**25 US CMA Part 1 MCQs on Financial Reporting Topics**
These multiple-choice questions focus on US CMA exam-style topics like income statements, dividends, stock events, cash flows, investments, ratios, accounting concepts, and more, drawing from US GAAP principles tested in Part 1 Section A.
### Income Statement & Equity Events
1. In a multi-step income statement, gross profit is calculated as:
A. Net sales minus operating expenses
B. Net sales minus cost of goods sold
C. Operating income minus taxes
D. Net income plus interest
2. A small stock dividend (under 20-25%) is recorded by debiting retained earnings at:
A. Par value of shares
B. Fair market value of shares
C. Book value per share
D. Zero impact on equity
3. For a 2-for-1 stock split on $80/share stock paying $1 dividend, post-split price expectation if dividend stays $1:
A. Exactly $40
B. Above $40 if yield rises
C. Below $40
D. Unchanged at $80
4. Preferred dividends are typically:
A. Variable like common dividends
B. Fixed percentage of par value
C. Paid after common dividends
D. Non-cumulative by default
5. A property dividend declares asset with book value $50, fair value $75 at declaration:
A. No gain/loss recognized
B. Gain of $25 recorded
C. Loss of $25 recorded
D. Fair value at distribution date
### Cash Flow Statement
6. A statement of cash flows helps evaluate a firm’s:
A. Economic resources and obligations
B. Liquidity, solvency, financial flexibility
C. Insider stock trades
D. Operating income components
7. Gain on sale of available-for-sale (AFS) securities is:
A. Added to net income in operating cash flows
B. Subtracted from net income in operating section
C. Included in investing inflows
D. Ignored in cash flow statement
8. Cash flows from financing activities include:
A. Cash from customers
B. Proceeds from issuing shares or loans
C. Purchase of equipment
D. Collections of receivables
9. Decrease in accounts receivable is:
A. Subtracted in operating cash flows (indirect)
B. Added in operating cash flows
C. Investing outflow
D. Financing inflow
10. Past period bad debt recovery in current year (direct method):
A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Off the cash flow statement
### Investments & Losses
11. AFS investments are reported at:
A. Amortized cost
B. Fair value; unrealized gains/losses in OCI
C. Lower of cost or market
D. Historical cost only
12. Allowance for credit losses uses:
A. Direct write-off only
B. Percentage of sales or receivables aging
C. Historical cost adjustment
D. Cash basis estimation
### Liquidity, Solvency, Leverage
13. Current ratio formula:
A. Cash / Current liabilities
B. Current assets / Current liabilities
C. (Current assets – Inventory) / Current liabilities
D. Operating cash flow / Current liabilities
14. Cash flow ratio assesses:
A. Solvency via operating cash / current liabilities
B. Leverage via debt/equity
C. Activity via inventory turns
D. Profitability via ROE
15. Solvency best represented by:
A. Cash balance end of period
B. Operating cash flows
C. Investing cash flows
D. Financing cash flows
### Concepts & Components
16. Accrual concept records expenses when:
A. Cash paid
B. Incurred, not necessarily paid
C. Profit is high
D. Tax due
17. Going concern assumption justifies:
A. Liquidation basis
B. Depreciation and current/noncurrent classification
C. Fair value for all assets
D. No asset impairments
18. Historical cost concept uses:
A. Fair value at reporting
B. Original transaction cost
C. Inflated replacement cost
D. Future estimated value
19. Cash equivalents include:
A. Long-term investments
B. Highly liquid investments maturing within 3 months
C. Inventory
D. Accounts receivable
20. Capital maintenance (financial):
A. Physical capacity preserved
B. Nominal capital not reduced by distributions
C. Real purchasing power maintained
D. Residual equity focus
### Advanced & Mixed
21. Principal-agent problem in separate entity concept:
A. Owners manage operations
B. Managers (agents) act for owners (principals)
C. No separation of firm and owners
D. Consolidated reporting only
22. Recovery of prior bad debt:
A. Credit to allowance, debit cash; no P&L
B. Income in current year
C. Balance sheet only
D. Off-balance sheet
23. Components of cash & equivalents exclude:
A. Treasury bills <90 days
B. Commercial paper
C. Equity investments
D. Money market funds
24. Leverage ratio example:
A. Current ratio
B. Debt-to-equity
C. Inventory turnover
D. Gross margin
25. Residual capital maintenance:
A. Physical assets at original cost
B. Distributions from residual equity after maintenance
C. Nominal dividends only
D. No distributions allowed
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