therefore, there are no opportunity
costs.
Desired contribution margin = $48,000/20,000 units = $2.40/unit
Variable costs = ($2,000,000/125,000 units) + ($8,000/20,000 units) = $16.00 + $0.40
= $16.40
Therefore, the sales price should be $16.40 + $2.40 = $18.80 per unit.
Choice a) $40.00 is the regular sales price per unit.

Choice b) Regular sales price less fixed manufacturing costs less fixed selling and
administrative costs less sales commissions saved:
= $40.00 - [($1,250,000 + $950,000)/125,000 units] - ($2.60 - $0.40)
= $40.00 - $17.60 - $2.20 = $20.20
Choice c) Includes all the manufacturing costs:
= ($2,000,000 + $1,250,000)/125,000 units + $0.40 + $2.40
= $26.00 + $0.40 + $2.40 = $28.80
CMA Canada Page 58

64. Answer: c.
Direct production costs in Y $630,000
Service costs allocated to Y from:
A ($120,000 x 50/110) $ 54,545
B ($180,000 x 2,000/4,000) 90,000
Total services costs allocated 144,545
Total production costs in Y $774,545
Choice a) Includes the other service department in denominator

A ($120,000 x 50/118) $ 50,847
B ($180,000 x 2,000/4,400) 81,818
Choice b) Uses step-down method

A ($120,000 x 50/118) $ 50,847
B ([$180,000 + (8/118 x $120K)] x 2K/4K) 94,068
Choice d) Uses maintenance hours as cost driver for both A and B

A ($120,000 x 2,000/4,000) $ 60,000
B ($180,000 x 2,000/4,000) 90,000
CMA Canada Page 59

65. Answer: a.
Costs allocated to B from A: $120,000 x 8/118 = $8,136
Direct production costs in Z $ 850,000

Costs allocated to Z from B: ($180,000 + $8,136) x 2,000/4,000 94,068
Costs allocated to Z from A: ($120,000 x 60/118) 61,017
Total production costs in Z $1,005,085
Choice b) Includes the Department B hours in denominator:

Direct production costs in Z $850,000
Costs allocated to Z from B: ($180,000 + $8,136) x 2K/4,400 85,516
Costs allocated to Z from A 61,017
Total production costs in Z $996,533
Choice c) Misses costs from Department A:

Costs allocated to Z from B: $180,000 x 2,000/4,000 90,000
Choice d) Uses wrong denominator to calculate costs from A to B:

$120,000 x 400/4,400 = $10,909
Costs allocated to Z from B: ($180,000 + $10,909) x 2K/4K 95,454
66. Answer: c.
Absorption cost for one lot in ’000s = $150 + $36 + $24 + $165 = $375,000
Choice a) Excludes variable overhead.

Choice b) Includes variable selling and admin in costing.
Choice d) Includes variable and fixed selling and admin in costing.
67. Answer: a.
Contribution margin = sales less variable costs
$1,000,000 - ($600,000 x 85%) = $490,000
Choice b) Uses gross margin: $1,000,000 - $600,000 = $400,000

Choice c) Deducts fixed costs: $1,000,000 - ($600,000 x 15%) = $910,000
Choice d) Uses cost of goods sold.
CMA Canada Page 60

68. Answer: c.
Units CC
Beginning WIP (20% converted) 40,250 32,200
Units started and completed1 49,750 49,750
Spoiled units2 (60% converted) 300 180
Ending WIP (80% converted) 34,950 27,960
Total Units Accounted For 125,250 110,090
1
Units started and completed = 85,000 - 34,950 - 300 = 49,750
2
Spoiled units: 40,250 + 85,000 - 90,000 - 34,950 = 300
Choice a) Multiplies beginning WIP by 20%:

Units CC
Units started and completed 49,750 49,750
Spoiled units 300 180
Total Units Accounted For 125,250 85,940
Choice b) Ignores spoiled units:

Units CC
Total Units Accounted For 109,910
Choice d) Assumes completed units are 100% converted this period and ignores
spoiled units:
Units CC
CMA Canada Page 61

69. Answer: b.
Equivalent units of work done in May:
Units A B
Beginning WIP (20% converted) 40,250 40,250 40,250
Units started and completed 49,750 49,750 49,750
Spoiled units 300 300 0
Ending WIP (80% converted) 34,950 34,950 34,950
Total Units Accounted For 125,250 125,250 124,950
Cost per EU of A: $220,000/125,250 = $1.76

Cost per EU of B: $350,000/124,950 = $2.80
Choice a) Excludes beginning WIP in calculation for A:

A
Beginning WIP (20% converted) 0
Units started and completed 49,750
Spoiled units 300
Ending WIP (80% converted) 34,950
Cost per EU of A: $220,000/85,000 = $2.59
Choice c) Excludes beginning WIP in calculation for A and ignores ending WIP for B:
B
Beginning WIP (20% converted) 40,250
Units started and completed 49,750
Spoiled units 0
Ending WIP (80% converted) 0
Cost per EU of B: $350,000/90,000 = $3.89
Choice d) Uses units completed as denominator:

Cost per EU of A: $220,000/90,000 = $2.44
Cost per EU of B: $350,000/90,000 = $3.89
70. Answer: a.
Normal costing uses the estimated overhead allocation rate and the actual quantity of
the allocation base.
71. Answer: d.
Static-budget variance = flexible-budget variance + sales-volume variance
Flexible-budget variance = $50,000(F) - $60,000(F) = $10,000(U)
Choice a) Uses selling-price variance + sales-volume variance = $70,000

Choice b) Uses sales-volume variance + static-budget variance = $110,000
Choice c) Includes selling-price: $50,000(F) - ($60,000(F) + $10,000(F)) = $20,000(U)
CMA Canada Page 62

72. Answer: b.
A cost centre manager is responsible for controlling and reporting costs only. Direct
material costs would be a typical cost that needs to be monitored and controlled.
Choice a) Since Mary is not responsible for sales, residual income is not a
meaningful measurement.
Choice c) Since Mary is not responsible for sales, gross margin is not a meaningful
measurement.
Choice d) Not a reasonable measurement since Mary does not control investment.
73. Answer: d.
Estimated departmental overhead/estimated driver for department:
A: $395,000/50,000 machine-hours = $7.90/machine-hour
B: $455,000/$220,000 = 2.068 times direct material cost
Choice a) Uses estimated total overhead and drivers for both departments:
$395,000+$455,000/50,000+68,000 machine-hours=$7.20/machine-hour
$395,000+$455,000/$250,000+$220,000=1.809 times direct material cost
Choice b) Uses direct labour hours for A: $395,000/45,000=$8.78/machine-hour
Choice c) Uses estimated total overhead and drivers for A:
$395,000+$455,000/50,000+68,000 machine-hours=$7.20/machine-hour
Uses direct labour costs for B: $455,000/$280,000=1.625
74. Answer: c.
Department A overhead: $8 x 500 = $ 4,000
Department B overhead: 2.15 x $20,000 = 43,000
Direct materials: $27,000 + $20,000 = 47,000
Direct labour cost: $31,000 + $32,000 = 63,000
Total cost $157,000
Choice a) Misses direct materials and labour for department B:

$4,000 + $43,000 + $27,000 + $31,000 = $105,000
Choice b) Mixes up cost drivers:

Department A overhead: 2.15 x $27,000 = $ 58,050
Department B overhead: $8 x 550 = 4,400
Total cost $172,450
Choice d) Uses machine-hours for both departments:

Department A overhead: $8 x 500 = $ 4,000
Department B overhead: $8 x 550 = 4,400
Total cost $118,400
CMA Canada Page 63

75. Answer: d.
From the company’s 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 company’s perspective, when 40,000 units of component EX1 are sold at
$160 to external customers and 10,000 units supplied to Division A:
Contribution margin from sales of 40,000 units $1,320,000
[$160 - ($120 + $7)] x 40,000 units
Incremental costs of supplying 10,000 units to Division A 1,200,000
$120 x 10,000 units
Net contribution $ 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.
Choice a) There is a cost saving of $40,000 [($164 - $160) x 10,000 units] to

Division A if Division A purchased the 10,000 units from an external
supplier. The statement is FALSE because costs for the company are
unchanged. 50,000 units are still produced at the same cost.
Choice b) There is an increase in income of $110,000 {[$164 - ($160-$7)] x 10,000

units} to Division B if Division B sold the 10,000 units to Division A. The
statement is FALSE.
Choice c) There is no idle capacity in Division B when Division A purchased 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.
76. Answer: d.
Chemical X $1.00 x (97,900 - 5 x 20,000) = $2,100 favourable
Chemical Y $0.40 x (132,000 - 7 x 20,000) = $3,200 favourable
Chemical Z $0.20 x (210,100 - 8 x 20,000) = $10,020 unfavourable
Total direct materials quantity variance = $4,720 unfavourable
Choice a) Mistakes all three as unfavourable: ($2,100 + $3,200 + $10,020)

= $15,320
Choice b) Uses actual prices:
X: $1.05 x (97,900 - 5 x 20,000) = $2,205 favourable
Y: $0.36 x (132,000 - 7 x 20,000) = $2,880 favourable
Z: $0.18 x (210,100 - 8 x 20,000) = $9,018 unfavourable
Total direct materials quantity variance = $3,933 unfavourable
Choice c) Mistakes Y as unfavourable: (-$2,100 + $3,200 + $10,020) = $11,120
CMA Canada Page 64

77. Answer: c.
Since the actual total amount of direct materials used (97,900 kg + 132,000 kg +
210,100 kg = 440,000 kg) is greater than the standard total amount of direct materials
allowed for actual production (20 kg x 20,000 bags = 400,000 kg), direct materials
yield variance for all three chemicals in total is unfavourable.
Choice a) Direct materials price variance for Chemical X is unfavourable because

actual purchase price ($1.05) is greater than budgeted purchase price
($1.00).
Choice b) Direct materials mix variance for Chemical Y is favourable because actual
mix (132,000/440,000 = 0.30) is less than budgeted mix (7/20 = 0.35).
78. Answer: b.
Reducing inventory levels, through initiatives such as just-in-time management, supply
chain management and process re-engineering, will reduce carrying costs and
increase process efficiencies. This is an appropriate objective from the internal
business perspective.
Choices a) and c) would be appropriate objectives for a company with a product

differentiation strategy. Choice c) is appropriate from the customer perspective, and
choice d) is appropriate from the learning and growth perspective.
79. Answer: d.
North Central
ROI $450,000/$1,950,000 = 23% $600,000/$2,395,000 = 25%
$450,000 - ($1,950,000 x 15%) $600,000 - ($2,395,000 x 18%)
RI = $157,500 = $168,900
Profit Margin $450,000/$1,750,000 = 26% $600,000/$2,900,000 = 21%
Choice a) North had the better profit margin.

Choice b) Amount of assets is not a convincing performance measurement.
Choice c) Central had the better ROI and RI.
80. Answer: d.
Since the East Division has excess capacity, there is no opportunity cost for
transferring the motors to the West Division up to full capacity. Thus, the minimum
transfer price acceptable to the East Division is the incremental costs for
manufacturing the motors, $50 per motor (choice a). If the East Division were
operating at full capacity, there would be opportunity costs associated with transferring
to the West Division, and the minimum acceptable transfer price would be $90. On the
other hand, since the West Division can purchase the motors for $90 in the market,
this is the maximum transfer price the West Division is willing to pay (choice c). Since
choices a) and c) are both correct and choice b) is incorrect, the correct answer is
choice d).
CMA Canada Page 65

81. Answer: c.
A B
Sales value at split-off 50,000 x $14 = $700,000 40,000 x $20 = $800,000
Weighting 700/1,500 = 46.67% 800/1,500 = 53.33%
Cost allocation 46.67% x $600,000 = 53.33% x $600,000 =
$280,000 $320,000
Choice a) Uses Product A.

Choice b) Uses selling price: [$20/($20+$14)] x $600,000 = $352,941 ~ $353,000
Choice d) Uses physical units: [40,000/(40,000+50,000)] x $600,000 = $266,666 ~
$267,000
82. Answer: a.
A B
Weighting 50,000/90,000 = 55.56% 40,000/90,000 = 44.44%
Cost allocation 55.56% x $600,000 = 44.44% x $600,000 =
$333,333 $266,667
Choice b) Uses Product B.

Choice c) Uses sales value: (700/1,500) x $600,000 = $280,000
Choice d) Uses selling price: [$20/($20+$14)] x $600,000 = $352,941 ~ $353,000
83. Answer: c.
Normal spoilage: 2% x 251,500 = 5,030
Total spoiled units: 118,000 + 254,500 - 251,500 - 111,950 = 9,050
Abnormal spoilage: 9,050 - 5,030 = 4,020
Choice a) Uses normal spoilage units.

Choice b) Miscalculates spoiled units: 254,500 - 251,500 = 3,000
Choice d) Uses total spoiled units.
84. Answer: c.
Costs that cannot be directly traced to the production of a product are period costs,
such as salaries, wages, stationery and supplies related to the sales, human
resources and accounting functions. Costs related to production are product costs.
Therefore, only choice c) is true.
CMA Canada Page 66

85. Answer: d.
From Q1: $325,000 x (1-3%) x (1-60%) = $126,100
From Q2: $330,000 x (1-3%) x 60% + $175,000 = $367,060
Total cash collected: $493,160
Choice a) Misses cash sales and uncollectable in Q2:

From Q1: $325,000 x (1-3%) x (1-60%) = $126,100
From Q2: $330,000 x (1-3%) x 60% = $192,060
Choice b) Misses the uncollectable:
From Q1: $325,000 x (1-60%) = $130,000
From Q2: $330,000 x 60% + $175,000 = $373,000
Choice c) Ignores Q1: $175,000 + ($330,000 x (1-3%) x 60%) = $367,060
86. Answer: a.
Variance = (6,500 - 5,500) x $1.25 = $1,250 favourable
Choice b) Uses actual contribution margin: (6,500 - 5,500) x $1.15 = $1,150

Choice c) Uses the contribution margin variance and budgeted sales:
($1.25 - $1.15) x 5,500 = $550
Choice d) Uses the contribution margin variance and actual sales:
($1.25 - $1.15) x 6,500 = $650
87. Answer: c.
Roses: 12,500 x (6,500/12,500 - 5,500/12,000) x $1.25
= 12,500 x (52% - 45.83%) x $1.25 = $963.55(F)
Tulips: 12,500 x (6,000/12,500 - 6,500/12,000) x $0.75
= 12,500 x (48% - 54.17%) x $0.75 = $578.44(U)
Variance = $963.55(F) - $578.44(U) = $385.11(F) ~ $385
Choice a) Uses budgeted units sold:

Roses: 5,500 x (52% - 45.83%) x $1.25 = $424.19(F)
Tulips: 6,500 x (48% - 54.17%) x $0.75 = $300.79(U)
Variance = $123.40 ~ $123(F)
Choice b) Uses actual contribution margin:
Roses: 12,500 x (52% - 45.83%) x $1.15 = $866.94(F)
Tulips: 12,500 x (48% - 54.17%) x $0.80 = $617(U)
Variance = $249.94 ~ $250(F)
Choice d) Uses total difference times average contribution margin:
[(6,500 + 6,000) - (5,500 + 6,500)] x ($1.25 + $0.75)/2 = $500(F)
CMA Canada Page 67

88. Answer: a.
April sales 5,250
April ending inventory 3,000
Total required 8,250
Less: opening inventory 3,300
Budgeted purchase 4,950
Choice b) Ignores opening inventory.
Choice c) Uses March opening inventory for April opening inventory:

April sales 5,250
April ending inventory 3,000
Choice d) Misses ending inventory:

89. Answer: d.
Sales volume variance $2,100 unfavourable
Sales mix variance + 900 favourable
Sales quantity variance $3,000 unfavourable
Market share variance + 500 favourable
Market size variance $3,500 unfavourable
Choice a) Sales volume variance $2,100 unfavourable

Sales mix variance + 900 favourable
Market share variance - 500 favourable
Choice b) Sales volume variance $2,100 unfavourable

Sales mix variance - 900 favourable
Market share variance - 500 favourable
Choice c) Sales volume variance $2,100 unfavourable

Sales mix variance - 900 favourable
Market share variance + 500 favourable
Market size variance $ 700 unfavourable
CMA Canada Page 68

90. Answer: a.
Direct material used ($140,000 + $100,000 - $135,000) $105,000
Manufacturing overhead 125,000
Beginning WIP 40,000
Ending WIP (42,000)
Cost of goods manufactured $478,000
Choice b) Ignores work-in-process.
Choice c) Includes finished goods:

Direct material used $105,000
Manufacturing overhead 125,000
Beginning WIP 40,000
Ending WIP (42,000)
Beginning finished goods 65,000
Ending finished goods (70,000)
Cost of goods manufactured $473,000
Choice d) Considers only direct materials and direct labour.
91. Answer: d.
Item iii) is not relevant because it is the same whether or not X is further refined into
X-Plus.
92. Answer: d.
Profitability index = PVcash inflows / PVcash outflows
Project J = 950,000(5.389)/5,000,000 = 1.024
Project M = 1,000,000(5.335)/5,000,000 = 1.067
Project V = 1,100,000(4.564)/5,000,000 = 1.00408
Since all projects have a profitability index greater than 1, the company should invest
in all projects.
93. Answer: b.
Income from property is passive income from invested capital. This typically includes
income like royalties, rent, interest and dividends.
Choice a) This would be classified as income from business.

Choice c) This would be classified as a disposal of depreciable property which may
generate terminal loss or recapture (elements of business income) and/or
a capital gain or loss.
Choice d) This would be classified as income from business.
CMA Canada Page 69

94. Answer: a.
Capital gain = (net proceeds less ACB)
= ($300,000 - $15,000) - $150,000 = $135,000
Capital gains reserve is the lesser of:

• the reasonable reserve = $150,000/$300,000 x $135,000 = $67,500; and
• the statutory reserve = 1/5 x (4 - the number of preceding tax years ending after
the disposition) x capital gains = 4/5 x $135,000 = $108,000.
For Year 7 the minimum net taxable capital gain:

(capital gain less deferred portion) x 50%
= ($135,000 - $67,500) x 50% = $33,750
Choice b) Assumes no deferral available: $135,000 x 50% = $67,500

Choice c) Assumes all capital gains can be deferred to Year 8.
Choice d) Misses selling fees and deferral: $150,000 x 50% = $75,000
95. Answer: d.
This is the salary of $50,000 plus vacation pay of 10% = $5,000 plus prize of $1,000.
The vacation pay and “prize” are included in employment. The “prize” is based on
performance and for this reason is considered remuneration.
Choice a) Adds only the prize and not the vacation pay to the salary.
Choice b) Incorrectly excludes the $1,000 prize.
Choice c) Incorrectly treats the first $500 of the prize as exempt – the $500 is an
administrative limit, not an exemption.
96. Answer: c.
Accounting income for Year 10 $2,500,000
Add: amortization expense 325,000
Add: accounting loss 80,000
Add: charitable donations 10,000
Non-deductible portion of entertainment ($40,000 x .5) 20,000
Deduct: CCA (247,000)
Net income for tax purposes $2,688,000
Choice a) Includes charitable donation, which is deductible in the calculation of

taxable income but not net income for tax purposes.
Choice b) Neglects to adjust for non-deductible portion of entertainment expense.
Choice d) Adds CCA and deducts depreciation.
97. Answer: c.
When the last depreciable asset in a class is disposed of and a positive balance
remains, that balance may be deducted as a terminal loss against other taxable
income. No CCA is claimed in the year of disposition for Class 8 assets.
$15,000 - $10,000 = $5,000
Choice a) Assumes the positive balance results in a recapture to be added back.

Choice b) Incorrectly deducts CCA in Year 12.
Choice d) Incorrectly deducts CCA in Year 12 and assumes a recapture.
CMA Canada Page 70

98. Answer: d.
Small business deduction = 17% x the lesser of active business income and taxable
income
= 17% x $315,000 = $53,550
Choice a) Uses active business income: 17% x $330,000 = $56,100

Choice b) Takes the difference: $330,000 - $315,000 = $15,000
Choice c) Uses the difference between the limit and active business income:
$500,000 - $330,000 = $170,000
99. Answer: d.
A deemed disposition occurs when property is disposed of even though there are no
proceeds of disposition. The use of Sally’s car changed from personal to business,
which is a deemed disposition.
100. Answer: a.
75% of the expenditure is added to the Cumulative Eligible Capital and the deduction
is 7%: ($80,000 x 75% x 7%) = $4,200
Choice b) Assumes that the customer list is not deductible.

Choice c) Uses a half-year rule applied to entire expenditure: $80,000 x 7% x 50%
= $2,800
Choice d) Applies 7% rate to entire expenditure. Neglects the 75% that is eligible:
$80,000 x 7% = $5,600
CMA Canada Page 71

Supplement of Formulae and Present Value Tables
Formulae
1. CAPITAL STRUCTURE
a) After-Tax Marginal Cost of Debt:

(1− T)I
kb = k(1− T) or
F
where k = interest rate; T = corporate tax rate; I = annual interest payment on debt; F = face value of debt
b) Cost of Preferred Shares:

Dp
kp =
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):
D1
ke = +g
NPe
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:

D1
kre = re = +g
Pe
where Pe = market price of a share; re = expected return on common equity
CMA Canada Page 72

iii) Capital Asset Pricing Model:

(
Rj = Rf + β j Rm − Rf )
where Rj = expected rate of return on security j; Rf = risk-free rate; Rm = expected return for the market portfolio
βj = beta coefficient for security j (measure of systematic risk)
d) Weighted Average Cost of Capital:

 B  P  E
k =   kb +   kp +   ke
 V  V  V
where B = amount of debt outstanding; P = amount of preferred shares outstanding; E = amount of common equity outstanding
V = B + P + E = total value of firm
2. PRESENT VALUE OF TAX SHIELD FOR AMORTIZABLE ASSETS
a) Present Value of Total Tax Shield from CCA for a New Asset
CTd  2 + k  CdT  1 + 0.5k 
Present Value =  =  
(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
Sn  dT  Sn  dT 
n   or n −1  , depending on cash flow assumptions
Present Value =
(1 + k )  d + k  (1 + k )  d + k 
Notation for above formulae:
C = net initial investment; UCC = undepreciated capital cost of asset; Sn = salvage value of asset realized at end of year n; T = corporate tax rate;
k = discount rate or time value of money; d = maximum rate of capital cost allowance; n = total life of investment
CMA Canada Page 73

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

1
P=
(1+ i) n
n 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%
01 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.826 0.820 0.813 0.806 0.800
02 .980 .961 .943 .925 .907 .890 .873 .857 .842 .826 .812 .797 .783 .769 .756 .743 .731 .718 .706 .694 .683 .672 .661 .650 .640
03 .971 .942 .915 .889 .864 .840 .816 .794 .772 .751 .731 .712 .693 .675 .658 .641 .624 .609 .593 .579 .564 .551 .537 .524 .512
04 .961 .924 .888 .855 .823 .792 .763 .735 .708 .683 .659 .636 .613 .592 .572 .552 .534 .516 .499 .482 .467 .451 .437 .423 .410
05 .951 .906 .863 .822 .784 .747 .713 .681 .650 .621 .593 .567 .543 .519 .497 .476 .456 .437 .419 .402 .386 .370 .355 .341 .328
06 .942 .888 .837 .790 .746 .705 .666 .630 .596 .564 .535 .507 .480 .456 .432 .410 .390 .370 .352 .335 .319 .303 .289 .275 .262
07 .933 .871 .813 .760 .711 .665 .623 .583 .547 .513 .482 .452 .425 .400 .376 .354 .333 .314 .296 .279 .263 .249 .235 .222 .210
08 .923 .853 .789 .731 .677 .627 .582 .540 .502 .467 .434 .404 .376 .351 .327 .305 .285 .266 .249 .233 .218 .204 .191 .179 .168
09 .914 .837 .766 .703 .645 .592 .544 .500 .460 .424 .391 .361 .333 .308 .284 .263 .243 .225 .209 .194 .180 .167 .155 .144 .134
10 .905 .820 .744 .676 .614 .558 .508 .463 .422 .386 .352 .322 .295 .270 .247 .227 .208 .191 .176 .162 .149 .137 .126 .116 .107
11 .896 .804 .722 .650 .585 .527 .475 .429 .388 .350 .317 .287 .261 .237 .215 .195 .178 .162 .148 .135 .123 .112 .103 .094 .086
12 .887 .788 .701 .625 .557 .497 .444 .397 .356 .319 .286 .257 .231 .208 .187 .168 .152 .137 .124 .112 .102 .092 .083 .076 .069
13 .879 .773 .681 .601 .530 .469 .415 .368 .326 .290 .258 .229 .204 .182 .163 .145 .130 .116 .104 .093 .084 .075 .068 .061 .055
14 .870 .758 .661 .577 .505 .442 .388 .340 .299 .263 .232 .205 .181 .160 .141 .125 .111 .099 .088 .078 .069 .062 .055 .049 .044
15 .861 .743 .642 .555 .481 .417 .362 .315 .275 .239 .209 .183 .160 .140 .123 .108 .095 .084 .074 .065 .057 .051 .045 .040 .035
16 .853 .728 .623 .534 .458 .394 .339 .292 .252 .218 .188 .163 .142 .123 .107 .093 .081 .071 .062 .054 .047 .042 .036 .032 .028
17 .844 .714 .605 .513 .436 .371 .317 .270 .231 .198 .170 .146 .125 .108 .093 .080 .069 .060 .052 .045 .039 .034 .030 .026 .023
18 .836 .700 .587 .494 .416 .350 .296 .250 .212 .180 .153 .130 .111 .095 .081 .069 .059 .051 .044 .038 .032 .028 .024 .021 .018
19 .828 .686 .570 .475 .396 .331 .277 .232 .194 .164 .138 .116 .098 .083 .070 .060 .051 .043 .037 .031 .027 .023 .020 .017 .014
20 .820 .673 .554 .456 .377 .312 .258 .215 .178 .149 .124 .104 .087 .073 .061 .051 .043 .037 .031 .026 .022 .019 .016 .014 .012
21 .811 .660 .538 .439 .359 .294 .242 .199 .164 .135 .112 .093 .077 .064 .053 .044 .037 .031 .026 .022 .018 .015 .013 .011 .009
22 .803 .647 .522 .422 .342 .278 .226 .184 .150 .123 .101 .083 .068 .056 .046 .038 .032 .026 .022 .018 .015 .013 .011 .009 .007
23 .795 .634 .507 .406 .326 .262 .211 .170 .138 .112 .091 .074 .060 .049 .040 .033 .027 .022 .018 .015 .012 .010 .009 .007 .006
24 .788 .622 .492 .390 .310 .247 .197 .158 .126 .102 .082 .066 .053 .043 .035 .028 .023 .019 .015 .013 .010 .008 .007 .006 .005
25 .780 .610 .478 .375 .295 .233 .184 .146 .116 .092 .074 .059 .047 .038 .030 .024 .020 .016 .013 .010 .009 .007 .006 .005 .004
CMA Canada Page 74

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

 1 
1−  
 1+ i n 
( ) 
Pn =
i
n 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%
01 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.848 0.840 0.833 0.826 0.820 0.813 0.807 0.800
02 1.970 1.942 1.914 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528 1.510 1.492 1.474 1.457 1.440
03 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.107 2.074 2.042 2.011 1.981 1.952
04 3.902 3.808 3.717 3.630 3.547 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.975 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.540 2.494 2.448 2.404 2.362
05 4.854 4.713 4.580 4.452 4.330 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991 2.926 2.864 2.804 2.745 2.689
06 5.796 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.785 3.685 3.589 3.498 3.410 3.326 3.245 3.167 3.092 3.021 2.951
07 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 3.508 3.416 3.327 3.242 3.161
08 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.726 3.619 3.518 3.421 3.329
09 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 3.905 3.786 3.673 3.566 3.463
10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.193 4.054 3.923 3.799 3.682 3.571
11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.487 4.327 4.177 4.035 3.902 3.776 3.656
12 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439 4.279 4.127 3.985 3.851 3.725
13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533 4.362 4.203 4.053 3.912 3.780
14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.224 7.786 7.367 6.982 6.628 6.303 6.002 5.725 5.468 5.229 5.008 4.802 4.611 4.432 4.265 4.108 3.962 3.824
15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.560 8.061 7.606 7.191 6.811 6.462 6.142 5.847 5.576 5.324 5.092 4.876 4.676 4.489 4.315 4.153 4.001 3.859
16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 6.604 6.265 5.954 5.669 5.405 5.162 4.938 4.730 4.536 4.357 4.189 4.033 3.887
17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775 4.576 4.391 4.219 4.059 3.910
18 16.398 14.992 13.753 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812 4.608 4.419 4.243 4.080 3.928
19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 7.366 6.938 6.550 6.198 5.878 5.585 5.316 5.070 4.844 4.635 4.442 4.263 4.097 3.942
20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870 4.657 4.460 4.279 4.110 3.954
21 18.857 17.011 15.415 14.029 12.821 11.764 10.836 10.017 9.292 8.649 8.075 7.562 7.102 6.687 6.313 5.973 5.665 5.384 5.127 4.891 4.675 4.476 4.292 4.121 3.963
22 19.661 17.658 15.937 14.451 13.163 12.042 11.061 10.201 9.442 8.772 8.176 7.645 7.170 6.743 6.359 6.011 5.696 5.410 5.149 4.909 4.690 4.488 4.302 4.130 3.971
23 20.456 18.292 16.444 14.857 13.489 12.303 11.272 10.371 9.580 8.883 8.266 7.718 7.230 6.792 6.399 6.044 5.723 5.432 5.167 4.925 4.703 4.499 4.311 4.137 3.976
24 21.244 18.914 16.936 15.247 13.799 12.550 11.469 10.529 9.707 8.985 8.348 7.784 7.283 6.835 6.434 6.073 5.747 5.451 5.182 4.937 4.713 4.507 4.318 4.143 3.981
25 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948 4.721 4.514 4.323 4.147 3.985
CMA Canada Page 75

CMA 2013 SampleEntranceExam Revised May 15 2013

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2013 Sample

ii) Included in the examination envelope is a supplement consisting of formulae and

iii) Examination materials must NOT BE REMOVED from the examination

Updated May 15, 2013

© 2013 The Society of Management Accountants of Canada. All rights reserved.

Supplement of Formulae ......................................................................... 71

* This supplement is provided to all candidates with the examination.

© 2013 The Society of Management Accountants of Canada. All rights reserved.

89. (-) Market research and public relations costs are

a) engineered variable costs.

Singular Versus Plural Phrasing:

CMA Canada Page 1

Calculator Policy and Supplement

Texas Instruments TI BA II Plus (including the Professional model)

The supplement accompanying the Entrance Examination contains present value

CMA Canada Page 2

i) $180,000 per year for the first two years;

2. Which of the following statements about preferred stock is NOT correct?

a) Preferred shareholders receive a dividend before the common shareholders are

Old Equipment New Equipment

CMA Canada Page 3

8. (-) Which of the following is an example of a secondary market financial instrument?

a) Publicly traded stocks on the stock exchange

CMA Canada Page 4

i) Company A – a beta of 1.5, no dividend history and a current share price of

11. YSJ Inc. has the following financial information:

Current liabilities $1,500,000

CMA Canada Page 5

a) accept Project A and reject Project B.

CMA Canada Page 6

i) Systematic risk is a risk that influences a large number of assets.

a) i), iii), iv)

CMA Canada Page 7

CMA Canada Page 8

The following information pertains to questions 20 to 22.

20. (-) What is the current ratio for Year 2?

21. What is the times interest earned for Year 2?

CMA Canada Page 9

($’000s) Year 1 Year 2 Year 3

CMA Canada Page 10

FRI Ltd. END Ltd.

Liabilities $15,000 $ 29,000

CMA Canada Page 11

28. White Ltd. had the following financial results:

Year Taxable Income Income Tax Paid

a) number of retirees during the year.

CMA Canada Page 12

GB Ltd., a medium-sized manufacturing company, required additional capacity in

32. YG Ltd., a Canadian company, purchased merchandise from a US-based company on

August 31, Year 2 $1.00 USD = $1.25 CAD

For YG, these transactions resulted in a foreign currency transaction

a) loss/gain of $ 0 in Year 2 and loss of $7,000 in Year 3.

CMA Canada Page 13

Based on the quantitative thresholds, which segments would be reported separately?

CMA Canada Page 14

Materials to build a prototype $75,000

What amount of these costs can Innov capitalize in Year 8?

Inventory, June 30, Year 2 $150,000

CMA Canada Page 15