Here are *100 US CMA Part 1 Financial Accounting MCQs , covering all topics you listed.
1. What is the primary objective of financial reporting?
Answer:
To provide useful financial information to external users (investors, creditors) for decision-making regarding resource allocation.
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2. Which standard-setting body governs US financial reporting?
Answer:
The Financial Accounting Standards Board (FASB).
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3. What are the four primary financial statements?
Answer:
Income Statement
Balance Sheet
Statement of Cash Flows
Statement of Changes in Equity
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4. What is the accounting equation?
Answer:
Assets = Liabilities + Equity
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5. What is the difference between accrual basis and cash basis accounting?
Answer:
Accrual basis: Revenues and expenses are recognized when earned/incurred.
Cash basis: Recognized when cash is received/paid.
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6. What is revenue recognition under US GAAP?
Answer:
Revenue is recognized when control of goods/services is transferred to the customer (based on the 5-step model under Financial Accounting Standards Board guidance).
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7. What is the purpose of the statement of cash flows?
Answer:
To show cash inflows and outflows from operating, investing, and financing activities.
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8. What is materiality in financial reporting?
Answer:
Information is material if its omission or misstatement could influence users’ decisions.
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9. What is conservatism (prudence) concept?
Answer:
Recognize expenses and liabilities as soon as possible, but revenues only when they are assured.
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10. What is the difference between current and non-current assets?
Answer:
Current assets: Expected to be converted into cash within one year (e.g., inventory, receivables)
Non-current assets: Long-term assets (e.g., property, plant, equipment)
*Section 2: Leases – ASC 842 – 10 Qs*
*Q11*: Lessee signs 5-yr lease, PV of payments $100,000. No ownership transfer.
*Q*: Balance Sheet Day 1?
*Answer: ROU Asset $100,000, Lease Liability $100,000*
*Trigger*: *Operating & Finance leases both on B/S* under ASC 842.
*Q12*: Finance lease: Payment $25,000/yr, Interest yr1 $8,000.
*Q*: Yr1 lease expense?
*Answer: $8,000 interest + $17,000 amortization = $25,000*
*Trigger*: Finance lease = front-loaded expense.
*Q13*: Operating lease: Straight-line expense $25,000/yr.
*Q*: Yr1 interest $8,000. Amortization?
*Answer: $17,000*
*Trigger*: Operating lease = single lease cost. Amort = Lease cost – Interest.
*Q14*: Short-term lease 11 months.
*Q*: B/S treatment?
*Answer: Elect to expense, no ROU/Liability*
*Trigger*: *<12 months exemption* if no purchase option.
*Q15*: Lessee pays $5,000 initial direct costs.
*Q*: Add to ROU Asset?
*Answer: Yes*
*Trigger*: ROU = PV + initial direct costs + prepayments – incentives.
*Q16*: Lease with purchase option reasonably certain.
*Q*: Classify?
*Answer: Finance lease*
*Trigger*: 1 of 5 tests = purchase option reasonably certain.
*Q17*: Lessor, operating lease.
*Q*: Income recognition?
*Answer: Straight-line rent revenue*
*Trigger*: Asset stays on lessor B/S, depreciated.
*Q18*: Sale-leaseback, not a sale under ASC 606.
*Q*: Treatment?
*Answer: Financing transaction, not sale*
*Trigger*: If control not transferred, keep asset + record liability.
*Q19*: Variable lease payment based on sales.
*Q*: Include in lease liability?
*Answer: No, expense as incurred*
*Trigger*: Only index/rate based variable payments included.
*Q20*: Discount rate: lessee doesn’t know implicit rate.
*Q*: Use?
*Answer: Incremental borrowing rate*
*Trigger*: IBR if implicit rate not readily determinable.
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*Section 3: Income Taxes – DTA/DTL – 10 Qs*
*Q21*: Pretax book income $100,000. Tax depreciation > book by $20,000. Tax rate 25%.
*Q*: DTL?
*Answer: $5,000* = 20,000×25%
*Trigger*: Tax > Book depreciation = future taxable = DTL.
*Q22*: Warranty expense book $30,000, tax $0. Tax rate 25%.
*Q*: DTA?
*Answer: $7,500*
*Trigger*: Book > Tax expense = future deductible = DTA.
*Q23*: Permanent difference: Municipal bond interest $10,000.
*Q*: DTA/DTL?
*Answer: None*
*Trigger*: *Permanent diff never reverses*, no deferred tax.
*Q24*: NOL carryforward $50,000. Tax rate 25%. More likely than not 100% realizable.
*Q*: DTA?
*Answer: $12,500*
*Trigger*: NOL creates DTA.
*Q25*: Valuation allowance needed if:
*Answer: DTA more likely than not NOT realized*
*Trigger*: >50% chance not realized = VA.
*Q26*: Tax rate enacted 30% to 25% next year. Existing DTL $15,000 based on 30%.
*Q*: New DTL?
*Answer: $12,500* = 50,000×25%
*Trigger*: *Adjust DT using enacted future rate*. $2,500 benefit in current tax expense.
*Q27*: Fines paid $5,000, non-deductible.
*Q*: Temporary or Permanent?
*Answer: Permanent*
*Trigger*: Never deductible for tax.
*Q28*: Installment sale: Book recognizes all yr1, tax recognizes yr2.
*Q*: DTL or DTA yr1?
*Answer: DTL*
*Trigger*: Book income > Tax income yr1 = future taxable.
*Q29*: Unrealized loss on AFS securities $40,000, tax 25%.
*Q*: DTA where recorded?
*Answer: $10,000 DTA in OCI*
*Trigger*: DT on OCI items goes to OCI, not I/S.
*Q30*: Deferred tax classification on B/S?
*Answer: All noncurrent*
*Trigger*: ASU 2015-17 – all DT classified noncurrent.
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*Section 4: Inventory FIFO/LIFO – 10 Qs*
*Q31*: Inflation period. FIFO vs LIFO. Which higher COGS?
*Answer: LIFO higher COGS*
*Trigger*: LIFO uses newest = higher cost in inflation.
*Q32*: Inflation period. Which higher NI?
*Answer: FIFO*
*Trigger*: FIFO lower COGS = higher NI.
*Q33*: Inflation period. Which higher ending inventory B/S?
*Answer: FIFO*
*Trigger*: FIFO leaves newest costs in inventory.
*Q34*: LIFO Reserve = FIFO Inv – LIFO Inv. FIFO $500K, LIFO $400K.
*Q*: LIFO Reserve?
*Answer: $100,000*
*Trigger*: Converts LIFO to FIFO.
*Q35*: Prices falling. Which method higher COGS?
*Answer: FIFO*
*Trigger*: FIFO uses oldest = higher cost in deflation.
*Q36*: Perpetual vs Periodic FIFO: COGS same?
*Answer: Yes, FIFO same under both*
*Trigger*: FIFO COGS same; LIFO differs.
*Q37*: Perpetual vs Periodic LIFO: COGS same?
*Answer: No, can differ*
*Trigger*: Periodic LIFO uses year-end prices for all.
*Q38*: LIFO liquidation occurs when:
*Answer: Sales > purchases, old layers sold*
*Trigger*: Causes phantom profits in inflation.
*Q39*: Lower of Cost or Market. Replacement cost $80, NRV $90, NRV-Profit $70, Cost $85.
*Q*: Market?
*Answer: $80*
*Trigger*: Market = middle of RC, NRV, NRV-Profit. LCNRV = 80 vs 85 = $80.
*Q40*: IFRS allows LIFO?
*Answer: No*
*Trigger*: US GAAP only. IFRS bans LIFO.
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*Section 5: Prior Period Adj, Acct vs Mgmt Acct – 10 Qs*
*Q41*: Error: 2024 depreciation understated $50,000. Found 2025. Tax 25%.
*Q*: 2025 adjustment?
*Answer: Retained Earnings beg 2025 ↓ $37,500 net of tax*
*Trigger*: *Prior period adjustment* to RE, restate comparative.
*Q42*: Change from LIFO to FIFO.
*Q*: Treatment?
*Answer: Retrospective, restate prior periods*
*Trigger*: Accounting principle change = retrospective.
*Q43*: Change in useful life estimate.
*Q*: Treatment?
*Answer: Prospective only*
*Trigger*: Change in estimate = no restatement.
*Q44*: Financial accounting primary users?
*Answer: External: investors, creditors*
*Trigger*: GAAP, audited, historical.
*Q45*: Management accounting primary users?
*Answer: Internal: managers*
*Trigger*: No GAAP, future-oriented, flexible.
*Q46*: Which is not GAAP: accrual, cash, consistency?
*Answer: Cash basis*
*Trigger*: GAAP requires accrual.
*Q47*: Profitability ratio example?
*Answer: ROA, ROE, Net Margin*
*Trigger*: Profitability = income vs sales/assets/equity.
*Q48*: Liquidity ratio example?
*Answer: Current Ratio, Quick Ratio*
*Trigger*: Liquidity = short-term debt paying ability.
*Q49*: Solvency ratio example?
*Answer: Debt-to-Equity, Times Interest Earned*
*Trigger*: Solvency = long-term debt paying ability.
*Q50*: Leverage ratio example?
*Answer: Debt Ratio, Equity Multiplier*
*Trigger*: Leverage = debt vs equity/assets.
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*Section 6: Capital Maintenance, Theories, Stakeholders – 10 Qs*
*Q51*: Financial capital maintenance: Profit if:
*Answer: Ending net assets > Beginning net assets*
*Trigger*: Nominal dollars maintained.
*Q52*: Physical capital maintenance: Profit if:
*Answer: Physical capacity at end > beginning*
*Trigger*: Maintain operating capability.
*Q53*: Proprietary theory: Equation?
*Answer: Assets – Liabilities = Proprietor’s Equity*
*Trigger*: Focus on owner.
*Q54*: Entity theory: Equation?
*Answer: Assets = Equities*
*Trigger*: Entity separate from owner. GAAP uses this.
*Q55*: Residual equity theory: Focus on?
*Answer: Common shareholders*
*Trigger*: After pref + debt claims.
*Q56*: Internal stakeholder example?
*Answer: Employees, Managers, Board*
*Trigger*: Inside org.
*Q57*: External stakeholder example?
*Answer: Investors, Creditors, Govt, Customers*
*Trigger*: Outside org.
*Q58*: Agency theory problem?
*Answer: Conflict between owners & managers*
*Trigger*: Manager may not act in owner interest.
*Q59*: Stewardship concept in financial reporting?
*Answer: Mgmt accountable to owners*
*Trigger*: Financial stmts show stewardship.
*Q60*: Capital structure =
*Answer: Mix of debt & equity*
*Trigger*: Affects WACC, risk.
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*Section 7: Dividends, Investments – 10 Qs*
*Q61*: Cash dividend declared $1/share, 100,000 shares.
*Q*: JE?
*Answer: Dr RE $100,000 Cr Div Payable $100,000*
*Trigger*: Declaration creates liability.
*Q62*: 10% Stock dividend, FMV $20, 100,000 shares out.
*Q*: Amount to RE?
*Answer: $200,000* = 10,000×$20
*Trigger*: Small stock div <25% at FMV.
*Q63*: Large stock dividend 50%. Par $1, FMV $20.
*Q*: Amount to RE?
*Answer: $50,000* = 50,000×$1
*Trigger*: Large stock div >25% at par.
*Q64*: Trading securities, unrealized gain $10,000.
*Q*: I/S impact?
*Answer: Gain $10,000 in Net Income*
*Trigger*: Trading = FV through NI.
*Q65*: AFS securities, unrealized gain $10,000.
*Q*: Where reported?
*Answer: OCI, net of tax*
*Trigger*: AFS = FV through OCI.
*Q66*: HTM securities measured at?
*Answer: Amortized Cost*
*Trigger*: Intent + ability to hold to maturity.
*Q67*: HTM security impaired, credit loss.
*Q*: I/S impact?
*Answer: Credit loss in NI, non-credit in OCI*
*Trigger*: ASU 2016-13 CECL model.
*Q68*: Sell AFS with $5,000 unrealized gain in OCI.
*Q*: On sale?
*Answer: Reclassify $5,000 from OCI to NI*
*Trigger*: Realized gains hit I/S.
*Q69*: Dividend received on trading stock.
*Q*: I/S?
*Answer: Dividend Income*
*Trigger*: Dividends always NI regardless of classification.
*Q70*: Equity method, investee earns $100,000. Investor owns 30%.
*Q*: Investor income?
*Answer: $30,000*
*Trigger*: Equity method = pick up % of NI.
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*Section 8: Inventory Methods, Goodwill, Consolidation – 10 Qs*
*Q71*: Perpetual inventory: When is COGS recorded?
*Answer: Each sale*
*Trigger*: Continuous update.
*Q72*: Periodic inventory: When is COGS calculated?
*Answer: End of period: Beg + Purch – End*
*Trigger*: Physical count required.
*Q73*: Gross profit method used for?
*Answer: Estimate inventory for interim/estimate*
*Trigger*: Not GAAP for annual.
*Q74*: Retail method: Cost ratio 60%. Ending retail $100,000.
*Q*: Ending inventory cost?
*Answer: $60,000*
*Trigger*: Retail × Cost ratio.
*Q75*: Parent buys 80% Sub for $1,000,000. FV of Sub net assets $900,000.
*Q*: Goodwill?
*Answer: $280,000* = 1,000,000 – (900,000×80%)
*Trigger*: *Partial goodwill method* GAAP.
*Q76*: If NCI at full FV $250,000. Same deal.
*Q*: Goodwill full?
*Answer: $350,000* = 1,000,000+250,000-900,000
*Trigger*: *Full goodwill method* IFRS allowed.
*Q77*: Goodwill impairment test frequency?
*Answer: Annual + if triggering event*
*Trigger*: ASC 350, qualitative first.
*Q78*: Parent sells inventory to Sub for $120,000, cost $100,000. Sub sells 50% to outside.
*Q*: Unrealized profit to eliminate?
*Answer: $10,000* = 20,000×50%
*Trigger*: Eliminate profit in ending inventory.
*Q79*: Intercompany receivable $50,000 / payable $50,000.
*Q*: Consolidation JE?
*Answer: Dr AP $50,000 Cr AR $50,000*
*Trigger*: Eliminate intercompany balances.
*Q80*: Sub declares $40,000 dividend. Parent owns 80%.
*Q*: NCI share?
*Answer: $8,000* = 20%×40,000
*Trigger*: NCI gets share of sub dividends.
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*Section 9: Mixed Advanced – 20 Qs*
*Q81*: Capital maintenance vs Income: If prices rising, physical capital method shows?
*Answer: Lower income*
*Trigger*: Must replace at higher cost.
*Q82*: Proprietary vs Entity: Interest expense under proprietary theory is?
*Answer: Dividend, not expense*
*Trigger*: Debt = owner capital.
*Q83*: Current ratio 2.0. Buy inventory on account. New ratio?
*Answer: Decreases if CR>1*
*Trigger*: +Inv/+AP. 200/100=2.0. 250/150=1.67.
*Q84*: Debt-to-Equity 1.5. Issue new stock for cash. D/E?
*Answer: Decreases*
*Trigger*: Equity up, debt same.
*Q85*: ROI 10%. Leverage positive if ROA >?
*Answer: Cost of debt*
*Trigger*: Leverage works if ROA > interest rate.
*Q86*: Trading security bought $50, end yr1 FV $60, end yr2 FV $55.
*Q*: Yr2 I/S?
*Answer: $5,000 loss*
*Trigger*: FV change each year to NI.
*Q87*: AFS bought $50, yr1 FV $60, yr2 sold $58. Tax 25%.
*Q*: Yr2 NI impact?
*Answer: $8,000 gain*
*Trigger*: $10k unrealized from yr1 reclassed + $2k loss yr2 = $8k realized.
*Q88*: HTM bond, amortized cost $100,000. FV $90,000. No credit loss.
*Q*: B/S?
*Answer: $100,000*
*Trigger*: HTM not written down for non-credit FV changes.
*Q89*: Periodic system: Purchase returns where?
*Answer: Reduce Purchases*
*Trigger*: COGS = Beg+Purch-Net-End.
*Q90*: Perpetual system: Purchase return JE?
*Answer: Dr AP Cr Inventory*
*Trigger*: Direct to inventory.
*Q91*: Consolidation: Parent’s investment account eliminated against?
*Answer: Sub’s equity accounts*
*Trigger*: Basic elim entry.
*Q92*: NCI on B/S shown as?
*Answer: Separate component of Equity*
*Trigger*: Not liability under GAAP.
*Q93*: Goodwill impairment loss on I/S affects NCI?
*Answer: Yes, if full goodwill method*
*Trigger*: Partial goodwill = only parent share.
*Q94*: Deferred tax due to depreciation: DTL. Equipment sold.
*Q*: DTL?
*Answer: Reverses, eliminate*
*Trigger*: Temporary diff reversed.
*Q95*: Stock dividend vs stock split: Accounting difference?
*Answer: Div transfers RE to Capital, Split only memo*
*Trigger*: Split no JE, just change par/shares.
*Q96*: Operating lease expense pattern?
*Answer: Straight-line*
*Trigger*: Single lease cost.
*Q97*: Finance lease B/S: Liability =?
*Answer: PV of lease payments*
*Trigger*: Same as operating.
*Q98*: FIFO in inflation: Tax paid higher or lower?
*Answer: Higher*
*Trigger*: FIFO = higher NI = higher tax.
*Q99*: Change from cash to accrual: Treatment?
*Answer: Retrospective if practicable*
*Trigger*: Change in principle.
Q100*: Primary objective of financial reporting per FASB?
*Answer: Provide useful info to investors/creditors for decisions*
*Trigger*: CON 8. Not stewardship, not tax.
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