100 MCQs from US CMA Part 1 New 2025 Syllabus

 Here are  100 MCQs from US CMA Part 1 New 2025 Syllabus

*Coverage*: All 6 sections + Ethics. Weighted like real exam. Use for drill.

*Section A: External Financial Reporting – 15 Qs*

1. *Under ASC 606, when is revenue recognized for a service performed over time?*  

   A. On completion  

   B. As the performance obligation is satisfied  

   C. When cash is received  

   D. When contract is signed  

   *Answer:

2. *A lease with 12-month term and no purchase option is:*  

   A. Finance lease  

   B. Operating lease with ROU asset  

   C. Short-term lease, expense only  

   D. Sales-type lease  

   *Answer: 

3. *Net Income $100,000. Depreciation $20,000. A/R inc $15,000. A/P inc $10,000. CFO = ?*  

   A. $115,000  

   B. $105,000  

   C. $125,000  

   D. $95,000  

   *Answer: 

4. *Temporary difference creating DTL:*  

   A. Warranty expense accrued  

   B. MACRS > Straight-line depreciation  

   C. NOL carryforward  

   D. Municipal bond interest  

   *Answer:

5. *Basic EPS: NI $500,000, Preferred Div $50,000, Wtd Avg Shares 100,000. EPS = ?*  

   A. $5.00  

   B. $4.50  

   C. $5.50  

   D. $4.00  

   *Answer:

6. *Stock dividend 10% vs stock split 2-for-1. Impact on RE?*  

   A. Both reduce RE  

   B. Stock div reduces RE, split does not  

   C. Both have no impact  

   D. Split reduces RE  

   *Answer:

7. *Functional currency = USD. Foreign subsidiary uses local currency. Translation gain goes to:*  

   A. Net Income  

   B. OCI as CTA  

   C. Retained Earnings  

   D. APIC  

   *Answer:

8. *Which is NOT part of OCI?*  

   A. Unrealized gain on trading securities  

   B. Foreign currency translation adjustment  

   C. Pension prior service cost  

   D. Unrealized gain on AFS debt  

   *Answer:

9. *Lessee Yr1: Lease Liab $84,240, Rate 6%, Payment $20,000. Interest Exp Yr1 = ?*  

   A. $5,054  

   B. $4,000  

   C. $3,854  

   D. $5,000  

   *Answer:

10. *Revenue contract: $100k, 20% chance of $10k bonus. Transaction price = ?*  

    A. $100,000  

    B. $110,000  

    C. $102,000  

    D. $108,000  

    *Answer:

11. *Which creates DTA?*  

    A. Prepaid rent deducted on tax return  

    B. Accrued warranty expense  

    C. Installment sale gain  

    D. Accelerated depreciation  

    *Answer

12. *Cash flow: Sale of equipment at gain. Gain shown in:*  

    A. Operating, add back  

    B. Operating, deduct  

    C. Investing, full proceeds  

    D. Financing  

    *Answer:

13. *Treasury stock purchased. Effect on equity?*  

    A. Decrease total equity  

    B. No effect  

    C. Increase equity  

    D. Increase liabilities  

    *Answer:

14. *Lessor classifies lease as sales-type if:*  

    A. PV of payments ≥ substantially all FV  

    B. Lease term = major part of life  

    C. Collectibility not probable  

    D. A or B  

    *Answer:

15. *EPS: Convertibles increase shares but also increase NI due to interest saved. This is:*  

    A. Basic EPS  

    B. Antidilutive, ignore  

    C. Dilutive  

    D. Always included  

    *Answer: 

---

*Section B: Planning, Budgeting & Forecasting – 20 Qs*

16. *Best budget for cost control at different volumes:*  

    A. Static  

    B. Flexible  

    C. Rolling  

    D. Zero-based  

    *Answer:

17. *Production units = Sales 10,000 + End FG 2,000 – Beg FG 1,500 = ?*  

    A. 9,500  

    B. 10,500  

    C. 11,500  

    D. 8,500  

    *Answer

18. *80% learning curve. 1st unit 100 hrs. Avg time for 2 units = ?*  

    A. 100  

    B. 90  

    C. 80  

    D. 160  

    *Answer:

19. *High-Low: High 10,000 units $50,000. Low 6,000 units $38,000. VC/unit = ?*  

    A. $3.00  

    B. $4.00  

    C. $5.00  

    D. $2.00  

    *Answer:

20. *Advantage of rolling budget:*  

    A. Less work  

    B. Always 12 months forward, more current  

    C. No variance analysis  

    D. Eliminates fixed costs  

    *Answer:

21. *Cash collections: Sales $100k. 60% month of sale, 40% next. Month 2 sales $120k. Cash in Month 2 = ?*  

    A. $112,000  

    B. $100,000  

    C. $120,000  

    D. $88,000  

    *Answer:

22. *ZBB starts from:*  

    A. Last year budget  

    B. Zero  

    C. Industry average  

    D. Strategic plan only  

    *Answer: 

23. *Regression: Y = 2,000 + 5X. If X=1,000, Y = ?*  

    A. 5,000  

    B. 7,000  

    C. 2,005  

    D. 10,000  

    *Answer: 

24. *Expected value: 30% $100, 70% $200 = ?*  

    A. $150  

    B. $170  

    C. $130  

    D. $200  

    *Answer:

25. *Which budget is prepared first?*  

    A. Production  

    B. Sales  

    C. Cash  

    D. Direct Materials  

    *Answer:

26. *Disadvantage of incremental budgeting:*  

    A. Time consuming  

    B. Perpetuates inefficiencies  

    C. No control  

    D. Not GAAP  

    *Answer:

27. *Pro forma income statement is part of:*  

    A. Capital budget  

    B. Operating budget  

    C. Financial budget  

    D. Both B & C  

    *Answer:

28. *Sales forecast based on marketing manager opinion =*  

    A. Time series  

    B. Delphi  

    C. Judgmental  

    D. Regression  

    *Answer: 

29. *Budget slack means:*  

    A. Overstating revenue  

    B. Understating costs  

    C. Padding budget to make targets easy  

    D. Using flexible budget  

    *Answer: 

30. *Cash budget excludes:*  

    A. Depreciation  

    B. Loan repayment  

    C. Tax payment  

    D. Equipment purchase  

    *Answer:

31. *Activity-based budgeting starts with:*  

    A. Departments  

    B. Activities and cost drivers  

    C. Last year spend  

    D. Sales units  

    *Answer:

32. *If sales increase 10%, and DOL=2, PBIT increases:*  

    A. 10%  

    B. 5%  

    C. 20%  

    D. 2%  

    *Answer:

33. *Top-down budgeting risk:*  

    A. Unrealistic targets, low commitment  

    B. Too much time  

    C. No strategy link  

    D. No variance  

    *Answer: 

34. *Kaizen budgeting focuses on:*  

    A. Large cuts  

    B. Continuous small improvements  

    C. Zero base  

    D. Fixed costs only  

    *Answer:

35. *Which is NOT a forecasting method?*  

    A. Regression  

    B. Exponential smoothing  

    C. Variance analysis  

    D. Time series  

    *Answer:

---

*Section C: Performance Management – 20 Qs*

36. *Std: 2kg@$5. Actual: 2,100kg@$5.20 for 1,000 units. MPV = ?*  

    A. $400 F  

    B. $420 A  

    C. $400 A  

    D. $420 F  

    *Answer: 

37. *SH=2,000 hrs, AH=2,200 hrs, SR=$10. Labor Eff Var = ?*  

    A. $2,000 F  

    B. $2,000 A  

    C. $200 A  

    D. $200 F  

    *Answer: 

38. *FOH Volume Var only exists in:*  

    A. Marginal costing  

    B. Absorption costing  

    C. Both  

    D. Standard costing  

    *Answer:

39. *ROI = 20%. Assets $500k. Profit = ?*  

    A. $100,000  

    B. $25,000  

    C. $10,000  

    D. $250,000  

    *Answer:

40. *RI: Profit $50k, Assets $400k, RR 10%. RI = ?*  

    A. $10,000  

    B. $40,000  

    C. $90,000  

    D. $4,000  

    *Answer:

41. *Min transfer price if no excess capacity =*  

    A. Variable cost  

    B. Variable cost + Opportunity cost  

    C. Full cost  

    D. Market price  

    *Answer:

42. *Balanced Scorecard: “On-time delivery %” is which perspective?*  

    A. Financial  

    B. Customer  

    C. Internal Business  

    D. Learning  

    *Answer:

43. *Sales Price Var = (AP $12 – SP $10)×1,000 = ?*  

    A. $2,000 F  

    B. $2,000 A  

    C. $1,000 F  

    D. $1,000 A  

    *Answer:

44. *VOH Exp Var = Actual $50k – (AH 5,000×$9) = ?*  

    A. $5,000 A  

    B. $5,000 F  

    C. $45,000 A  

    D. $45,000 F  

    *Answer:

45. *Responsibility center: Manager controls costs only =*  

    A. Profit center  

    B. Cost center  

    C. Investment center  

    D. Revenue center  

    *Answer: 

46. *If actual production > budgeted, FOH Volume Var is:*  

    A. Favorable  

    B. Adverse  

    C. Zero  

    D. Not calculable  

    *Answer: 

47. *Sales Volume Var in absorption = (AQ–BQ)×Std Profit. In marginal = (AQ–BQ)×?*  

    A. Std Profit  

    B. Std CM  

    C. Actual CM  

    D. Std Price  

    *Answer:

48. *EVA = NOPAT – (WACC × Capital). EVA > 0 means:*  

    A. Destroying value  

    B. Creating value  

    C. Breakeven  

    D. ROI > 0  

    *Answer: 

49. *Leading indicator example:*  

    A. Net Income  

    B. Customer satisfaction  

    C. Employee training hours  

    D. ROI  

    *Answer:

50. *Mix Variance arises when:*  

    A. Total input differs from std  

    B. Actual mix differs from std mix  

    C. Price differs  

    D. Yield differs  

    *Answer:

51. *Yield Variance = (Actual Output – Std Output from actual input)×?*  

    A. Std cost per unit of output  

    B. Actual cost  

    C. Std price  

    D. Actual price  

    *Answer:

52. *Idle time variance = Idle Hours × ?*  

    A. Actual rate  

    B. Standard rate  

    C. Zero  

    D. VOH rate  

    *Answer:

53. *Goal congruence means:*  

    A. Division goals align with company goals  

    B. All divisions have same ROI  

    C. No transfer pricing  

    D. Profit max only  

    *Answer:

54. *Dysfunctional behavior with ROI:*  

    A. Accept all projects > WACC  

    B. Reject project earning 12% if division ROI=15%, WACC=10%  

    C. Use RI  

    D. Increase assets  

    *Answer:

55. *Benchmarking type comparing to best in any industry =*  

    A. Internal  

    B. Competitive  

    C. Functional  

    D. Generic  

    *Answer:

---

*Section D: Cost Management – 15 Qs*

56. *Prime Cost =*  

    A. DM+DL+OH  

    B. DM+DL+Direct Exp  

    C. DL+OH  

    D. DM+OH  

    *Answer:

57. *Sunk cost example:*  

    A. Future rent  

    B. Machine already purchased  

    C. DM for new order  

    D. Opportunity cost  

    *Answer

58. *ABC first step:*  

    A. Assign cost to products  

    B. Identify activities  

    C. Calc product cost  

    D. Choose allocation base  

    *Answer:

59. *Overapplied OH means:*  

    A. Applied < Actual  

    B. Applied > Actual  

    C. Actual = Budget  

    D. No OH  

    *Answer:

60. *Prorate overapplied OH: Dr Mfg OH, Cr ?*  

    A. WIP, FG, COGS  

    B. COGS only  

    C. Payables  

    D. Sales  

    *Answer:

61. *Joint cost allocation: Sales Value at Split-off uses:*  

    A. Final sales value  

    B. Value at split-off point  

    C. NRV  

    D. Physical units  

    *Answer:

62. *By-product NRV $10,000, inventoried. Joint cost $100,000. Cost to allocate = ?*  

    A. $100,000  

    B. $90,000  

    C. $110,000  

    D. $10,000  

    *Answer:

63. *EOQ = √(2×200×1,000 / 2) = ?*  

    A. 200  

    B. 400  

    C. 447  

    D. 100  

    *Answer:

64. *TOC step 1:*  

    A. Elevate constraint  

    B. Identify constraint  

    C. Exploit constraint  

    D. Subordinate  

    *Answer:

65. *JIT goal:*  

    A. Large inventory  

    B. Zero inventory, zero defects  

    C. Max EOQ  

    D. High safety stock  

    *Answer:

66. *Life-cycle costing includes:*  

    A. Mfg costs only  

    B. R&D + Mfg + Marketing + Disposal  

    C. Period costs only  

    D. OH only  

    *Answer:

67. *Conversion cost =*  

    A. DM+DL  

    B. DL+FOH+VOH  

    C. DM+OH  

    D. All product costs  

    *Answer:

68. *Which is period cost?*  

    A. Factory rent  

    B. Sales commission  

    C. DM  

    D. DL  

    *Answer:

69. *Value chain: Which is primary activity?*  

    A. HR  

    B. Operations  

    C. Procurement  

    D. Firm infrastructure  

    *Answer: 

70. *Target costing: Price $100, Desired profit 20%. Target cost = ?*  

    A. $80  

    B. $20  

    C. $120  

    D. $100  

    *Answer:

---

*Section E: Internal Controls – 15 Qs*

71. *COSO 2013 has how many principles?*  

    A. 5  

    B. 17  

    C. 3  

    D. 10  

    *Answer:

72. *Tone at the top is part of:*  

    A. Control Activities  

    B. Control Environment  

    C. Monitoring  

    D. Risk Assessment  

    *Answer: 

73. *Same person approves PO and receives goods. This violates:*  

    A. Authorization  

    B. Segregation of duties  

    C. Physical control  

    D. Documentation  

    *Answer: 

74. *SOX 404 requires:*  

    A. CEO certify financials  

    B. Management assessment of ICFR + Auditor attestation  

    C. No audit committee  

    D. Quarterly only  

    *Answer:

75. *ITGC: Who should NOT have production access?*  

    A. Users  

    B. Developers  

    C. Operations  

    D. DBA  

    *Answer:

76. *Preventive control example:*  

    A. Bank reconciliation  

    B. Segregation of duties  

    C. Variance analysis  

    D. Audit  

    *Answer:

77. *Internal audit should report functionally to:*  

    A. CFO  

    B. CEO  

    C. Audit Committee  

    D. Controller  

    *Answer:

78. *Risk assessment principle: Management should:*  

    A. Ignore fraud risk  

    B. Specify objectives  

    C. Not consider change  

    D. Avoid controls  

    *Answer:

79. *Detective control:*  

    A. Password  

    B. Reconciliation  

    C. Access matrix  

    D. Lock  

    *Answer:

80. *Change management control:*  

    A. User access review  

    B. Testing and approval before prod move  

    C. Backup  

    D. Firewall  

    *Answer:

81. *SOX 302 penalty for false cert:*  

    A. No penalty  

    B. Fine + jail up to 20 years  

    C. Only fine  

    D. Warning  

    *Answer:

82. *Inherent risk vs Control risk:*  

    A. Inherent = risk controls fail, Control = risk of misstatement  

    B. Inherent = risk of misstatement before controls, Control = risk controls fail  

    C. Same  

    D. Neither exist  

    *Answer: 

83. *Whistleblower program is part of:*  

    A. Information  

    B. Control Environment  

    C. Monitoring  

    D. Risk Assessment  

    *Answer:

84. *Logical access control:*  

    A. Fence  

    B. Password  

    C. Guard  

    D. CCTV  

    *Answer:

85. *Compensating control example:*  

    A. Second person review when SOD not possible  

    B. No control  

    C. Preventive only  

    D. Eliminate risk  

    *Answer:

---

*Section F: Technology & Analytics – 10 Qs*

86. *ERP benefit:*  

    A. Multiple databases  

    B. Single integrated database  

    C. No reporting  

    D. Manual only  

    *Answer: 

87. *“What will happen?” is:*  

    A. Descriptive  

    B. Diagnostic  

    C. Predictive  

    D. Prescriptive  

    *Answer: 

88. *Data variety means:*  

    A. Speed  

    B. Different data types: text, video  

    C. Volume  

    D. Accuracy  

    *Answer:

89. *RPA risk:*  

    A. Too slow  

    B. Bot has excessive access  

    C. No ROI  

    D. Manual  

    *Answer:

90. *Blockchain feature:*  

    A. Centralized  

    B. Immutable ledger  

    C. Editable by all  

    D. No security  

    *Answer

91. *CIA Triad: Encryption protects:*  

    A. Availability  

    B. Confidentiality  

    C. Integrity  

    D. All  

    *Answer:

92. *Phishing attack targets:*  

    A. Network  

    B. Human users via email  

    C. Hardware  

    D. Database only  

    *Answer:

93. *Data warehouse is used for:*  

    A. Transaction processing  

    B. Analytics and reporting  

    C. Payroll  

    D. AP  

    *Answer:

94. *AI vs RPA:*  

    A. RPA = rules-based, AI = learns  

    B. Same  

    C. AI = manual  

    D. RPA = AI  

    *Answer: 

95. *Data governance includes:*  

    A. Data quality, privacy, security  

    B. Only backup  

    C. Only reporting  

    D. No policies  

    *Answer: 

---

*Ethics – 5 Qs*

96. *IMA: “Confidentiality” requires NOT:*  

    A. Keep info confidential  

    B. Disclose per legal obligation  

    C. Use for personal advantage  

    D. Inform all parties  

    *Answer:

97. *FCPA books & records provision requires:*  

    A. No records  

    B. Accurate books in reasonable detail  

    C. Cash basis only  

    D. No audit  

    *Answer:

98. *Fraud triangle: “I need money for medical bills” =*  

    A. Opportunity  

    B. Rationalization  

    C. Pressure  

    D. Capability  

    *Answer:

99. *First step when asked to manipulate earnings:*  

    A. Resign  

    B. Discuss with immediate supervisor  

    C. Call SEC  

    D. Do it  

    *Answer: 

100. *Integrity requires:*  

    A. Mitigate conflicts of interest  

    B. Hide conflicts  

    C. Accept gifts  

    D. Bias  

    *Answer: 

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Joint Cost & By-Product – US CMA Part 1 Rules

 Joint Cost & By-Product – US CMA Part 1 Rules

*1. If value of by-product is material, is it always considered for joint cost allocation?*

*Short Answer: No. Materiality does NOT make a by-product a joint product.*  

*Explanation:*  

ICMA defines the split based on _relative sales value at split-off_, not materiality alone.

Type Criteria Joint Cost Allocation?

**Joint Products** 2+ products with significant relative sales value. Each is a main product. **Yes** – allocate joint costs using Sales Value, NRV, or Constant GP method

**By-Product** Incidental product with *minor* sales value relative to main product(s). Not primary reason for production. **No** – by-product does NOT get joint cost allocated.

*So what if by-product value is “material”?*  

If the “by-product” starts having significant value, then technically it’s no longer a by-product – it becomes a *joint product*. But the exam will _tell you_ how to classify it.  

*CMA Exam Rule*:  

If the question calls it a “by-product”, treat it as a by-product even if the dollar amount looks big. Only allocate joint costs if the question explicitly says “joint products” or gives 2+ main products.  

*Accounting for Material By-Product*:  

Still use the by-product methods below. “Material” just means you’ll disclose it separately, but you don’t suddenly allocate joint cost.

---

*2. If it’s mentioned that by-product is inventoried, should that always be deducted from joint cost before allocation?*

*Short Answer: Yes – if using the “NRV method” for by-products. This is the CMA preferred treatment.*

*Two By-Product Methods CMA Tests:*

*Method 1: NRV Method – Default for CMA*  

Used when by-product is inventoried OR when question is silent.

*Steps:*

1. Calc NRV of by-product = Sales Value – Separate costs to complete/sell  

2. *Deduct by-product NRV from total joint costs*  

3. Allocate the _reduced_ joint cost to main products only  

*Journal when by-product is produced:*  

Dr By-Product Inventory --- NRV  

Cr Joint Process / Work-in-Process --- NRV  

This reduces the cost of the main product. Main product cost per unit goes down.

*Method 2: Other Income Method*  

Used when by-product is NOT inventoried OR question says “recognize when sold”.  

*Steps:*  

1. Do NOT deduct anything from joint cost. Main products get full joint cost.  

2. When by-product sells: Cr Other Income or Cr COGS  

*Exam Trap*: If they say “by-product is inventoried” or “by-product has NRV of $X”, you must deduct it from joint cost first. If you don’t, your main product cost will be overstated = wrong MCQ.

---

*Quick Decision Tree for Exam*

1. *Does question call it “joint product” or “by-product”?*  

   - Joint product → Allocate joint cost  

   - By-product → Do NOT allocate joint cost

2. *If by-product, is it inventoried?*  

   - Yes or silent → Use NRV method: Deduct NRV from joint cost before allocation  

   - No / “expensed when sold” → Other Income method: No deduction, record income on sale

3. *Does materiality matter?*  

   - No. Classification drives treatment. If CMA wants you to reclassify, they will say “due to increased value, now considered joint product”.

---

*Example CMA-Style*

Joint cost = $100,000.  

Main Product A sales value = $200,000.  

By-product B: 10,000 units, can sell $3/unit after $5,000 separate processing. By-product is inventoried.

*Solution:*  

By-product NRV = (10,000 × $3) – $5,000 = $25,000  

Joint cost to allocate = $100,000 – $25,000 = $75,000 → all to Product A.  

If by-product was NOT inventoried: Allocate $100,000 to Product A. When B sells, record $25,000 Other Income.

*Key takeaway*: “Inventoried” = deduct. “Not inventoried” = don’t deduct. Materiality ≠ joint product.

AIS Question ⁉️ Answers

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Answers for your reference...

*20 Case-Based MCQs – US CMA Part 1: Section B. Internal Controls + Section A. AIS*  

*Topics*: AIS, Revenue Cycle, Expenditure Cycle, Payroll, Procurement, Conversion, Documents, Deliverables

---

*Revenue & Sales Cycle*

*Case 1*:  

Customer orders 100 units by phone. Sales clerk creates sales order, but no credit check is done. Goods shipped, customer later defaults.  

*Q*: Which key document/control was missing?  

A. Bill of Lading  

B. *Approved Sales Order with credit authorization*  

C. Packing Slip  

D. Remittance Advice  

*Answer: B*  

*Why*: Revenue cycle: Order Entry → Credit Approval → Shipping. Credit approval prevents bad debt. Key doc = credit-approved sales order.

*Case 2*:  

Warehouse ships goods but shipping dept fails to send shipping notice to billing. Invoice never created.  

*Q*: Which document ensures billing occurs?  

A. Purchase Order  

B. *Bill of Lading/Shipping Document matched to Sales Order*  

C. Receiving Report  

D. Vendor Invoice  

*Answer: B*  

*Why*: AIS control: Shipping doc triggers billing. No ship notice = underbilling. Match S/O → B/L → Invoice.

*Case 3*:  

Customer sends check + remittance advice. Clerk steals check, destroys remittance advice, laps receivables.  

*Q*: Control to prevent?  

A. Sales Order  

B. *Segregation: Mailroom lists checks, separate person posts to AR*  

C. Invoice  

D. Bank Reconciliation  

*Answer: B*  

*Why*: Revenue cycle cash receipts: List checks immediately + separate custody vs recording. Key docs: prelist, remittance advice, deposit slip.

*Case 4*:  

Sales return approved by sales manager only. No receiving report. Inventory overstated.  

*Q*: Missing document in AIS?  

A. Credit Memo  

B. *Receiving Report for Sales Returns*  

C. Debit Memo  

D. Purchase Requisition  

*Answer: B*  

*Why*: Sales return cycle: RMA → Receiving Report → Credit Memo. Receiving confirms goods returned before inventory + AR adjusted.

---

*Expenditure / Procurement Cycle*

*Case 5*:  

Dept manager emails vendor directly, vendor ships goods, invoice arrives. No PO issued. A/P pays.  

*Q*: Which AIS control violated + missing doc?  

A. Three-way match  

B. *Authorized Purchase Order before commitment*  

C. Receiving Report  

D. Vendor Statement  

*Answer: B*  

*Why*: Procurement cycle: Requisition → Approved PO → Receiving → Voucher. PO authorizes purchase, controls budget.

*Case 6*:  

A/P clerk pays invoice without matching to PO + Receiving Report. Goods never received.  

*Q*: Control failure?  

A. Authorization  

B. *Three-Way Match: PO + Receiving Report + Vendor Invoice*  

C. Segregation of Duties  

D. Physical Safeguards  

*Answer: B*  

*Why*: Expenditure cycle key control: Match PO, RR, Invoice before voucher. Prevents payment for non-receipt.

*Case 7*:  

Receiving clerk both counts goods and updates inventory records. Shortages occur.  

*Q*: AIS weakness?  

A. No PO  

B. *Lack of segregation: custody vs recordkeeping*  

C. No invoice  

D. No requisition  

*Answer: B*  

*Why*: Procurement: Receiving = custody. Inventory records = recording. Same person can hide theft.

*Case 8*:  

Vendor offers 2/10, n/30. A/P always pays day 30 to “save cash”.  

*Q*: AIS deliverable to improve?  

A. Vendor Statement  

B. *Cash Disbursement Schedule + Discount Lost Report*  

C. Aging Report  

D. Purchase Journal  

*Answer: B*  

*Why*: Expenditure cycle: System should flag discounts. Missing discount = 36% annual cost. Deliverable = report of discounts taken/missed.

---

*Payroll Cycle*

*Case 9*:  

HR enters new employee, also approves timesheet, and distributes checks. Ghost employee found.  

*Q*: Violated control + missing docs?  

A. Time Card  

B. *Segregation: HR add employee, Supervisor approve time, Payroll process, Separate custody of checks*  

C. W-4 Form  

D. Payroll Register  

*Answer: B*  

*Why*: Payroll cycle: HR master file, Supervisor authorizes hours, Payroll calculates, Treasury signs/distributes. Key docs: W-4, timecard, payroll register, payroll checks.

*Case 10*:  

Overtime not approved. Payroll clerk pays based on timecards only.  

*Q*: Missing authorization doc?  

A. W-2  

B. *Approved Overtime Authorization Form*  

C. Earnings Record  

D. Direct Deposit Form  

*Answer: B*  

*Why*: Payroll: Hours must be authorized. Timecard + supervisor overtime approval = key docs before payroll run.

*Case 11*:  

Payroll tax deposits late. Penalty incurred.  

*Q*: AIS deliverable missing?  

A. Payroll Register  

B. *Payroll Tax Calendar + Exception Report*  

C. 941 Form  

D. Check Register  

*Answer: B*  

*Why*: Payroll cycle: System should generate tax due date alerts. Deliverable = compliance calendar.

---

*Conversion / Production Cycle*

*Case 12*:  

Production starts without materials requisition. Materials taken from warehouse freely.  

*Q*: Key document missing?  

A. Job Cost Sheet  

B. *Materials Requisition Form authorized*  

C. Bill of Materials  

D. Production Schedule  

*Answer: B*  

*Why*: Conversion cycle: BOM = standard, Materials Requisition = actual authorization to move inventory to WIP. Prevents theft.

*Case 13*:  

Labor costs posted to wrong job. Job cost overrun not detected.  

*Q*: AIS doc to ensure accuracy?  

A. Time Ticket  

B. *Job Time Ticket matched to Job Cost Sheet*  

C. Labor Distribution Report  

D. Payroll Register  

*Answer: B*  

*Why*: Conversion: Labor tracked by job via time ticket → posted to Job Cost Sheet. Deliverable: Job Cost Ledger.

*Case 14*:  

Completed goods transferred to FG warehouse but no document. Inventory shortage later.  

*Q*: Missing?  

A. Sales Order  

B. *Completed Production Report / Transfer Ticket*  

C. Materials Requisition  

D. Packing Slip  

*Answer: B*  

*Why*: Conversion cycle ends with transfer to FG. Completed goods ticket updates WIP to FG inventory.

---

*AIS Controls & Deliverables*

*Case 15*:  

System allows sales clerk to enter order, approve credit, print invoice, and post to GL.  

*Q*: AIS principle violated?  

A. Audit Trail  

B. *Segregation of Duties in AIS*  

C. Input Controls  

D. Output Controls  

*Answer: B*  

*Why*: AIS: Order entry, credit, billing, GL should be separate modules/users. Prevents fraud.

*Case 16*:  

Month-end close takes 15 days because GL not reconciled to subledgers.  

*Q*: AIS deliverable needed?  

A. Chart of Accounts  

B. *Automated Subledger-to-GL Reconciliation Report + Exception Report*  

C. Journal Entry Log  

D. Trial Balance  

*Answer: B*  

*Why*: AIS should provide real-time reconciliation. Deliverable = auto-match AR/AP/Inv to GL, list differences.

*Case 17*:  

Unauthorized user changes vendor master file bank details. Fraud payment made.  

*Q*: Key AIS control?  

A. Input Mask  

B. *Access Controls + Vendor Master Change Report to A/P Manager*  

C. Backup  

D. Hash Total  

*Answer: B*  

*Why*: Expenditure: Vendor master file changes = high risk. Control = restricted access + audit trail report of changes.

*Case 18*:  

Invoice data entry: clerk types ₹10,000 as ₹100,000. No check.  

*Q*: AIS input control missing?  

A. Sequence Check  

B. *Limit/Reasonableness Check + Field Check*  

C. Validity Check  

D. Completeness Check  

*Answer: B*  

*Why*: Input controls: Limit check flags amount > normal PO. Reasonableness check: ₹100k vs avg ₹10k.

*Case 19*:  

CFO asks: “Which customers are over 90 days?”  

*Q*: AIS deliverable from revenue cycle?  

A. Sales Journal  

B. *Aged AR Trial Balance Report*  

C. Cash Receipts Journal  

D. Customer Statement  

*Answer: B*  

*Why*: Revenue cycle output: Aged AR = key deliverable for collections + allowance estimate.

*Case 20*:  

Company wants to know: “Cost per unit for Job 123”  

*Q*: AIS deliverable from conversion cycle?  

A. Materials Requisition  

B. *Job Cost Sheet / Cost Accounting Report*  

C. Production Schedule  

D. Labor Time Ticket  

*Answer: B*  

*Why*: Conversion cycle output: Job Cost Sheet accumulates DM, DL, OH. Deliverable = unit cost for pricing/decisions.

---

*Summary Table – Key Documents by Cycle*

Cycle Key Documents Key Deliverable/Report

**Revenue** Sales Order, Credit Approval, Shipping Doc/BOL, Invoice, Remittance Advice Aged AR, Sales Analysis

**Expenditure/Procurement** Purchase Requisition, PO, Receiving Report, Vendor Invoice, Check AP Aging, Discounts Lost Report

**Payroll** W-4, Timecard, Approved OT, Payroll Register, Check/Direct Deposit Labor Distribution, 941 Tax Report

**Conversion** BOM, Materials Req, Job Time Ticket, Completed Goods Ticket Job Cost Sheet, Variance Report

*CMA Exam Tip*: For AIS, think “What triggers next step?” and “Who should NOT do both X and Y?” Segregation + 3-way match are tested heavily.

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Question answer on Bond valuation and amortization of premium or discounts

*US CMA Part 1: Bond Valuation & Amortization – Case-Based MCQs*  

Section A

1.

A bond issued at a price above its face value is issued at:

A. Discount

B. Par

C. Premium

D. Zero value

Answer: 

2.

When market interest rate is lower than coupon rate, bonds are issued at:

A. Discount

B. Premium

C. Par

D. Loss

Answer: 

3.

Bond discount occurs when:

A. Coupon rate = Market rate

B. Coupon rate > Market rate

C. Coupon rate < Market rate

D. Interest is unpaid

Answer: 

4.

The carrying value of a bond issued at discount will:

A. Decrease over time

B. Increase over time

C. Remain constant

D. Become zero

Answer: 

5.

The carrying value of a bond issued at premium will:

A. Increase over time

B. Decrease over time

C. Stay constant

D. Become negative

Answer: 

6.

Which method is preferred under US GAAP for amortization?

A. Straight-line

B. Effective interest method

C. Declining balance

D. FIFO method

Answer: 

7.

Interest expense under effective interest method equals:

A. Coupon payment

B. Face value × coupon rate

C. Carrying value × market rate

D. Market value × coupon rate

Answer: 

8.

Bond interest payment is calculated on:

A. Carrying value

B. Market value

C. Face value

D. Discount value

Answer: 

9.

If bonds are issued at discount, interest expense is:

A. Less than cash paid

B. Equal to cash paid

C. Greater than cash paid

D. Zero

Answer: 

10.

If bonds are issued at premium, interest expense is:

A. Greater than cash paid

B. Less than cash paid

C. Equal to cash paid

D. Double the cash paid

Answer: 

11.

Amortization of bond discount:

A. Reduces interest expense

B. Increases interest expense

C. Has no effect

D. Eliminates liability

Answer: 

12.

Amortization of bond premium:

A. Increases interest expense

B. Reduces interest expense

C. No impact

D. Eliminates cash flow

Answer: 

13.

At maturity, carrying value of bond equals:

A. Market value

B. Issue price

C. Face value

D. Discount value

Answer: 

14.

Which component is NOT part of bond valuation?

A. Present value of principal

B. Present value of interest

C. Future market speculation

D. Discount rate

Answer: 

15.

Bond price equals:

A. FV + interest

B. PV of principal only

C. PV of interest + PV of principal

D. Coupon × years

Answer:

16.

Effective interest method results in:

A. Constant amortization amount

B. Variable amortization amount

C. Zero amortization

D. Fixed interest expense

Answer: 

17.

Straight-line method results in:

A. Variable interest expense

B. Constant amortization

C. Increasing carrying value always

D. No amortization

Answer: 

18.

Discount on bonds payable is classified as:

A. Asset

B. Liability

C. Contra liability

D. Revenue

Answer:

19.

Premium on bonds payable is classified as:

A. Asset

B. Liability addition

C. Contra liability

D. Expense

Answer: 

20.

If market rate equals coupon rate, bond is issued at:

A. Premium

B. Discount

C. Par

D. Loss

Answer: 

Section b: External Financial Reporting | Subtopic: Bonds Payable, Effective Interest Method ASC 835

---

*Case 1: Bond Issued at Discount – Interest Expense*

*Case*: On 1/1/2026, GMSIsuccess LLP issues 5-year, 8% bonds with face value ₹10,00,000. Interest payable semiannually 6/30 and 12/31. Market rate = 10%. Proceeds = ₹9,22,780.  

*Q1*: What is the interest expense for 6/30/2026 using effective interest method?  

A. ₹40,000  

B. *₹46,139*  

C. ₹50,000  

D. ₹36,911  

*Answer: 

*Q2*: Bond carrying value at 12/31/2026 after 2 payments?  

A. ₹9,22,780  

B. ₹9,28,919  

C. *₹9,35,365*  

D. ₹10,00,000  

*Answer: 

*Case 2: Bond Issued at Premium – Amortization*

*Case*: 1/1/2026, 5-year, 10% bonds, Face ₹10,00,000. Market rate 8%. Proceeds = ₹10,81,110. Semiannual interest.  

*Q3*: Interest expense for 6/30/2026?  

A. ₹50,000  

B. *₹43,244*  

C. ₹40,000  

D. ₹54,056  

*Answer:

*Q4*: Bond carrying value at 12/31/2026?  

A. ₹10,81,110  

B. ₹10,74,354  

C. *₹10,67,327*  

D. ₹10,00,000  

*Answer: 

*Case 3: Straight-Line vs Effective Interest – CMA Trap*

*Case*: 3-year, 9% bonds, Face ₹5,00,000, issued at ₹4,71,697 when market = 11%. Straight-line method used for amortization.  

*Q5*: Interest expense for Year 1 using SL method?  

A. ₹45,000  

B. *₹54,434*  

C. ₹51,887  

D. ₹55,000  

*Answer:

*Q6*: Under US GAAP, which method must be used?  

A. Straight-line  

B. *Effective interest method*  

C. Either, if immaterial difference  

D. Market value method  

*Answer:

---

*Case 4: Bond Retirement Before Maturity*

*Case*: On 1/1/2028, after 2 years, GMSIsuccess retires the 10% premium bonds from Case 2. Carrying value 1/1/2028 = ₹10,52,296. Retired at 102 = ₹10,20,000.  

*Q7*: Gain or loss on retirement?  

A. Loss ₹32,296  

B. *Gain ₹32,296*  

C. Loss ₹20,000  

D. No gain/loss  

*Answer: 

---

*Case 5: Zero-Coupon Bond – Deep Discount*

*Case*: 5-year zero-coupon bond, Face ₹10,00,000, issued for ₹6,20,920 when market = 10%.  

*Q8*: Interest expense Year 1?  

A. ₹0  

B. ₹100,000  

C. *₹62,092*  

D. ₹75,816  

*Answer:

---

*Case 6: Bond Issue Costs – US GAAP*

*Case*: Issued ₹10,00,000 bonds at par. Paid ₹20,000 bond issue costs.  

*Q9*: How are issue costs reported under US GAAP?  

A. Expense immediately  

B. *Record as direct deduction from bond liability, amortize using effective interest*  

C. Record as asset, amortize SL  

D. Add to premium  

*Answer: 

*Q10*: If issued at par with ₹20k costs, initial net liability = ?  

A. ₹10,00,000  

B. *₹9,80,000*  

C. ₹10,20,000  

D. ₹9,90,000  

*Answer: 

---

*Key CMA Trigger Points for Bonds*

Trigger Word Means Impact on Interest Expense Carrying Value Trend

**Market > Stated** Discount Interest Exp > Cash Paid BV increases to Face

**Market < Stated** Premium Interest Exp < Cash Paid BV decreases to Face

**Effective Interest** Exp = BV × market rate Not constant Changes each period

**Straight-Line** Amort = Total Disc/Periods Constant + Cash CMA distractor – GAAP needs effective

**Retire > BV** Loss Dr. Loss BV < Cash paid

**Retire < BV** Gain Cr. Gain BV > Cash paid

**Zero-Coupon** All discount, no cash Exp = BV × rate BV grows fast

**Issue Costs** Contra-liability Increases effective rate Reduces initial BV

*CMA Exam Tip*: 80% of bond Qs use _semiannual_ payments. Always divide rates by 2. If they give annual market 10%, use 5% per period.

Answers Section A

Here are 20 MCQs with answers on Bond Valuation and Amortization (Premium/Discount) aligned with US CMA Part 1 level:

---

1.

A bond issued at a price above its face value is issued at:

A. Discount

B. Par

C. Premium

D. Zero value

Answer: C

---

2.

When market interest rate is lower than coupon rate, bonds are issued at:

A. Discount

B. Premium

C. Par

D. Loss

Answer: B

---

3.

Bond discount occurs when:

A. Coupon rate = Market rate

B. Coupon rate > Market rate

C. Coupon rate < Market rate

D. Interest is unpaid

Answer: C

---

4.

The carrying value of a bond issued at discount will:

A. Decrease over time

B. Increase over time

C. Remain constant

D. Become zero

Answer: B

---

5.

The carrying value of a bond issued at premium will:

A. Increase over time

B. Decrease over time

C. Stay constant

D. Become negative

Answer: B

---

6.

Which method is preferred under US GAAP for amortization?

A. Straight-line

B. Effective interest method

C. Declining balance

D. FIFO method

Answer: B

---

7.

Interest expense under effective interest method equals:

A. Coupon payment

B. Face value × coupon rate

C. Carrying value × market rate

D. Market value × coupon rate

Answer: C

---

8.

Bond interest payment is calculated on:

A. Carrying value

B. Market value

C. Face value

D. Discount value

Answer: C

---

9.

If bonds are issued at discount, interest expense is:

A. Less than cash paid

B. Equal to cash paid

C. Greater than cash paid

D. Zero

Answer: C

---

10.

If bonds are issued at premium, interest expense is:

A. Greater than cash paid

B. Less than cash paid

C. Equal to cash paid

D. Double the cash paid

Answer: B

---

11.

Amortization of bond discount:

A. Reduces interest expense

B. Increases interest expense

C. Has no effect

D. Eliminates liability

Answer: B

---

12.

Amortization of bond premium:

A. Increases interest expense

B. Reduces interest expense

C. No impact

D. Eliminates cash flow

Answer: B

---

13.

At maturity, carrying value of bond equals:

A. Market value

B. Issue price

C. Face value

D. Discount value

Answer: C

---

14.

Which component is NOT part of bond valuation?

A. Present value of principal

B. Present value of interest

C. Future market speculation

D. Discount rate

Answer: C

---

15.

Bond price equals:

A. FV + interest

B. PV of principal only

C. PV of interest + PV of principal

D. Coupon × years

Answer: C

---

16.

Effective interest method results in:

A. Constant amortization amount

B. Variable amortization amount

C. Zero amortization

D. Fixed interest expense

Answer: B

---

17.

Straight-line method results in:

A. Variable interest expense

B. Constant amortization

C. Increasing carrying value always

D. No amortization

Answer: B

---

18.

Discount on bonds payable is classified as:

A. Asset

B. Liability

C. Contra liability

D. Revenue

Answer: C

---

19.

Premium on bonds payable is classified as:

A. Asset

B. Liability addition

C. Contra liability

D. Expense

Answer: B

---

20.

If market rate equals coupon rate, bond is issued at:

A. Premium

B. Discount

C. Par

D. Loss

Answer: C

ANSWERS: Section b

*Case 1: Bond Issued at Discount – Interest Expense*

*Case*: On 1/1/2026, GMSIsuccess LLP issues 5-year, 8% bonds with face value ₹10,00,000. Interest payable semiannually 6/30 and 12/31. Market rate = 10%. Proceeds = ₹9,22,780.  

*Q1*: What is the interest expense for 6/30/2026 using effective interest method?  

A. ₹40,000  

B. *₹46,139*  

C. ₹50,000  

D. ₹36,911  

*Answer: B*  

*Why*: Issued at discount because market 10% > stated 8%.  

Book value 1/1 = ₹9,22,780.  

Effective rate per period = 10%/2 = 5%.  

Interest expense = 9,22,780 × 5% = *₹46,139*.  

Cash paid = 10,00,000 × 8%/2 = ₹40,000. Discount amortized = 6,139.

*Q2*: Bond carrying value at 12/31/2026 after 2 payments?  

A. ₹9,22,780  

B. ₹9,28,919  

C. *₹9,35,365*  

D. ₹10,00,000  

*Answer: C*  

*Why*: 6/30: BV = 9,22,780 + 6,139 = 9,28,919.  

12/31: Interest exp = 9,28,919 × 5% = 46,446. Cash = 40,000. Amort = 6,446.  

New BV = 9,28,919 + 6,446 = *₹9,35,365*. Discount decreases, BV increases to face.

---

*Case 2: Bond Issued at Premium – Amortization*

*Case*: 1/1/2026, 5-year, 10% bonds, Face ₹10,00,000. Market rate 8%. Proceeds = ₹10,81,110. Semiannual interest.  

*Q3*: Interest expense for 6/30/2026?  

A. ₹50,000  

B. *₹43,244*  

C. ₹40,000  

D. ₹54,056  

*Answer: B*  

*Why*: Premium because market 8% < stated 10%.  

Effective rate = 8%/2 = 4%.  

Interest exp = 10,81,110 × 4% = *₹43,244*.  

Cash paid = 10,00,000 × 10%/2 = ₹50,000. Premium amortized = 6,756.

*Q4*: Bond carrying value at 12/31/2026?  

A. ₹10,81,110  

B. ₹10,74,354  

C. *₹10,67,327*  

D. ₹10,00,000  

*Answer: C*  

*Why*: 6/30: BV = 10,81,110 – 6,756 = 10,74,354.  

12/31: Interest exp = 10,74,354 × 4% = 42,974. Cash = 50,000. Amort = 7,026.  

New BV = 10,74,354 – 7,026 = *₹10,67,327*. Premium decreases, BV decreases to face.

---

*Case 3: Straight-Line vs Effective Interest – CMA Trap*

*Case*: 3-year, 9% bonds, Face ₹5,00,000, issued at ₹4,71,697 when market = 11%. Straight-line method used for amortization.  

*Q5*: Interest expense for Year 1 using SL method?  

A. ₹45,000  

B. *₹54,434*  

C. ₹51,887  

D. ₹55,000  

*Answer: B*  

*Why*: SL amortization = Total discount / periods. Discount = 500,000 – 471,697 = 28,303. 3 yrs = 28,303/3 = 9,434 per year.  

Cash interest = 500,000 × 9% = 45,000.  

SL Interest expense = 45,000 + 9,434 = *₹54,434*.  

Note: US GAAP requires effective interest for bonds, but CMA tests SL vs Effective concept.

*Q6*: Under US GAAP, which method must be used?  

A. Straight-line  

B. *Effective interest method*  

C. Either, if immaterial difference  

D. Market value method  

*Answer: B*  

*Why*: ASC 835-30: Effective interest required. SL allowed only if result not materially different.

---

*Case 4: Bond Retirement Before Maturity*

*Case*: On 1/1/2028, after 2 years, GMSIsuccess retires the 10% premium bonds from Case 2. Carrying value 1/1/2028 = ₹10,52,296. Retired at 102 = ₹10,20,000.  

*Q7*: Gain or loss on retirement?  

A. Loss ₹32,296  

B. *Gain ₹32,296*  

C. Loss ₹20,000  

D. No gain/loss  

*Answer: B*  

*Why*: BV 10,52,296 > Cash paid 10,20,000 → *Gain ₹32,296*.  

Entry: Dr. Bonds Payable 10,00,000, Dr. Premium 52,296, Cr. Cash 10,20,000, Cr. Gain 32,296.

---

*Case 5: Zero-Coupon Bond – Deep Discount*

*Case*: 5-year zero-coupon bond, Face ₹10,00,000, issued for ₹6,20,920 when market = 10%.  

*Q8*: Interest expense Year 1?  

A. ₹0  

B. ₹100,000  

C. *₹62,092*  

D. ₹75,816  

*Answer: C*  

*Why*: Zero-coupon = all discount. No cash interest.  

Effective rate 10%. Year 1 exp = 6,20,920 × 10% = *₹62,092*. All added to BV.  

BV end Year 1 = 6,20,920 + 62,092 = 6,83,012.

---

*Case 6: Bond Issue Costs – US GAAP*

*Case*: Issued ₹10,00,000 bonds at par. Paid ₹20,000 bond issue costs.  

*Q9*: How are issue costs reported under US GAAP?  

A. Expense immediately  

B. *Record as direct deduction from bond liability, amortize using effective interest*  

C. Record as asset, amortize SL  

D. Add to premium  

*Answer: B*  

*Why*: ASC 835-30: Issue costs = contra-liability. Net the bond proceeds. Amortize via effective interest. Not separate asset post-2015 ASU.

*Q10*: If issued at par with ₹20k costs, initial net liability = ?  

A. ₹10,00,000  

B. *₹9,80,000*  

C. ₹10,20,000  

D. ₹9,90,000  

*Answer: B*  

*Why*: Cash 9,80,000 = Dr. Cash 9,80,000, Dr. Discount on BP 20,000, Cr. Bonds Payable 10,00,000. Net BV = 9,80,000.

---

*Key CMA Trigger Points for Bonds*

Trigger Word Means Impact on Interest Expense Carrying Value Trend

**Market > Stated** Discount Interest Exp > Cash Paid BV increases to Face

**Market < Stated** Premium Interest Exp < Cash Paid BV decreases to Face

**Effective Interest** Exp = BV × market rate Not constant Changes each period

**Straight-Line** Amort = Total Disc/Periods Constant + Cash CMA distractor – GAAP needs effective

**Retire > BV** Loss Dr. Loss BV < Cash paid

**Retire < BV** Gain Cr. Gain BV > Cash paid

**Zero-Coupon** All discount, no cash Exp = BV × rate BV grows fast

**Issue Costs** Contra-liability Increases effective rate Reduces initial BV

*CMA Exam Tip*: 80% of bond Qs use _semiannual_ payments. Always divide rates by 2. If they give annual market 10%, use 5% per period.

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