Here is a comprehensive US CMA (Part 1) style essay compilation based on a Company’s Annual Report under US GAAP, covering financial statements, disclosures, governance, risk, and analytical areas.
📘 Essay: Analysis of a Company’s Annual Report under US GAAP (CMA Perspective)
An annual report prepared under US GAAP (Generally Accepted Accounting Principles) provides financial and non-financial information that enables stakeholders to evaluate a company’s performance, financial position, governance quality, and risk exposure.
Under US GAAP (as issued by ), a complete set of financial statements includes:
1. Income Statement
2. Statement of Comprehensive Income (SOCIE or SCI)
3. Statement of Financial Position (Balance Sheet)
4. Statement of Cash Flows
5. Statement of Changes in Stockholders’ Equity
6. Notes to Financial Statements
1️⃣ Income Statement
The Income Statement reports revenues, expenses, gains, and losses over a reporting period.
Key Components:
• Net Sales / Revenue
• Cost of Goods Sold (COGS)
• Gross Profit
• Operating Expenses (SG&A, R&D)
• Operating Income
• Interest Expense
• Income Tax Expense
• Net Income
Under US GAAP:
• Revenue recognition follows ASC 606 (five-step model).
• Expenses are matched with revenues (matching principle).
• Unusual items are separately disclosed but extraordinary items are prohibited.
Analytical Importance:
• Evaluates profitability
• Assesses operating efficiency
• Measures earnings quality
2️⃣ Statement of Comprehensive Income (SOCIE)
Comprehensive income includes:
• Net Income
• Other Comprehensive Income (OCI)
OCI includes:
• Unrealized gains/losses on available-for-sale securities
• Foreign currency translation adjustments
• Pension adjustments
• Cash flow hedge gains/losses
Comprehensive income provides a broader performance view beyond net income.
3️⃣ Statement of Financial Position (Balance Sheet)
Reports:
Assets = Liabilities + Stockholders’ Equity
Assets:
• Current Assets (Cash, AR, Inventory)
• Non-current Assets (PPE, Intangibles, Goodwill)
Liabilities:
• Current Liabilities (AP, Short-term debt)
• Long-term Liabilities (Bonds payable, Lease liabilities)
Equity:
• Common Stock
• Additional Paid-in Capital
• Retained Earnings
• Accumulated OCI
Liquidity, solvency, and capital structure analysis are performed using this statement.
4️⃣ Earnings per Share (EPS vs Diluted EPS)
Basic EPS
= (Net Income – Preferred Dividends) / Weighted Avg. Shares Outstanding
Diluted EPS
Includes impact of:
• Convertible bonds
• Stock options
• Warrants
• Convertible preferred shares
Diluted EPS assumes potential conversion of dilutive securities.
👉 Diluted EPS ≤ Basic EPS (if dilutive).
5️⃣ Types of Debt
1. Secured vs Unsecured
2. Short-term vs Long-term
3. Convertible Debt
4. Callable Bonds
5. Zero-coupon bonds
6. Lease liabilities (ASC 842)
Debt classification impacts leverage ratios and covenant compliance.
6️⃣ Segment Reporting (ASC 280)
Public companies disclose operating segments based on the management approach.
Disclosures include:
• Segment revenue
• Profit or loss
• Assets
• Geographic information
• Major customers
Example: A multinational like discloses revenue by geographic region and product segment.
Segment reporting improves transparency and risk evaluation.
7️⃣ Presentation & Disclosure (US GAAP)
Proper classification and disclosure ensure faithful representation.
Examples:
• Contingent liabilities (lawsuits)
• Revenue recognition policies
• Related-party transactions
• Subsequent events
• Fair value hierarchy (Level 1, 2, 3)
Footnotes are critical for CMA exam analysis.
8️⃣ Corporate Governance
Corporate governance ensures accountability and oversight.
Key elements:
• Board of Directors
• Audit Committee
• Internal Controls (SOX 404)
• External Auditor independence
The mandates disclosures for public companies.
Strong governance reduces fraud risk and improves investor confidence.
9️⃣ Risk Assessment in Annual Report
Companies disclose risk factors such as:
• Market risk (interest rate, FX)
• Operational risk
• Regulatory risk
• Cybersecurity risk
Risk disclosures appear in MD&A (Management Discussion & Analysis).
🔟 Stakeholders & Their Interests
Stakeholder Expected Interest
Shareholders Profitability, EPS growth
Creditors Solvency, debt coverage
Employees Stability, compensation
Customers Product continuity
Suppliers Payment ability
Government Compliance & taxes
Management Performance incentives
🔹 10 One-Line Concept Questions (with Answers)
1. What is the primary purpose of financial reporting?
→ To provide decision-useful information to stakeholders.
2. What does OCI represent?
→ Gains and losses excluded from net income.
3. Under US GAAP, extraordinary items are?
→ Prohibited.
4. Diluted EPS assumes what?
→ Conversion of all dilutive securities.
5. What statement shows liquidity?
→ Statement of Financial Position.
6. Segment reporting follows which ASC?
→ ASC 280.
7. Who sets US GAAP?
→ FASB.
8. What is goodwill tested for annually?
→ Impairment.
9. What report discusses future outlook?
→ MD&A.
10. SOX 404 relates to?
→ Internal control over financial reporting.
🔹 20 CMA-Level MCQs
1️⃣ Which item is included in OCI?
A. COGS
B. Pension adjustment
C. Dividend revenue
D. Interest expense
✅ Answer:
2️⃣ Diluted EPS is affected by:
A. Treasury stock
B. Convertible bonds
C. Accounts payable
D. Inventory
✅
3️⃣ Under US GAAP, segment reporting uses:
A. Geographic method only
B. Management approach
C. IFRS approach
D. Industry method
✅
4️⃣ A callable bond exposes investors to:
A. Credit risk
B. Reinvestment risk
C. FX risk
D. Liquidity risk
✅
5️⃣ Which is a Level 3 fair value input?
A. Quoted market price
B. Observable interest rate
C. Unobservable assumptions
D. Treasury bill rate
✅
6️⃣ Basic EPS ignores:
A. Preferred dividends
B. Convertible securities
C. Weighted shares
D. Net income
✅
7️⃣ Debt-to-equity ratio measures:
A. Liquidity
B. Profitability
C. Solvency
D. Efficiency
✅
8️⃣ Goodwill impairment affects:
A. OCI
B. Equity only
C. Net income
D. Cash flow
✅
9️⃣ Which is a non-financial disclosure?
A. Revenue
B. Litigation risk
C. COGS
D. Depreciation
✅
🔟 Revenue recognition under ASC 606 requires:
A. Cash receipt
B. Transfer of control
C. Invoice issuance
D. Delivery only
✅
11️⃣ Comprehensive income equals:
A. Net income + OCI
B. Revenue – Expenses
C. Assets – Liabilities
D. Cash flow
✅
12️⃣ Convertible debt increases:
A. Basic EPS
B. Diluted EPS denominator
C. Revenue
D. OCI
✅
13️⃣ Corporate governance reduces:
A. Sales
B. Agency cost
C. Revenue
D. Dividend payout
✅
14️⃣ Credit risk relates to:
A. Interest rates
B. Default of customer
C. FX fluctuation
D. Market decline
✅
15️⃣ Lease liability arises under:
A. ASC 842
B. ASC 606
C. ASC 280
D. ASC 740
✅
16️⃣ Retained earnings increase with:
A. Dividends
B. Net loss
C. Net income
D. OCI loss
✅
17️⃣ A major customer disclosure is required when:
A. Sales exceed 10%
B. Sales exceed 5%
C. Profits exceed 10%
D. Assets exceed 10%
✅
18️⃣ MD&A primarily contains:
A. Auditor opinion
B. Management analysis
C. Journal entries
D. Tax return
✅
19️⃣ Short-term debt appears under:
A. Equity
B. Current liabilities
C. OCI
D. Revenue
✅
20️⃣ Strong internal control primarily enhances:
A. Fraud risk
B. Earnings volatility
C. Reliability of reporting
D. Tax expense
✅
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Here are 30 Case-Based MCQs based on US GAAP (CMA Part 1 syllabus) covering income statement, SOCIE, balance sheet, EPS, debt, segment reporting, governance, risk, presentation & disclosure.
🔥 30 Case-Based MCQs (US GAAP – CMA Level)
1️⃣ Revenue Recognition – Variable Consideration
A software company enters a $5M contract including performance bonus of $1M if system efficiency exceeds 98%. Based on experience, 70% probability of achievement exists. Under ASC 606, revenue recognized at inception should be:
A. $5M
B. $5.7M
C. $6M
D. $5.3M
✅ Answer:
Because variable consideration must be included only to the extent it is probable that significant reversal will not occur. 70% probability may not meet “probable” threshold under US GAAP (high threshold).
2️⃣ OCI vs Net Income
A company records unrealized gain on AFS debt securities of $400,000 and foreign currency loss of $100,000. Net income is $2M.
Comprehensive income equals:
A. $2M
B. $2.3M
C. $2.4M
D. $2.5M
✅ Answer:
3️⃣ Diluted EPS – Convertible Bonds
Net income: $5M
Convertible bonds interest (after tax): $600,000
Shares outstanding: 1M
Convertible into 200,000 shares
Diluted EPS = ?
A. 5.00
B. 4.50
C. 4.67
D. 5.60
✅ Answer:
4️⃣ Debt Covenant Risk
A company’s debt covenant requires debt-to-equity ≤ 2.0.
Debt = $8M, Equity = $4M.
After recognizing operating lease liability of $2M (ASC 842), covenant impact:
A. No impact
B. Violated
C. Improved ratio
D. Equity increases
✅ Answer:
5️⃣ Segment Reporting – Management Approach
A CEO internally reviews segments by geography, but financial reports disclose by product line.
Under ASC 280:
A. Allowed
B. Not allowed
C. Optional
D. Depends on auditor
✅ Answer:
6️⃣ Goodwill Impairment
Fair value of reporting unit = $20M
Carrying value = $23M
Goodwill recorded = $5M
Impairment loss?
A. $3M
B. $5M
C. $2M
D. $0
✅ Answer:
7️⃣ Contingent Liability
Legal case: 60% chance of $1M loss, 40% chance of $3M loss.
Accrual required?
A. $1M
B. $3M
C. $1.8M
D. Disclose only
✅ Answer:
8️⃣ Stock Options – Dilutive Effect
Net income: $3M
Shares: 500,000
Options: 100,000 @ $10
Market price: $20
Dilution method?
A. If-converted
B. Treasury stock
C. Equity method
D. Cost method
✅ Answer:
9️⃣ Fair Value Hierarchy
Private valuation model using management assumptions is:
A. Level 1
B. Level 2
C. Level 3
D. OCI item
✅ Answer:
🔟 Comprehensive Income Presentation
OCI must be presented:
A. Only in equity
B. Separate statement or continuous statement
C. In cash flow
D. In notes only
✅ Answer:
11️⃣ Major Customer Disclosure
Revenue from one customer = 12% of total revenue.
Requirement?
A. Disclose customer name
B. Disclose concentration
C. No disclosure
D. OCI disclosure
✅ Answer:
12️⃣ Pension Re-measurement Loss
Reported in:
A. Net income
B. OCI
C. Cash flow
D. Equity only
✅ Answer:
13️⃣ EPS Anti-Dilutive Securities
Convertible preferred shares increase EPS if converted.
Treatment?
A. Include
B. Exclude
C. OCI
D. Mandatory convert
✅ Answer:
14️⃣ Liquidity Risk Indicator
Best indicator:
A. Gross margin
B. Current ratio
C. ROE
D. EPS
✅ Answer:
15️⃣ Internal Control Weakness
Material weakness disclosed under:
A. Income statement
B. MD&A
C. SOX 404 report
D. OCI
✅ Answer:
16️⃣ Debt Classification
Long-term debt due in 9 months but refinanced before issuance of FS:
A. Current
B. Non-current
C. OCI
D. Equity
✅ Answer:
17️⃣ Revenue – Principal vs Agent
Company earns commission only.
Revenue recognized:
A. Gross amount
B. Net commission
C. Cash received
D. Contract value
✅ Answer:
18️⃣ Retained Earnings Adjustment
Prior period error correction affects:
A. Current income
B. OCI
C. Beginning retained earnings
D. Cash flow
✅ Answer:
19️⃣ Callable Bonds Risk to Issuer
Issuer benefits when:
A. Rates increase
B. Rates decrease
C. Inflation rises
D. Equity rises
✅ Answer:
20️⃣ Operating Segment Threshold
Segment reportable if revenue ≥:
A. 5%
B. 10%
C. 15%
D. 20%
✅ Answer:
21️⃣ Deferred Tax Asset Valuation Allowance
Recognized when:
A. Always
B. Probable realization
C. More likely than not not realizable
D. Equity decreases
✅ Answer:
22️⃣ Market Risk Disclosure Appears In
A. Income statement
B. Balance sheet
C. MD&A
D. OCI
✅ Answer:
23️⃣ Lease Expense Classification
Operating lease expense is:
A. Interest + Depreciation separate
B. Single lease cost
C. OCI
D. Finance income
✅ Answer:
24️⃣ EPS Weighted Shares
Shares issued mid-year are:
A. Fully included
B. Ignored
C. Time-weighted
D. OCI
✅ Answer:
25️⃣ Equity Issuance Costs
Recorded as:
A. Expense
B. OCI
C. Reduction of APIC
D. Liability
✅ Answer:
26️⃣ Foreign Subsidiary Translation Gain
Reported in:
A. Net income
B. OCI
C. Retained earnings
D. Revenue
✅ Answer:
27️⃣ Going Concern Disclosure
Required if doubt exists for:
A. 3 months
B. 6 months
C. 1 year
D. 2 years
✅ Answer:
28️⃣ Inventory Write-down Reversal (US GAAP)
If market recovers:
A. Reverse loss
B. OCI
C. Not allowed
D. Capitalize
✅ Answer:
29️⃣ Interest Coverage Ratio Measures
A. Liquidity
B. Solvency
C. Profitability
D. Efficiency
✅ Answer:
30️⃣ Related Party Transaction Disclosure
Required when:
A. Material
B. Always
C. >10%
D. Cash based
✅ Answer:
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Here are 20 Numerical Integrated Case-Based MCQs based on a Full Annual Report Simulation (US GAAP – CMA Part 1 level).
Each case integrates:
✔ Income Statement
✔ SOCIE
✔ Statement of Financial Position
✔ EPS
✔ Lease (ASC 842)
✔ Revenue (ASC 606)
✔ Segment Reporting (ASC 280)
✔ Debt & Ratios
✔ OCI
✔ Risk & Disclosure
📊 Integrated Annual Report Simulation – Case MCQs
🔷 Case Background (Use for Q1–Q5)
Omega Corp reports:
• Revenue: $50M
• COGS: $30M
• Operating Expenses: $8M
• Interest Expense: $2M
• Tax Rate: 25%
• Unrealized gain on AFS securities: $1M
• Foreign currency translation loss: $400,000
• Shares outstanding: 5M
• Convertible bonds add 1M shares if converted
• After-tax interest on convertible bonds: $1.2M
1️⃣ Net Income equals:
A. $7.5M
B. $8M
C. $6M
D. $9M
✅ Answer:
2️⃣ Comprehensive Income equals:
A. $8.1M
B. $8.5M
C. $8.0M
D. $7.5M
OCI = 1M – 0.4M =
Comprehensive income = 7.5 + 0.6 =
✅ Answer:
3️⃣ Basic EPS =
A. $1.50
B. $1.20
C. $1.60
D. $1.75
7.5M / 5M =
✅ Answer:
4️⃣ Diluted EPS =
A. $1.20
B. $1.45
C. $1.30
D. $1.50
Adjusted NI =
Shares =
✅ Answer:
5️⃣ Dilution impact is:
A. Anti-dilutive
B. EPS unchanged
C. Dilutive
D. Accretive
1.45 < 1.50 →
✅ Answer:
🔷 Case 2 (Q6–Q9) – Lease & Debt Impact
Company reports:
• Debt = $40M
• Equity = $20M
• Operating lease liability recognized = $10M
• EBITDA = $15M
• Interest = $5M
6️⃣ Debt-to-equity before lease =
40 / 20 =
✅ Answer:
7️⃣ After lease recognition, D/E =
(40 + 10) / 20 =
✅ Answer:
8️⃣ Interest Coverage Ratio =
EBIT = assume EBITDA 15M (no depreciation given)
15 / 5 =
✅ Answer: ....times
9️⃣ Covenant max D/E allowed = 2.2. Result?
A. Safe
B. Violated
C. Improved
D. No impact
2.5 > 2.2
✅ Answer:
🔷 Case 3 (Q10–Q12) – Revenue Recognition
Contract value: $10M
Performance bonus: $2M (80% probability)
Company concludes bonus is probable not to reverse.
Costs incurred this year: 60% complete.
🔟 Transaction price =
A. 10M
B. 11.6M
C. 12M
D. 10.8M
Include bonus →
✅ Answer:
11️⃣ Revenue recognized this year =
60% × 12M =
✅ Answer:
12️⃣ If bonus not probable, revenue would be:
60% × 10M =
✅ Answer:
🔷 Case 4 (Q13–Q15) – Segment Reporting
Company has 3 segments:
Segment Revenue Profit
A 100M 15M
B 12M 2M
C 8M 1M
Total revenue = 120M
13️⃣ Which segments reportable (10% revenue test)?
10% of 120M = 12M
A. A only
B. A & B
C. All
D. A & C
B = 12M qualifies
✅ Answer:
14️⃣ Segment C requires disclosure if total reportable revenue < 75%?
Yes or No, must meet 75% test
✅ Answer:
15️⃣ Major customer revenue = $15M from Segment A. Disclosure required?
15 / 120 = 12.5%
Yes or No (>10%)
✅ Answer:
🔷 Case 5 (Q16–Q18) – Goodwill & Impairment
Carrying value reporting unit = $80M
Fair value = $70M
Goodwill included = $15M
16️⃣ Impairment loss =
80 – 70 = 10M
Limited to goodwill (15M available)
✅ Answer: .....M
17️⃣ New goodwill balance =
15 – 10 =
✅ Answer: . ....M
18️⃣ Impairment affects:
A. OCI
B. Net income
C. Equity only
D. Cash flow
✅ Answer:
🔷 Case 6 (Q19–Q20) – Deferred Tax & OCI
Unrealized OCI gain = $2M
Tax rate = 25%
Deferred tax liability required.
19️⃣ DTL amount =
2M × 25% = 500k
✅ Answer:
20️⃣ Net OCI reported in equity =
2M – 500k = 1.5M
✅ Answer: $
📌 CMA Exam Integration Covered
✔ Income statement computation
✔ Comprehensive income
✔ EPS & dilution
✔ Lease capitalization impact
✔ Debt covenant analysis
✔ Revenue under ASC 606
✔ Segment reporting thresholds
✔ Goodwill impairment
✔ Deferred tax on OCI
✔ Risk & covenant violation
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Here are CMA-Level MCQs on Stakeholders & Their Interests (US GAAP perspective, Annual Report context, governance & risk focus).
📘 MCQs – Stakeholders & Their Interests (US CMA Level)
1️⃣ Which stakeholder group is primarily interested in EPS growth and dividend policy?
A. Suppliers
B. Employees
C. Shareholders
D. Customers
✅ Answer:
2️⃣ Creditors are most concerned with which ratio?
A. Gross margin
B. Current ratio
C. Inventory turnover
D. EPS
✅ Answer:
3️⃣ Long-term bondholders are primarily concerned with:
A. Market share
B. Interest coverage ratio
C. Sales growth
D. Advertising expense
✅ Answer:
4️⃣ Which stakeholder is most interested in job security and pension funding disclosures?
A. Government
B. Employees
C. Investors
D. Customers
✅ Answer:
5️⃣ A supplier extending trade credit will closely monitor:
A. Dividend payout ratio
B. Debt-to-equity ratio
C. Accounts payable turnover
D. Gross profit margin
✅ Answer:
6️⃣ Which stakeholder focuses on product continuity and service quality?
A. Shareholders
B. Customers
C. Government
D. Auditors
✅ Answer:
7️⃣ Government regulators are most interested in:
A. Stock price
B. Tax compliance and legal disclosures
C. Market capitalization
D. Dividend policy
✅ Answer:
8️⃣ Management compensation linked to ROE primarily aligns management with:
A. Customers
B. Employees
C. Shareholders
D. Suppliers
✅ Answer:
9️⃣ Local communities are primarily concerned with:
A. EPS dilution
B. Environmental and social responsibility
C. Inventory valuation
D. Share buybacks
✅ Answer:
🔟 Institutional investors are most sensitive to:
A. Short-term wage negotiations
B. Long-term sustainable earnings
C. Supplier payment terms
D. Marketing campaigns
✅ Answer
11️⃣ Which stakeholder group benefits most from strong internal controls under SOX?
A. Suppliers
B. Shareholders
C. Competitors
D. Customers
✅ Answer:
12️⃣ Trade unions primarily focus on:
A. Debt covenants
B. Employee wages and benefits
C. Share repurchase programs
D. Bond ratings
✅ Answer:
13️⃣ Rating agencies evaluate which stakeholder interest?
A. Customer loyalty
B. Credit risk of the company
C. Employee turnover
D. Dividend growth
✅ Answer:
14️⃣ Venture capital investors are primarily interested in:
A. Stable dividends
B. High growth potential and exit strategy
C. Trade discounts
D. Pension obligations
✅ Answer:
15️⃣ Which stakeholder is most affected by foreign currency risk disclosures?
A. Domestic retail customers
B. International investors
C. Warehouse employees
D. Local suppliers
✅ Answer:
16️⃣ A high dividend payout ratio may conflict with the interests of:
A. Retained earnings growth-focused investors
B. Retiree investors
C. Bondholders
D. Tax authorities
✅ Answer:
17️⃣ Environmental risk disclosures primarily address concerns of:
A. Suppliers
B. Communities and regulators
C. Internal auditors
D. Bond traders only
✅ Answer:
18️⃣ Employees reviewing annual reports are least concerned about:
A. Pension obligations
B. Profitability
C. Working capital ratios
D. Job stability
✅ Answer:
19️⃣ Which stakeholder group is most sensitive to dilution from convertible securities?
A. Customers
B. Shareholders
C. Suppliers
D. Government
✅ Answer:
20️⃣ If a company violates a debt covenant, which stakeholder is immediately impacted?
A. Customers
B. Creditors
C. Employees
D. Community
✅ Answer:
🎯 CMA Exam Insight
Stakeholder interests commonly tested in:
✔ Ratio analysis
✔ Corporate governance
✔ Risk assessment
✔ Capital structure decisions
✔ Dividend policy
✔ ESG disclosures
✔ Internal controls (SOX 404)
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