50 Q&A on Financial Reporting - US GAAP | US CMA PART 1
_By Prof. Mahaley | Gmsisuccess Mumbai_
This covers the most tested US GAAP topics in CMA Part 1
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#### *A. EQUITY & DIVIDENDS*
*1. Q: ................are Shares a company buys back from market. Shown as *Contra Equity* and reduces Total Stockholders Equity. No gain/loss on purchase.
*2. Q: Journal entry for Purchase of Treasury Stock $10,000?*
A: Dr. .......... | Cr. .........
*3. Q: Journal entry for Reissue Treasury Stock at $12,000. Cost was $10,000?*
A: Dr. ........... $12,000 | Cr. ......... $10,000 | Cr. .......... $2,000
*4. Q: Difference between Small vs Large Stock Dividend?*
A: *Small <.......%*: Record at FMV. Dr. ........... FMV | Cr. Common Stock Par | Cr. ........
*Large >......%*: Record at Par Value. Dr. ............ Par | Cr. Common Stock Par
*5. Q: Journal for 20% Small Stock Dividend. 100,000 shares, $1 Par, $10 FMV?*
A:
*6. Q: Journal for 30% Large Stock Dividend. 100,000 shares, $1 Par?*
A:
*7. Q: companies declare .......... Dividend,To distribute profits mid-year to shareholders. Not a legal obligation. Only .........Dividend declared at AGM is a legal obligation once approved.
*8. Q: Which is a legal obligation: Interim Dividend, Annual Dividend, or Finance Cost?*
A: *...........* on debt is a legal obligation. .............become legal only after Board + Shareholder approval.
#### *B. INVESTMENTS & OTHER COMPREHENSIVE INCOME*
*9. Q: 4 Types of Investments under US GAAP?*
A:
*10. Q: How are Trading Investments reported?*
A: At *.......(Cost/Fair Value)*. Unrealized Gain/Loss goes to *Net Income*.
*11. Q: How are AFS Investments reported?*
A: At *Fair Value*. Unrealized Gain/Loss goes to ...........(OCI - Other Comprehensive Income/ Net Income).
*12. Q: How are HTM Investments reported?*
A: At *.......... Cost*. No fair value adjustment. Use effective interest method.
*13. Q: Sale of AFS Investment for $15,000. Cost $12,000, Unrealized Gain $3,000 in OCI?*
A: Dr. .......... $15,000 | Cr. AFS Investment $12,000 | Cr. Realized Gain $3,000
Also: Dr. OCI $3,000 | Cr. Realized Gain $3,000 - To reclassify from OCI to NI
*14. Q: 15% Equity Stake Investment for Long Term?*
A: *..... Method*. Record at Cost. Dividend = Income. No equity pickup.
*15. Q: 20% to 50% Equity Stake Investment?*
A: .......(Cost/equity )Method*. Investor recognizes share of investee's Net Income.
*16. Q: >50% Equity Stake Investment?*
A: *Consolidation*. Parent + ....... financials combined.
*17. Q: Where is Other Comprehensive Income reported?*
A: In *SOCIE - Statement of Comprehensive Income*. Below ............
#### *C. CASH & CASH FLOWS*
*18. Q: Is Trading Investment held for 3 months part of Cash & Cash Equivalent?*
A: *...... (Yes/no)*. Only investments with maturity ≤ 3 months from purchase date qualify. Trading intent doesn’t matter.
*19. Q: Direct Method of CFO Illustration?*
A: Cash from ..... - Cash to ....... - Cash for Wages - Cash for Interest - Cash for Tax = *CFO*
*20. Q: Indirect Method of CFO?*
A:.......... + Non-cash expenses -/+ Changes in WC + Losses/Gains = *CFO*. Starts from Net Income.
*21. Q: Effect of Sale of AFS Investment on Cash Flow?*
A: * Cash Flow from ......*. Full proceeds are inflow.
*22. Q: Effect of Purchase of Treasury Stock on Cash Flow?*
A: *Cash Flow from .......*. Cash Outflow.
#### *D. FIXED ASSETS, DEPRECIATION & IMPAIRMENT*
*23. Q: Formula for Double Declining Balance Method?*
A: *DDB = ......(2 /4)× Straight Line Rate × Book Value*. Book Value = Cost - Acc Dep.
*24. Q: Formula for Sum-of-the-Years-Digits Method?*
A: *SYD = (Remaining Life / SYD) ×.....… (Book value/Depreciable Base). SYD = n(n+1)/2
*25. Q: What are Contra Assets?*
A: Accounts that ...... asset value. Ex: *Accumulated Depreciation, Allowance for Doubtful Accounts*.
*26. Q: Difference between Tangible vs Intangible Fixed Assets?*
A: *........*: Plant, Machinery - Depreciated
*........*: Patent, Goodwill - Amortized. Goodwill not amortized, tested for impairment.
*27. Q: One Step Impairment Test for Long-Lived Assets?*
A: Compare *......….vs Undiscounted Future Cash Flows*. If .......> Cash Flows, impairment exists.
*28. Q: Two Step Impairment Test for Goodwill?*
A: *Step 1*: CV of Reporting Unit vs Fair Value. If CV ......(</>)FV, proceed.
*Step 2*: Impairment Loss = CV of Goodwill - Implied FV of Goodwill
*29. Q: Journal for Impairment Loss $50,000?*
A: Dr. .............$50,000 | Cr. Accumulated depreciation/ Asset $50,000
*30. Q: What are Wasting Assets?*
A: .........Resources like Oil, Mines. Depleted using *.....,.....Method = (Cost / Total Units) × Units Extracted*
#### *E. INCOME STATEMENT & RATIOS*
*31. Q: Format: Sales - COGS = ?*
A: .............
*32. Q: Format: Gross Profit - Operating Exp = ?*
A: ....,.... Income
*33. Q: Where is "Net Income from Continuing Operations" shown?*
A: ......(Above/below)"Discontinued Operations" and "Extraordinary Items" in Multi-step IS.
*34. Q: What is Trading on Equity?*
A: Using Debt to earn ........(higher/lesser )ROE than cost of debt. Increases shareholder returns.
*35. Q: What is Debt Trap?*
A: When cost of debt ...….(>/<) ROA. Additional borrowing reduces EPS and leads to losses.
*36. Q: 3 Categories of Financial Ratios?*
A: *.....(Liquidity/Solvency)*: Current Ratio | *.......(Liquidity/Solvency)*: Debt to Equity | *Profitability*: ROE, ROA | *Leverage*: Financial Leverage
#### *F. LEASES & REPORTING*
*37. Q: 5 Criteria to test Finance Lease under US GAAP?*
A: 1. Transfer of Ownership 2. Purchase Option 3. Lease Term > ..….(90/75)% of Life
4. PV of Payments > .....(90/75)% of FV 5. Asset is specialized
*38. Q: Difference Operating Lease vs Finance Lease?*
A: *........*: Rent Expense. Off BS
*........*: Asset + Liability. Depreciation + Interest.
*39. Q: What is Sale and Leaseback?*
A: Company sells ...…(equity/asset) and leases it back. If Finance Lease, gain is deferred.
*40. Q: Contents of Annual Report?*
A: 1. Letter to Shareholders 2. MD&A 3. ......…....….4. Notes 5. Auditor Report 6. SOCIE
*41. Q: What is SOCIE?*
A: *.............….......*. Shows changes in Common Stock, RE, APIC, OCI.
*42. Q: Disclosures below Income Statement?*
A: ......…, Discontinued Ops, OCI, Accounting Policies.
*43. Q: Disclosures below Balance Sheet?*
A: Notes to Accounts, ..........… Liabilities, Related Party Transactions.
#### *G. STAKEHOLDERS & GOVERNANCE*
*44. Q: 3 Types of External Stakeholders & Interest?*
A: *Investors*: ROE | *...........*: Solvency | *..,.....,....*: Tax
*45. Q: 2 Types of Internal Stakeholders & Interest?*
A: *Management*: Bonus | *...........*: Job Security, Wages
*46. Q: Difference Executive Director vs Non-Executive Director?*
A: *........*: Involved in daily ops. Ex: CFO
*.......*: Independent. Oversight, Audit Committee.
#### *H. MISCELLANEOUS CONCEPTS*
*47. Q: Long-Lived Assets vs Current Assets?*
A: *Long-Lived*: Used >.....(5/1 )year. PPE, Intangibles
*Current*: Converted to ........ <1 year. Inventory, AR
*48. Q: How is Amortization for HTM Bond Premium done?*
A: *Effective Interest Method*. .....(Increase/Reduce) Interest Income and Carrying Value.
*49. Q: What is the effect of Treasury Stock on EPS?*
A: .........(Add/Reduces) outstanding shares, thus *Increases EPS*.
*50.If 20,000 equity shares face value 1$ each issued for 3$,pass journal entries*
50 Q&A on Cost Accounting - US CMA PART 1*
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#### *A. COST CONCEPTS & CLASSIFICATIONS*
*1. Q: Define Cost Object, Cost Centre, Cost Unit?*
A: *Cost Object*: Anything we want to measure ......for. Ex: Product, Dept
*Cost .....,.*: Responsibility area. Ex: Machining Dept
*Cost .......*: Unit of measurement. Ex: Per Unit, Per Hour
*2. Q: Difference between Product Cost and Period Cost?*
A: *Product/Inventoriable Cost*: Attach to ....... Ex: DM, DL, Mfg OH. Expensed as COGS
*Period Cost*: .,...,....(Payment/Expensed) in period incurred. Ex: Selling, Admin Expenses
*3. Q: What are Prime Cost and Conversion Cost?*
A: *Prime Cost* = DM + ....
*Conversion Cost* =........ + Manufacturing Overhead
*4. Q: Examples of Fixed, Variable, Semi-Variable, Step-Fixed Cost?*
A: *........*: Factory Rent $10,000/month
*........*: Raw Material $5/unit
*.......*: Electricity $2000 + $2/unit
*.......*: Supervisor Salary. Same till 10,000 units, jumps after
*5. Q: Engineered Cost vs Discretionary Cost?*
A: *........*: Direct relation to output. Ex: DM, DL
*.........*: Management decision. Ex: R&D, Advertising
*6. Q: What is Relevant Range?*
A: Range of activity where Total Fixed Cost and Variable Cost per unit remain ......
*7. Q: Factors of Production & their Costs?*
A: *Land*=..... *Labor*=..... *Capital*=..... *Entrepreneur*=......
*8. Q: Short Run vs Long Run?*
A: *Short Run*: Some factors ....... Ex: Factory size
*.......*: All factors variable
*9. Q: Historical Cost vs Sunk Cost vs Opportunity Cost?*
A: *Historical*: ...... cost incurred
*.....*: Past cost, irrelevant for decision
*Opportunity*: ...... lost by choosing one option. Ex: Use own building
*10. Q: Explicit vs Implicit Cost? Economic Cost?*
A: *Explicit*: Paid in ...... Ex: Wages
*........*: Not paid. Ex: Owner salary
*Economic Cost* = Explicit + ......
#### *B. COSTING METHODS & SYSTEMS*
*11. Q: 2 Main Methods of Costing?*
A: *..........Costing*: Unique products. Ex: Ship Building
*......... Costing*: Mass production. Ex: Cement
*12. Q: Key Difference Job vs Process Costing?*
A: *Job*: Cost tracked by ....... WIP by Job
*Process*: Cost tracked by ...... WIP by Dept
*13. Q: What is Activity Based Costing?*
A: Allocate OH based on *Cost Drivers* and *Cost Pools*, not just direct labor hours........ (Reduces/add) Cross Cost Subsidization.
*14. Q: Define Cost Pool, Cost Driver, Cost Driver Rate?*
A: *Cost......*: Group of OH. Ex: Setup Costs
*Cost ......*: Cause of cost. Ex: No. of Setups
*Rate* = Total Pool Cost / Total Driver Units
*15. Q: What is Target Costing?*
A: Target Price - Desired ....... = *Target Cost*. Work backwards.
*16. Q: Life Cycle Costing vs Kaizen Costing vs Backflush Costing?*
A: *Life Cycle*: Cost from R&D to Disposal
*Kaizen*: ....... cost reduction during production
*Backflush*: Postpone journal entries till completion. Used in JIT
*17. Q: Absorption vs Variable Costing?*
A: *Absorption*: Product cost = ......+DL+Var Mfg OH+Fixed Mfg OH
*Variable*: Product cost = DM+DL+Var Mfg OH. Fixed Mfg OH = ....... Cost
*18. Q: Throughput Costing & Theory of Constraints?*
A: *Throughput* = Sales -........ Only DM is product cost.
*TOC*: Focus on *Bottleneck Resource* to increase throughput.
#### *C. OVERHEADS & ALLOCATION*
*19. Q: Manufacturing OH vs Non-Manufacturing OH?*
A: *Mfg OH*: Indirect for production. Ex: Factory Supervisor
*Non-Mfg OH*: ......... +.........
*20. Q: Cost Tracing vs Cost Allocation?*
A: *Tracing*: Direct cost to cost ........ Ex: DM to Product
*Allocation*: ......... cost to cost object using base. Ex: Rent
*21. Q: What is Allocation Base?*
A: Measure used to ......(trace/allocate) OH. Ex: DL Hours, Machine Hours
*22. Q: Overapplied vs Underapplied Overhead?*
A: *Overapplied*: Applied > ....... Credit balance
*Underapplied*: Applied < ........ Debit balance
*23. Q: 3 Ways to Prorate Underapplied OH $12,000?*
A: 1. *Prorate* to ......, FG, COGS 2. *Write off to COGS* 3. *Carry forward*
*24. Q: Journal to Close $5,000 Overapplied OH to COGS?*
A: Dr. Manufacturing Overhead $5,000 | Cr. ......... $5,000
*25. Q: What is Cross Cost Subsidization?*
A: When one product is overcosted and another undercosted due to poor OH......(spending /allocation)
#### *D. SPOILAGE, WASTE & INVENTORY*
*26. Q: Normal Spoilage vs Abnormal Spoilage?*
A: *Normal*: Expected. Cost added to ....(good units/expenses )
*Abnormal*: .....(Expected/Unexpected) Expensed as Loss in period
*27. Q: Journal for Abnormal Spoilage $2,000?*
A: Dr. Loss from Abnormal Spoilage $2,000 | Cr......... $2,000
*28. Q: FIFO vs LIFO effect on Inventory Valuation?*
A: *Inflation*: .....(FIFO/LIFO) → Higher Ending Inventory, Higher NI
*.....(FIFO/LIFO)*: Lower Ending Inventory, Lower NI, Lower Tax
*29. Q: Cost of Goods Available for Sale vs Cost of Goods Sold?*
A: *CGAS* = Beg FG + Cost of Goods Manufactured
*COGS* = ....... - Ending FG
#### *E. CVP & DECISION MAKING*
*30. Q: High-Low Method to find Semi-Variable Cost?*
A: *..........Rate* = (Cost High - Cost Low)/(Units High - Units Low)
*Fixed* = Total Cost - Var Rate × Units
*31. Q: What is Marginal Cost?*
A: ........(Extra/Additional) cost to produce one more unit = Variable Cost per unit
*32. Q: Excess Capacity vs Spare Capacity vs Unused Capacity?*
A: *........*: Available but not needed
*.....*: Reserved for emergency
*......*: Budgeted but not used
*33. Q: Overcosting vs Undercosting?*
A: *.........*: Product charged too much OH
*.........*: Product charged too little OH
#### *F. MATERIALS, LABOR & DOCUMENTS*
*34. Q: Skilled vs Unskilled Labor Cost?*
A: *Skilled*: Direct Labor if .....(trained/untrained).
*Unskilled*: Often Indirect Labor. Part of Mfg OH
*35. Q: Documents in Raw Material Procurement & Risk Owner?*
A: *Docs*: Purchase Requisition → PO → Receiving Report → Vendor........
*Risk Owner*: *........ Dept* till goods received, then *Store Dept*
*36. Q: Journal for Inventory Shipment FOB Shipping Point?*
A: Buyer: Dr. ........... | Cr. Cash/AP when goods shipped
Seller: Dr. COGS | Cr. FG when goods shipped
*37. Q: Work Cost Sheet Components?*
A: Beg WIP + DM + DL + ........OH = Total Mfg Cost
- Ending WIP = *COGM*
#### *G. VARIANCES & OTHER TOPICS*
*38. Q: Actual Costing vs Normal Costing vs Standard Costing?*
A: *Actual*: Actual DM, DL, Actual OH Rate
*Normal*: Actual DM, DL, ......OH Rate
*Standard*: Budgeted DM, DL, Budgeted OH Rate. Track Variances
*39. Q: Variable Mfg OH vs Fixed Mfg OH?*
A: *Variable*: Changes with ......... Ex: Indirect Material
*Fixed*: Does not change. Ex: Factory Depreciation
*40. Q: Types of Industries & Products?*
A: *Extractive*: Mining | *.........*: Auto | *........*: Hospital
#### *H. DEPARTMENT & CONTROL*
*41. Q: 4 Main Departments in Manufacturing & Function?*
A: *Production*: Make product
*..........*: Buy RM
........: Quality Check
*Maintenance*: Support Dept/Auxiliary
*42. Q: Product Cost Centre vs Auxiliary Service Cost Centre with Example?*
A: *........*: Machining Dept. Directly makes product
*.......*: Maintenance Dept. Supports Production Dept
#### *I. ADVANCED CONCEPTS*
*43. Q: What is Mixed Cost?*
A: Cost with both ...... and ...... component. Ex: Utility Bill
*44. Q: Define Long-Lived Assets?*
A: Assets used >.... year. Subject to Depreciation/Amortization/Depletion
*45. Q: What is Bottleneck Resource?*
A: Resource that.......(extend/ limits) throughput. TOC says maximize it.
*46. Q: Purpose of Cost of Quality Report?*
A: To track .......(Review /Prevention), Appraisal, Internal Failure, External Failure costs.
*47. Q: What is Cost-Benefit Approach in Cost Management?*
A: Implement control only if Benefit....( >/<) Cost of control.
*48. Q: Key Performance Indicator for Cost Centre?*
A: Budgeted vs Actual Cost. ....(Efficiency/Revenue )Variance.
*49. Q: What is Responsibility Accounting?*
A: Evaluate managers based on costs they can .....(control/spend)
*50. Q: Most important formula for CMA Part 1 Cost Section?*
A: *COGM = Beg WIP + ..... Used + DL + Applied OH - ...…..WIP*
*COGS = Beg FG + COGM - End FG*
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*Exam Tip from Prof. Mahaley*:
CMA Part 1 Cost is 50% calculation + 50% concept. Master *ABC, CVP, Variances, and Job/Process Costing*. In exam, solve MCQs in 1.5 min and use "Elimination Method" for theory.
*Best Wishes 🍀*
*Prof. Mahaley* | Head, Gmsisuccess Mumbai | 9773464206
