MCQ questions with answers on the topic of cash flow statement as per US GAAP

MCQ questions  on the topic of cash flow statement as per US GAAP:

Section A..... Difficult level.. simple 

*1. What is the primary purpose of the cash flow statement?*

A) To report revenues and expenses

B) To report cash inflows and outflows

C) To report assets and liabilities

D) To report equity changes

Answer:

*2. Which of the following is a classification of cash flows under US GAAP?*

A) Operating, investing, and financing

B) Operating, investing, and non-operating

C) Investing, financing, and extraordinary

D) Operating, financing, and extraordinary

Answer: 

*3. What is the method of preparing the cash flow statement that starts with net income and adjusts for non-cash items?*

A) Direct method

B) Indirect method

C) Accrual method

D) Cash method

Answer: 

*4. Which of the following is an example of an operating cash flow?*

A) Purchase of equipment

B) Sale of investments

C) Payment of dividends

D) Collection of accounts receivable

Answer:

*5. Which of the following is an example of an investing cash flow?*

A) Purchase of equipment

B) Sale of investments

C) Payment of dividends

D) Collection of accounts receivable

Answer:

*6. Which of the following is an example of a financing cash flow?*

A) Payment of dividends

B) Sale of investments

C) Purchase of equipment

D) Collection of accounts receivable

Answer: 

*7. What is the effect of an increase in accounts receivable on cash flows from operations?*

A) Increase

B) Decrease

C) No effect

D) Cannot be determined

Answer: 

*8. What is the effect of an increase in accounts payable on cash flows from operations?*

A) Increase

B) Decrease

C) No effect

D) Cannot be determined

Answer: 

Section B....

Here are 20 MCQ questions on Cash Flow Statement as per US GAAP (ASC 230) — moderately challenging level:

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MCQs on Cash Flow Statement (US GAAP)

1. Under US GAAP, interest paid is classified as:

A. Operating
B. Financing
C. Investing
D. Either operating or financing

Answer: 

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2. Under US GAAP, dividends received are classified as:

A. Operating
B. Financing
C. Investing
D. Either operating or investing

Answer: 

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3. Under US GAAP, dividends paid are classified as:

A. Operating
B. Investing
C. Financing
D. Either operating or financing

Answer: 

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4. What is the required reconciliation when presenting indirect method?

A. Net income to Net cash from operating activities
B. Net income to Net assets
C. Net income to EBITDA
D. Cash to retained earnings

Answer: 

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5. Gain on sale of equipment in indirect method is:

A. Added to net income
B. Deducted from net income
C. Not adjusted
D. Treated as financing cash inflow

Answer: 

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6. Which of the following is considered an investing activity?

A. Purchase of PPE
B. Issuing common stock
C. Payment of salaries
D. Income tax paid

Answer: 

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7. A company issues bonds at par for cash. Classification?

A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash activity

Answer: 

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8. Non-cash transactions must be:

A. Excluded from cash flow statement and disclosed separately
B. Included in financing section
C. Included in investing section
D. Ignored completely

Answer: 

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9. Purchase of equipment by issuing shares is reported as:

A. Operating
B. Financing
C. Investing
D. Non-cash supplemental disclosure

Answer: 

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10. Under US GAAP, taxes paid are classified as:

A. Operating
B. Financing
C. Investing
D. Either operating or investing

Answer: 

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11. Under indirect method, an increase in accounts receivable is:

A. Added to net income
B. Deducted from net income
C. Financing activity
D. Investing activity

Answer: 

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12. Decrease in inventory in indirect method is:

A. Added to net income
B. Deducted from net income
C. Financing
D. Investing

Answer: 

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13. Proceeds from sale of land:

A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash inflow

Answer: 

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14. Amortization expense in indirect method is:

A. Added to net income
B. Deducted from net income
C. Investing activity
D. Financing activity

Answer: 

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15. Loss on early retirement of debt is treated as:

A. Added in operating
B. Deducted in operating
C. Financing cash flow
D. Investing cash flow

Answer: 

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16. Cash collected from customers is classified as:

A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash

Answer: 

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17. Under US GAAP, cash flows from trading securities purchases are reported under:

A. Operating
B. Investing
C. Financing
D. Supplemental schedule

Answer: 

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18. Cash paid to acquire another company is:

A. Operating
B. Investing
C. Financing
D. Non-cash

Answer: 

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19. Depreciation in operating section of indirect method appears as:

A. Cash outflow
B. Adjusted non-cash item added to net income
C. Financing activity reduction
D. Investing activity inflow

Answer: 

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20. What is the primary purpose of a Cash Flow Statement?

A. To show profitability
B. To show financial position
C. To report inflows and outflows classified into operating, investing, and financing
D. To show working capital changes

Answer: 

Section C...Scenerio based questions, difficult level.. Difficult, exam based .Here are 5 challenging, scenario-based MCQs on the Cash Flow Statement under US GAAP, designed to test advanced classification, adjustments, and indirect/direct method knowledge. Each question presents a scenario requiring interpretation or calculation, as typical in professional exams:

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## US GAAP Cash Flow Statement: Advanced MCQs

### Scenario 1: Indirect Method Adjustments

ABC Corp reports net income of $400,000 for the year. During this period, depreciation expense is $60,000, accounts receivable increase by $30,000, and accounts payable decrease by $18,000. What is ABC Corp’s cash flow from operating activities under the indirect method?

- a) $412,000

- b) $448,000

- c) $412,000

- d) $412,000

***

### Scenario 2: Classification of Dividends and Interest

XYZ Inc pays $25,000 in interest and receives $12,000 in dividends. According to US GAAP, how are these items classified in the cash flow statement?

- a) Both as investing activities

- b) Interest as operating, dividends as investing

- c) Interest as financing, dividends as investing

- d) Both as operating activities

***

### Scenario 3: Acquisition of Equipment

LMN Co purchases machinery for $150,000, paying $50,000 in cash and issuing a long-term note for $100,000. How should this transaction appear in the cash flow statement under US GAAP?

- a) $150,000 outflow from investing activities

- b) $50,000 outflow from investing activities and $100,000 outflow from financing activities

- c) $50,000 outflow from investing activities; $100,000 disclosed as non-cash transaction

- d) $150,000 disclosed in financing activities

***

### Scenario 4: Operating Activities (Direct Method)

During the year, PQR Corp received customer payments totaling $500,000, paid $180,000 to suppliers, and $70,000 for staff wages. What is the net cash flow from operating activities using the direct method?

- a) $250,000

- b) $430,000

- c) $320,000

- d) $500,000

***

### Scenario 5: Reporting Non-Cash Activities

STU Inc converts $200,000 of bonds payable into equity shares. How is this reported in the cash flow statement under US GAAP?

- a) Cash inflow from financing activities

- b) Cash outflow from operating activities

- c) Not reported in main statement; disclosed as non-cash transaction

- d) Included as investing activity outflow

***

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Answers........

MCQ questions with answers on the topic of cash flow statement as per US GAAP:

Section A..... Difficult level.. simple 

*1. What is the primary purpose of the cash flow statement?*

A) To report revenues and expenses

B) To report cash inflows and outflows

C) To report assets and liabilities

D) To report equity changes

Answer: B) To report cash inflows and outflows

*2. Which of the following is a classification of cash flows under US GAAP?*

A) Operating, investing, and financing

B) Operating, investing, and non-operating

C) Investing, financing, and extraordinary

D) Operating, financing, and extraordinary

Answer: A) Operating, investing, and financing

*3. What is the method of preparing the cash flow statement that starts with net income and adjusts for non-cash items?*

A) Direct method

B) Indirect method

C) Accrual method

D) Cash method

Answer: B) Indirect method

*4. Which of the following is an example of an operating cash flow?*

A) Purchase of equipment

B) Sale of investments

C) Payment of dividends

D) Collection of accounts receivable

Answer: D) Collection of accounts receivable

*5. Which of the following is an example of an investing cash flow?*

A) Purchase of equipment

B) Sale of investments

C) Payment of dividends

D) Collection of accounts receivable

Answer: A) Purchase of equipment

*6. Which of the following is an example of a financing cash flow?*

A) Payment of dividends

B) Sale of investments

C) Purchase of equipment

D) Collection of accounts receivable

Answer: A) Payment of dividends

*7. What is the effect of an increase in accounts receivable on cash flows from operations?*

A) Increase

B) Decrease

C) No effect

D) Cannot be determined

Answer: B) Decrease

*8. What is the effect of an increase in accounts payable on cash flows from operations?*

A) Increase

B) Decrease

C) No effect

D) Cannot be determined

Answer: A) Increase

Section B....

Here are 20 MCQ questions with answers on Cash Flow Statement as per US GAAP (ASC 230) — moderately challenging level:

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MCQs on Cash Flow Statement (US GAAP)

1. Under US GAAP, interest paid is classified as:

A. Operating
B. Financing
C. Investing
D. Either operating or financing

Answer: A — Operating

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2. Under US GAAP, dividends received are classified as:

A. Operating
B. Financing
C. Investing
D. Either operating or investing

Answer: A — Operating

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3. Under US GAAP, dividends paid are classified as:

A. Operating
B. Investing
C. Financing
D. Either operating or financing

Answer: C — Financing

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4. What is the required reconciliation when presenting indirect method?

A. Net income to Net cash from operating activities
B. Net income to Net assets
C. Net income to EBITDA
D. Cash to retained earnings

Answer: A

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5. Gain on sale of equipment in indirect method is:

A. Added to net income
B. Deducted from net income
C. Not adjusted
D. Treated as financing cash inflow

Answer: B — Deducted

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6. Which of the following is considered an investing activity?

A. Purchase of PPE
B. Issuing common stock
C. Payment of salaries
D. Income tax paid

Answer: A

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7. A company issues bonds at par for cash. Classification?

A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash activity

Answer: C

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8. Non-cash transactions must be:

A. Excluded from cash flow statement and disclosed separately
B. Included in financing section
C. Included in investing section
D. Ignored completely

Answer: A

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9. Purchase of equipment by issuing shares is reported as:

A. Operating
B. Financing
C. Investing
D. Non-cash supplemental disclosure

Answer: D

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10. Under US GAAP, taxes paid are classified as:

A. Operating
B. Financing
C. Investing
D. Either operating or investing

Answer: A

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11. Under indirect method, an increase in accounts receivable is:

A. Added to net income
B. Deducted from net income
C. Financing activity
D. Investing activity

Answer: B

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12. Decrease in inventory in indirect method is:

A. Added to net income
B. Deducted from net income
C. Financing
D. Investing

Answer: A

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13. Proceeds from sale of land:

A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash inflow

Answer: B

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14. Amortization expense in indirect method is:

A. Added to net income
B. Deducted from net income
C. Investing activity
D. Financing activity

Answer: A

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15. Loss on early retirement of debt is treated as:

A. Added in operating
B. Deducted in operating
C. Financing cash flow
D. Investing cash flow

Answer: A

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16. Cash collected from customers is classified as:

A. Operating inflow
B. Investing inflow
C. Financing inflow
D. Non-cash

Answer: A

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17. Under US GAAP, cash flows from trading securities purchases are reported under:

A. Operating
B. Investing
C. Financing
D. Supplemental schedule

Answer: A

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18. Cash paid to acquire another company is:

A. Operating
B. Investing
C. Financing
D. Non-cash

Answer: B

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19. Depreciation in operating section of indirect method appears as:

A. Cash outflow
B. Adjusted non-cash item added to net income
C. Financing activity reduction
D. Investing activity inflow

Answer: B

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20. What is the primary purpose of a Cash Flow Statement?

A. To show profitability
B. To show financial position
C. To report inflows and outflows classified into operating, investing, and financing
D. To show working capital changes

Answer: C

Section C....

please give answers of above 5 questions

Here are the answers and brief explanations for the five advanced scenario-based cash flow statement MCQs:

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## Answers and Explanations

**1. Indirect Method Adjustments**  

*Answer:* a) $412,000  

*Explanation:* Start with net income ($400,000)  

+ Add depreciation ($60,000, non-cash)  

– Subtract increase in accounts receivable ($30,000)  

– Subtract decrease in accounts payable ($18,000)  

Cash flow from operating = $400,000 + $60,000 – $30,000 – $18,000 = $412,000.

***

**2. Classification of Dividends and Interest**  

*Answer:* b) Interest as operating, dividends as investing  

*Explanation:* US GAAP classifies interest paid and received as operating cash flows, but dividends received can be investing. Dividends paid are financing.

***

**3. Acquisition of Equipment**  

*Answer:* c) $50,000 outflow from investing activities; $100,000 disclosed as non-cash transaction  

*Explanation:* Only cash outflow is reported under investing activities; non-cash financing arrangement is disclosed but not in main cash flow statement

***

**4. Operating Activities (Direct Method)**  

*Answer:* a) $250,000  

*Explanation:* Cash receipts ($500,000) – cash paid to suppliers ($180,000) – wages ($70,000) = $250,000 

***

**5. Reporting Non-Cash Activities**  

*Answer:* c) Not reported in main statement; disclosed as non-cash transaction  

*Explanation:* US GAAP requires disclosure of significant non-cash investing/financing activities in a separate note/equivalent section 

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MCQ questions ‼️ Impairement loss as per US GAAP

MCQ questions on impairment loss based on US GAAP:

Section A...

1. Under US GAAP, an impairment loss is recognized when the carrying amount of an asset exceeds its:

A) Fair value
B) Book value
C) Recoverable amount
D) Undiscounted future cash flows

Answer:

2. Which of the following is a step in the impairment test for a long-lived asset under US GAAP?

A) Compare the carrying amount to the fair value
B) Compare the carrying amount to the undiscounted future cash flows
C) Recognize an impairment loss if the carrying amount exceeds the fair value
D) Recognize an impairment loss if the carrying amount exceeds the book value

Answer:

3. Under US GAAP, an impairment loss is calculated as the difference between the carrying amount and:

A) Fair value
B) Book value
C) Recoverable amount
D) Undiscounted future cash flows

Answer:

4. Which of the following is true regarding the recognition of impairment losses under US GAAP?

A) Impairment losses are recognized in other comprehensive income
B) Impairment losses are recognized in the income statement
C) Impairment losses are not recognized
D) Impairment losses are recognized in the balance sheet

Answer:

5. Under US GAAP, a company is required to test goodwill for impairment:

A) Annually
B) Quarterly
C) Monthly
D) Only when there is an indication of impairment

Answer:

6. Which of the following is a factor that indicates an impairment loss may have occurred?

A) Decrease in market value
B) Increase in market value
C) Increase in useful life
D) Decrease in residual value

Answer:

7. Under US GAAP, an impairment loss is reported in the income statement as:

A) A separate line item
B) A component of operating income
C) A component of non-operating income
D) A footnote disclosure only

Answer:

Section B...
illustration  on impairment loss as per US GAAP:

*Illustration:*

Company A has a manufacturing equipment with a carrying amount of $100,000. The equipment was purchased 5 years ago and has a remaining useful life of 5 years. Due to technological advancements, the equipment's fair value has declined to $70,000. The company's management estimates that the equipment's undiscounted future cash flows are $80,000.

*Required:*

Determine if an impairment loss should be recognized and calculate the impairment loss, if any.

*Answer:*

*Step 1: Test for impairment*

*Step 2: Calculate the impairment loss*

*Journal Entry*

Section C....20 questions impairment loss as per US GAAP:

1. What is the primary objective of the impairment test under US GAAP?

A) To determine the fair value of an asset
B) To determine the recoverable amount of an asset
C) To determine if an asset's carrying amount exceeds its undiscounted future cash flows
D) To determine the asset's remaining useful life

Answer:

2. Which of the following is a step in the impairment test for a long-lived asset under US GAAP?

A) Compare the carrying amount to the fair value
B) Compare the carrying amount to the undiscounted future cash flows
C) Recognize an impairment loss if the carrying amount exceeds the fair value
D) Recognize an impairment loss if the carrying amount exceeds the book value

Answer:

3. Under US GAAP, an impairment loss is calculated as the difference between the carrying amount and:

A) Fair value
B) Book value
C) Recoverable amount
D) Undiscounted future cash flows

Answer:

4. Which of the following is true regarding the recognition of impairment losses under US GAAP?

A) Impairment losses are recognized in other comprehensive income
B) Impairment losses are recognized in the income statement
C) Impairment losses are not recognized
D) Impairment losses are recognized in the balance sheet

Answer:

5. Under US GAAP, a company is required to test goodwill for impairment:

A) Annually
B) Quarterly
C) Monthly
D) Only when there is an indication of impairment

Answer:

6. Which of the following is a factor that indicates an impairment loss may have occurred?

A) Decrease in market value
B) Increase in market value
C) Increase in useful life
D) Decrease in residual value

Answer:

7. Under US GAAP, an impairment loss is reported in the income statement as:

A) A separate line item
B) A component of operating income
C) A component of non-operating income
D) A footnote disclosure only

Answer:

8. Which of the following is a characteristic of an impaired asset under US GAAP?

A) The asset's carrying amount exceeds its fair value
B) The asset's carrying amount exceeds its undiscounted future cash flows
C) The asset's fair value exceeds its carrying amount
D) The asset's useful life has been extended

Answer:

9. Under US GAAP, an impairment loss is recognized when:

A) The asset's carrying amount exceeds its fair value
B) The asset's carrying amount exceeds its undiscounted future cash flows
C) The asset's fair value exceeds its carrying amount
D) The asset's useful life has been extended

Answer:

10. Which of the following is a method used to estimate the fair value of an asset under US GAAP?

A) Market approach
B) Income approach
C) Cost approach
D) All of the above

Answer:

11. Under US GAAP, an impairment loss is calculated using:

A) The asset's carrying amount and fair value
B) The asset's carrying amount and undiscounted future cash flows
C) The asset's fair value and residual value
D) The asset's carrying amount and residual value

Answer:

12. Which of the following is true regarding the reversal of impairment losses under US GAAP?

A) Impairment losses can be reversed
B) Impairment losses cannot be reversed
C) Impairment losses can be reversed only if the asset's fair value increases
D) Impairment losses can be reversed only if the asset's carrying amount decreases

Answer:

13. Under US GAAP, an impairment loss is recognized:

A) Immediately
B) Over the asset's remaining useful life
C) When the asset is sold
D) When the asset is abandoned

Answer:

14. Which of the following is a disclosure requirement for impairment losses under US GAAP?

A) The amount of the impairment loss
B) The reason for the impairment loss
C) The asset's carrying amount before and after the impairment loss
D) All of the above

Answer:

15. Under US GAAP, an impairment loss is calculated using:

A) The asset's carrying amount and fair value
B) The asset's carrying amount and undiscounted future cash flows
C) The asset's fair value and residual value
D) The asset's carrying amount and residual value

Answer:

16. Which of the following is true regarding the recognition of impairment losses for assets held for sale under US GAAP?

A) Impairment losses are recognized in the income statement
B) Impairment losses are recognized in other comprehensive income
C) Impairment losses are not recognized
D) Impairment losses are recognized in the balance sheet

Answer:

17. Under US GAAP, an impairment loss is recognized when:

A) The asset's carrying amount exceeds its fair value
B) The asset's carrying amount exceeds its undiscounted future cash flows
C) The asset's fair value exceeds its carrying amount
D) The asset's useful life has been extended

Answer:

18. Which of the following is a method used to estimate the fair value of an asset under US GAAP?

A) Market approach
B) Income approach
C) Cost approach
D) All of the above

19. Under US GAAP, an impairment loss is calculated using:

A) The asset's carrying amount and fair value
B) The asset's carrying amount and undiscounted future cash flows
C) The asset's fair value and residual value
D) The asset's carrying amount and residual value

Answer

20. Which of the following is true regarding the reversal of impairment losses under US GAAP?

A) Impairment losses can be reversed
B) Impairment losses cannot be reversed
C) Impairment losses can be reversed only if the asset's fair value increases
D) Impairment losses can be reversed only if the asset's carrying amount decreases

Answer:

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Answers:

Section A....

Here are some MCQ questions with answers on impairment loss based on US GAAP:

1. Under US GAAP, an impairment loss is recognized when the carrying amount of an asset exceeds its:

A) Fair value
B) Book value
C) Recoverable amount
D) Undiscounted future cash flows

Answer: D) Undiscounted future cash flows

2. Which of the following is a step in the impairment test for a long-lived asset under US GAAP?

A) Compare the carrying amount to the fair value
B) Compare the carrying amount to the undiscounted future cash flows
C) Recognize an impairment loss if the carrying amount exceeds the fair value
D) Recognize an impairment loss if the carrying amount exceeds the book value

Answer: B) Compare the carrying amount to the undiscounted future cash flows

3. Under US GAAP, an impairment loss is calculated as the difference between the carrying amount and:

A) Fair value
B) Book value
C) Recoverable amount
D) Undiscounted future cash flows

Answer: A) Fair value

4. Which of the following is true regarding the recognition of impairment losses under US GAAP?

A) Impairment losses are recognized in other comprehensive income
B) Impairment losses are recognized in the income statement
C) Impairment losses are not recognized
D) Impairment losses are recognized in the balance sheet

Answer: B) Impairment losses are recognized in the income statement

5. Under US GAAP, a company is required to test goodwill for impairment:

A) Annually
B) Quarterly
C) Monthly
D) Only when there is an indication of impairment

Answer: A) Annually

6. Which of the following is a factor that indicates an impairment loss may have occurred?

A) Decrease in market value
B) Increase in market value
C) Increase in useful life
D) Decrease in residual value

Answer: A) Decrease in market value

7. Under US GAAP, an impairment loss is reported in the income statement as:

A) A separate line item
B) A component of operating income
C) A component of non-operating income
D) A footnote disclosure only

Answer: A) A separate line

Section B... Here is an illustration with answer on impairment loss as per US GAAP:

*Illustration:*

Company A has a manufacturing equipment with a carrying amount of $100,000. The equipment was purchased 5 years ago and has a remaining useful life of 5 years. Due to technological advancements, the equipment's fair value has declined to $70,000. The company's management estimates that the equipment's undiscounted future cash flows are $80,000.

*Required:*

Determine if an impairment loss should be recognized and calculate the impairment loss, if any.

*Answer:*

*Step 1: Test for impairment*

Compare the carrying amount ($100,000) to the undiscounted future cash flows ($80,000). Since the carrying amount exceeds the undiscounted future cash flows, an impairment loss is indicated.

*Step 2: Calculate the impairment loss*

Impairment loss = Carrying amount - Fair value
= $100,000 - $70,000
= $30,000

*Journal Entry:*

Loss on impairment (Income Statement)  $30,000
Accumulated depreciation (Balance Sheet)  $30,000

*Note:*

- The impairment loss is recognized in the income statement as a separate line item.

- The carrying amount of the equipment is reduced to its fair value of $70,000.

*US GAAP Reference:*

- ASC 360-10-35-17: Impairment or Disposal of Long-Lived Assets

Section C....

Here are 20 questions with answers on impairment loss as per US GAAP:

1. What is the primary objective of the impairment test under US GAAP?

A) To determine the fair value of an asset
B) To determine the recoverable amount of an asset
C) To determine if an asset's carrying amount exceeds its undiscounted future cash flows
D) To determine the asset's remaining useful life

Answer: C) To determine if an asset's carrying amount exceeds its undiscounted future cash flows

2. Which of the following is a step in the impairment test for a long-lived asset under US GAAP?

A) Compare the carrying amount to the fair value
B) Compare the carrying amount to the undiscounted future cash flows
C) Recognize an impairment loss if the carrying amount exceeds the fair value
D) Recognize an impairment loss if the carrying amount exceeds the book value

Answer: B) Compare the carrying amount to the undiscounted future cash flows

3. Under US GAAP, an impairment loss is calculated as the difference between the carrying amount and:

A) Fair value
B) Book value
C) Recoverable amount
D) Undiscounted future cash flows

Answer: A) Fair value

4. Which of the following is true regarding the recognition of impairment losses under US GAAP?

A) Impairment losses are recognized in other comprehensive income
B) Impairment losses are recognized in the income statement
C) Impairment losses are not recognized
D) Impairment losses are recognized in the balance sheet

Answer: B) Impairment losses are recognized in the income statement

5. Under US GAAP, a company is required to test goodwill for impairment:

A) Annually
B) Quarterly
C) Monthly
D) Only when there is an indication of impairment

Answer: A) Annually

6. Which of the following is a factor that indicates an impairment loss may have occurred?

A) Decrease in market value
B) Increase in market value
C) Increase in useful life
D) Decrease in residual value

Answer: A) Decrease in market value

7. Under US GAAP, an impairment loss is reported in the income statement as:

A) A separate line item
B) A component of operating income
C) A component of non-operating income
D) A footnote disclosure only

Answer: A) A separate line item

8. Which of the following is a characteristic of an impaired asset under US GAAP?

A) The asset's carrying amount exceeds its fair value
B) The asset's carrying amount exceeds its undiscounted future cash flows
C) The asset's fair value exceeds its carrying amount
D) The asset's useful life has been extended

Answer: B) The asset's carrying amount exceeds its undiscounted future cash flows

9. Under US GAAP, an impairment loss is recognized when:

A) The asset's carrying amount exceeds its fair value
B) The asset's carrying amount exceeds its undiscounted future cash flows
C) The asset's fair value exceeds its carrying amount
D) The asset's useful life has been extended

Answer: B) The asset's carrying amount exceeds its undiscounted future cash flows

10. Which of the following is a method used to estimate the fair value of an asset under US GAAP?

A) Market approach
B) Income approach
C) Cost approach
D) All of the above

Answer: D) All of the above

11. Under US GAAP, an impairment loss is calculated using:

A) The asset's carrying amount and fair value
B) The asset's carrying amount and undiscounted future cash flows
C) The asset's fair value and residual value
D) The asset's carrying amount and residual value

Answer: A) The asset's carrying amount and fair value

12. Which of the following is true regarding the reversal of impairment losses under US GAAP?

A) Impairment losses can be reversed
B) Impairment losses cannot be reversed
C) Impairment losses can be reversed only if the asset's fair value increases
D) Impairment losses can be reversed only if the asset's carrying amount decreases

Answer: B) Impairment losses cannot be reversed

13. Under US GAAP, an impairment loss is recognized:

A) Immediately
B) Over the asset's remaining useful life
C) When the asset is sold
D) When the asset is abandoned

Answer: A) Immediately

14. Which of the following is a disclosure requirement for impairment losses under US GAAP?

A) The amount of the impairment loss
B) The reason for the impairment loss
C) The asset's carrying amount before and after the impairment loss
D) All of the above

Answer: D) All of the above

15. Under US GAAP, an impairment loss is calculated using:

A) The asset's carrying amount and fair value
B) The asset's carrying amount and undiscounted future cash flows
C) The asset's fair value and residual value
D) The asset's carrying amount and residual value

Answer: A) The asset's carrying amount and fair value

16. Which of the following is true regarding the recognition of impairment losses for assets held for sale under US GAAP?

A) Impairment losses are recognized in the income statement
B) Impairment losses are recognized in other comprehensive income
C) Impairment losses are not recognized
D) Impairment losses are recognized in the balance sheet

Answer: A) Impairment losses are recognized in the income statement

17. Under US GAAP, an impairment loss is recognized when:

A) The asset's carrying amount exceeds its fair value
B) The asset's carrying amount exceeds its undiscounted future cash flows
C) The asset's fair value exceeds its carrying amount
D) The asset's useful life has been extended

Answer: B) The asset's carrying amount exceeds its undiscounted future cash flows

18. Which of the following is a method used to estimate the fair value of an asset under US GAAP?

A) Market approach
B) Income approach
C) Cost approach
D) All of the above

Answer: D) All of the above

19. Under US GAAP, an impairment loss is calculated using:

A) The asset's carrying amount and fair value
B) The asset's carrying amount and undiscounted future cash flows
C) The asset's fair value and residual value
D) The asset's carrying amount and residual value

Answer: A) The asset's carrying amount and fair value

20. Which of the following is true regarding the reversal of impairment losses under US GAAP?

A) Impairment losses can be reversed
B) Impairment losses cannot be reversed
C) Impairment losses can be reversed only if the asset's fair value increases
D) Impairment losses can be reversed only if the asset's carrying amount decreases

Answer: B) Impairment losses cannot be reversed

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Comprehensive mocktest CMA Part 1 Nov 17

 

 

✅ US CMA Part 1 – Fill-in-the-Blank Questions 

Section A…..

 

A. External Financial Reporting (15%)

1.

Under absorption costing, fixed manufacturing overhead is allocated to units produced, and therefore units in ending inventory are valued (______ ).

Answer: 

2.

A change in depreciation method is treated as a change in (_______ ) under US GAAP.

Answer: 

3.

In contribution margin income statements, operating income changes in proportion to (________ ) changes.

Answer: 

4.

Revenue is recognized when control of goods transfers to the customer under the (________ ) model.

Answer: 

5.

A material prior-period error is corrected through (________ ) of beginning retained earnings.

Answer: 

 

B. Planning, Budgeting & Forecasting (20%)

6.

In zero-based budgeting, every projected expense must be (________ ) from scratch.

Answer: 

7.

The budget that drives all other budgets in the master budget is the (________ ) budget.

Answer: 

8.

The technique that evaluates multiple possible future scenarios is called (________ ) analysis.

Answer: 

9.

A forecast model where the newest data has more weight is (________ ) smoothing.

Answer:

10.

The budgeted cost of materials to be used in production is quantity × (________ ).

Answer: 

 

C. Cost Management (15%)

11.

A cost that changes in direct proportion to activity is a (________ ) cost.

Answer: 

12.

Conversion cost = direct labor + (________ ).

Answer:

13.

A cost that has already been incurred and cannot be altered is a (________ ) cost.

Answer: 

14.

In ABC costing, the cost drivers chosen should have a high degree of (________ ).

Answer: 

15.

The difference between actual overhead and applied overhead is called (________ ) overhead.

Answer: 

16.

If actual activity exceeds the denominator level in standard costing, the fixed overhead rate is (________ ).

Answer: 

 

D. Internal Controls (15%)

17.

The COSO framework defines internal control as a process designed to provide (________ ) assurance.

Answer: 

18.

The control environment is primarily influenced by the (________ ) of the organization.

Answer: 

19.

A detective control that assists in finding discrepancies in accounting is (________ ) reconciliation.

Answer: 

20.

Authorization, recording, and custody should be separated to maintain proper (________ ).

Answer: 

21.

The internal audit function must report functionally to the (________ ).

Answer: 

22.

A business continuity plan ensures critical operations continue after a (________ ).

Answer: 

 

E. Performance Management (20%)

23.

ROI = operating income ÷ (________ ).

Answer: 

24.

Residual income = operating income − (required rate × (________ )).

Answer: 

25.

The balanced scorecard includes financial, customer, internal process, and (________ ) perspectives.

Answer: 

26.

A variance caused by paying more per hour than standard is the direct labor (________ ) variance.

Answer: 

27.

A mix variance is caused by using inputs in (________ ) proportions than standard.

Answer:

28.

If a company reduces setup time, it is improving (________ ) cycle efficiency.

Answer: 

 

F. Technology & Analytics (25%)

29.

The SDLC phase where the system’s needs are defined is the (________ ) phase.

Answer:

30.

A data warehouse stores (________ ) data used for strategic decision-making.

Answer: 

31.

Data governance ensures data quality, security, and (________ ).

Answer: 

32.

The primary defense against unauthorized network access is a (________ ).

Answer: 

33.

RPA is primarily used to automate (________ ) tasks.

Answer

34.

Blockchain ensures data immutability through (________ ) linking.

Answer: 

35.

A model that uses past data to predict future outcomes is (________ ) analytics.

Answer:

36.

The three V’s of big data include volume, velocity, and (________ ).

Answer: 

37.

In descriptive analytics, data is summarized using dashboards and (________ ).

Answer: 

38.

A control ensuring system changes are authorized and documented is a (________ ) control.

Answer: 

 

G. Ethics & Internal Control Environment

39.

The IMA ethical standard violated when a manager hides information is (________ ).

Answer: 

40.

An ethical dilemma should first be discussed with the individual’s (________ ) supervisor.

Answer:

 

Section B….

 

✅ 60 CHALLENGING FILL-IN-THE-BLANK QUESTIONS

 

A. External Financial Reporting (EFR)

1.

When fixed manufacturing overhead is expensed immediately rather than inventoried, the costing approach is (________ ).

Answer: 

2.

Under ASC 606, the transaction price is allocated based on (________ ) selling prices.

Answer: 

3.

A firm records impairment when carrying value exceeds (________ ) of an asset.

Answer: 

4.

When inventory costs rise, FIFO produces (________ ) net income than LIFO.

Answer: 

5.

Stock dividends cause a (________ ) reallocation in equity accounts without cash outflow.

Answer: 

6.

Under IFRS, extraordinary items are (________ ) in financial reporting.

Answer:

7.

Capitalizing an expenditure increases future (________ ) expenses.

Answer

8.

The matching principle requires expenses to be recognized in the same period as related (________ ).

Answer: 

9.

Treasury stock purchases (________ ) total equity.

Answer: 

10.

If control does not transfer to the buyer, revenue must be (________ ).

Answer: 

 

B. Planning, Budgeting & Forecasting

11.

The budget integrating all operational and financial components is the (________ ) budget.

Answer:

12.

A budget based on a single expected volume level is called a (________ ) budget.

Answer: 

13.

A forecast that adjusts for recurring seasonal patterns uses (________ ) indices.

Answer: 

14.

In rolling budgets, a new period is added whenever the current period is (________ ).

Answer: 

15.

The variance caused solely by a change in activity volume is the (________ ) variance.

Answer: 

16.

The short-term plan detailing expected cash inflows and outflows is the (________ ) budget.

Answer:

17.

The learning curve assumes that labor hours decline at a constant (________ ) rate.

Answer: 

18.

Regression forecasting minimizes the sum of squared (________ ).

Answer: 

19.

The key element that limits the organization’s operations is the (________ ) factor.

Answer: 

20.

An intentional overestimation of expenses in budgets is an example of (________ ) slack.

Answer:

 

C. Cost Management

21.

The difference between actual cost and standard cost is called a (________ ).

Answer: 

22.

Equivalent units measure partially completed goods in terms of (________ ) units.

Answer:

23.

Under-process costing, total costs are assigned to units using (________ ) costing.

Answer:

24.

A cost that does not change within the relevant range is (________ ).

Answer: 

25.

Activity-based costing identifies resource consumption using (________ ) drivers.

Answer: 

26.

Joint costs are allocated using physical measures or (________ ) value at split-off.

Answer: 

27.

The cost-benefit analysis compares the incremental cost with the incremental (________ ).

Answer:

28.

A cost that changes in steps rather than continuously is a (________ ) cost.

Answer: 

29.

The cost of goods manufactured schedule ends with (________ ) in process.

Answer: 

30.

Absorption costing treats fixed manufacturing overhead as a (________ ) cost.

Answer:

 

D. Internal Controls

31.

An internal control weakness that allows fraud by collusion is a limitation of (________ ) controls.

Answer: 

32.

Controls that ensure operations align with objectives are part of the (________ ) component of COSO.

Answer: 

33.

Independence of internal auditors enhances the (________ ) of assurance.

Answer:

34.

A procedure that identifies unusual transactions after they occur is a (________ ) control.

Answer:

35.

COSO’s monitoring activities ensure controls continue to operate (________ ).

Answer: 

36.

Periodic password resets represent a (________ ) control in IT.

Answer:

37.

Segregation of duties reduces the risk of errors and (________ ).

Answer: 

38.

Limiting user access based on job roles follows the (________ ) principle.

Answer:

39.

ITGCs include access controls, change controls, and (________ ) management.

Answer:

40.

A written policy defining acceptable technology use is an (________ ) control.

Answer: 

 

E. Performance Management

41.

A measure comparing profit to the capital invested is (________ ).

Answer:

42.

A performance measure that avoids suboptimization by using a minimum return rate is (________ ) income.

Answe

43.

The efficiency variance compares actual input quantity to (________ ) quantity.

Answer

44.

In the balanced scorecard, innovation metrics fall under the (________ ) perspective.

Answer: 

45.

The throughput time metric is the sum of processing + waiting + inspection + (________ ) time.

Answer:

46.

A company focused on continuous improvement follows the philosophy of (________ ).

Answer:

47.

The rate at which output is produced per labor hour measures (________ ) productivity.

Answer: 

48.

A variance caused by using a different proportion of materials than planned is a (________ ) variance.

Answer: 

49.

Benchmarking compares a firm’s metrics to (________ ) performance.

Answer: 

50.

A bottleneck limits production capacity and therefore restricts (________ ).

Answer: 

 

F. Technology & Analytics

51.

ERP systems integrate data across functions to support a single (________ ) of truth.

Answer: 

52.

Excel’s regression output identifies significance using the (________ ) value.

Answer: 

53.

A data lake stores raw, unstructured data in its (________ ) form.

Answer:

54.

RPA is most effective for tasks that are repetitive and (________ ).

Answer: 

55.

Cybersecurity uses encryption to convert plaintext into (________ ) text.

Answer: 

56.

Anomaly detection in analytics is a common tool for identifying (________ ).

Answer: 

57.

The primary goal of data governance is maintaining data quality and (________ ).

Answer:

58.

A sandbox environment allows testing without affecting (________ ) data.

Answer: 

59.

A blockchain ledger is immutable because each block contains a cryptographic (________ ).

Answer: 

60.

The SDLC phase where user training and system rollout occur is (________ ).

Answer: 

 

✅ www.gmsisuccess.in

ANSWERS:

 

✅ US CMA Part 1 – Fill-in-the-Blank Questions 

Section A…..

 

A. External Financial Reporting (15%)

1.

Under absorption costing, fixed manufacturing overhead is allocated to units produced, and therefore units in ending inventory are valued (______ ).

Answer: higher

2.

A change in depreciation method is treated as a change in (_______ ) under US GAAP.

Answer: accounting estimate

3.

In contribution margin income statements, operating income changes in proportion to (________ ) changes.

Answer: sales volume

4.

Revenue is recognized when control of goods transfers to the customer under the (________ ) model.

Answer: five-step revenue recognition

5.

A material prior-period error is corrected through (________ ) of beginning retained earnings.

Answer: retrospective restatement

 

B. Planning, Budgeting & Forecasting (20%)

6.

In zero-based budgeting, every projected expense must be (________ ) from scratch.

Answer: justified

7.

The budget that drives all other budgets in the master budget is the (________ ) budget.

Answer: sales

8.

The technique that evaluates multiple possible future scenarios is called (________ ) analysis.

Answer: sensitivity

9.

A forecast model where the newest data has more weight is (________ ) smoothing.

Answer: exponential

10.

The budgeted cost of materials to be used in production is quantity × (________ ).

Answer: standard price

 

C. Cost Management (15%)

11.

A cost that changes in direct proportion to activity is a (________ ) cost.

Answer: variable

12.

Conversion cost = direct labor + (________ ).

Answer: manufacturing overhead

13.

A cost that has already been incurred and cannot be altered is a (________ ) cost.

Answer: sunk

14.

In ABC costing, the cost drivers chosen should have a high degree of (________ ).

Answer: cause-and-effect

15.

The difference between actual overhead and applied overhead is called (________ ) overhead.

Answer: over- or under-applied

16.

If actual activity exceeds the denominator level in standard costing, the fixed overhead rate is (________ ).

Answer: lower

 

D. Internal Controls (15%)

17.

The COSO framework defines internal control as a process designed to provide (________ ) assurance.

Answer: reasonable

18.

The control environment is primarily influenced by the (________ ) of the organization.

Answer: tone at the top

19.

A detective control that assists in finding discrepancies in accounting is (________ ) reconciliation.

Answer: bank

20.

Authorization, recording, and custody should be separated to maintain proper (________ ).

Answer: segregation of duties

21.

The internal audit function must report functionally to the (________ ).

Answer: audit committee

22.

A business continuity plan ensures critical operations continue after a (________ ).

Answer: disruption

 

E. Performance Management (20%)

23.

ROI = operating income ÷ (________ ).

Answer: average operating assets

24.

Residual income = operating income − (required rate × (________ )).

Answer: investment

25.

The balanced scorecard includes financial, customer, internal process, and (________ ) perspectives.

Answer: learning and growth

26.

A variance caused by paying more per hour than standard is the direct labor (________ ) variance.

Answer: rate

27.

A mix variance is caused by using inputs in (________ ) proportions than standard.

Answer: different

28.

If a company reduces setup time, it is improving (________ ) cycle efficiency.

Answer: manufacturing

 

F. Technology & Analytics (25%)

29.

The SDLC phase where the system’s needs are defined is the (________ ) phase.

Answer: analysis

30.

A data warehouse stores (________ ) data used for strategic decision-making.

Answer: historical

31.

Data governance ensures data quality, security, and (________ ).

Answer: integrity

32.

The primary defense against unauthorized network access is a (________ ).

Answer: firewall

33.

RPA is primarily used to automate (________ ) tasks.

Answer: rule-based

34.

Blockchain ensures data immutability through (________ ) linking.

Answer: cryptographic

35.

A model that uses past data to predict future outcomes is (________ ) analytics.

Answer: predictive

36.

The three V’s of big data include volume, velocity, and (________ ).

Answer: variety

37.

In descriptive analytics, data is summarized using dashboards and (________ ).

Answer: visualizations

38.

A control ensuring system changes are authorized and documented is a (________ ) control.

Answer: change management

 

G. Ethics & Internal Control Environment

39.

The IMA ethical standard violated when a manager hides information is (________ ).

Answer: credibility

40.

An ethical dilemma should first be discussed with the individual’s (________ ) supervisor.

Answer: immediate

 

Section B….

 

✅ 60 CHALLENGING FILL-IN-THE-BLANK QUESTIONS

 

A. External Financial Reporting (EFR)

1.

When fixed manufacturing overhead is expensed immediately rather than inventoried, the costing approach is (________ ).

Answer: variable costing

2.

Under ASC 606, the transaction price is allocated based on (________ ) selling prices.

Answer: relative standalone

3.

A firm records impairment when carrying value exceeds (________ ) of an asset.

Answer: fair value

4.

When inventory costs rise, FIFO produces (________ ) net income than LIFO.

Answer: higher

5.

Stock dividends cause a (________ ) reallocation in equity accounts without cash outflow.

Answer: proportional

6.

Under IFRS, extraordinary items are (________ ) in financial reporting.

Answer: prohibited

7.

Capitalizing an expenditure increases future (________ ) expenses.

Answer: depreciation

8.

The matching principle requires expenses to be recognized in the same period as related (________ ).

Answer: revenues

9.

Treasury stock purchases (________ ) total equity.

Answer: decrease

10.

If control does not transfer to the buyer, revenue must be (________ ).

Answer: deferred

 

B. Planning, Budgeting & Forecasting

11.

The budget integrating all operational and financial components is the (________ ) budget.

Answer: master

12.

A budget based on a single expected volume level is called a (________ ) budget.

Answer: static

13.

A forecast that adjusts for recurring seasonal patterns uses (________ ) indices.

Answer: seasonality

14.

In rolling budgets, a new period is added whenever the current period is (________ ).

Answer: completed

15.

The variance caused solely by a change in activity volume is the (________ ) variance.

Answer: flexible budget

16.

The short-term plan detailing expected cash inflows and outflows is the (________ ) budget.

Answer: cash

17.

The learning curve assumes that labor hours decline at a constant (________ ) rate.

Answer: percentage

18.

Regression forecasting minimizes the sum of squared (________ ).

Answer: errors

19.

The key element that limits the organization’s operations is the (________ ) factor.

Answer: constraint / limiting

20.

An intentional overestimation of expenses in budgets is an example of (________ ) slack.

Answer: budgetary

 

C. Cost Management

21.

The difference between actual cost and standard cost is called a (________ ).

Answer: variance

22.

Equivalent units measure partially completed goods in terms of (________ ) units.

Answer: fully completed / completed

23.

Under-process costing, total costs are assigned to units using (________ ) costing.

Answer: weighted-average or FIFO

(Either is accepted)

24.

A cost that does not change within the relevant range is (________ ).

Answer: fixed

25.

Activity-based costing identifies resource consumption using (________ ) drivers.

Answer: activity

26.

Joint costs are allocated using physical measures or (________ ) value at split-off.

Answer: relative sales

27.

The cost-benefit analysis compares the incremental cost with the incremental (________ ).

Answer: benefit

28.

A cost that changes in steps rather than continuously is a (________ ) cost.

Answer: step-fixed

29.

The cost of goods manufactured schedule ends with (________ ) in process.

Answer: ending work

30.

Absorption costing treats fixed manufacturing overhead as a (________ ) cost.

Answer: product

 

D. Internal Controls

31.

An internal control weakness that allows fraud by collusion is a limitation of (________ ) controls.

Answer: preventive

32.

Controls that ensure operations align with objectives are part of the (________ ) component of COSO.

Answer: control environment

33.

Independence of internal auditors enhances the (________ ) of assurance.

Answer: objectivity

34.

A procedure that identifies unusual transactions after they occur is a (________ ) control.

Answer: detective

35.

COSO’s monitoring activities ensure controls continue to operate (________ ).

Answer: effectively

36.

Periodic password resets represent a (________ ) control in IT.

Answer: preventive

37.

Segregation of duties reduces the risk of errors and (________ ).

Answer: fraud

38.

Limiting user access based on job roles follows the (________ ) principle.

Answer: least privilege

39.

ITGCs include access controls, change controls, and (________ ) management.

Answer: operations

40.

A written policy defining acceptable technology use is an (________ ) control.

Answer: administrative

 

E. Performance Management

41.

A measure comparing profit to the capital invested is (________ ).

Answer: ROI

42.

A performance measure that avoids suboptimization by using a minimum return rate is (________ ) income.

Answer: residual

43.

The efficiency variance compares actual input quantity to (________ ) quantity.

Answer: standard

44.

In the balanced scorecard, innovation metrics fall under the (________ ) perspective.

Answer: learning and growth

45.

The throughput time metric is the sum of processing + waiting + inspection + (________ ) time.

Answer: move

46.

A company focused on continuous improvement follows the philosophy of (________ ).

Answer: Kaizen

47.

The rate at which output is produced per labor hour measures (________ ) productivity.

Answer: labor

48.

A variance caused by using a different proportion of materials than planned is a (________ ) variance.

Answer: mix

49.

Benchmarking compares a firm’s metrics to (________ ) performance.

Answer: best-in-class

50.

A bottleneck limits production capacity and therefore restricts (________ ).

Answer: throughput

 

F. Technology & Analytics

51.

ERP systems integrate data across functions to support a single (________ ) of truth.

Answer: source

52.

Excel’s regression output identifies significance using the (________ ) value.

Answer: p

53.

A data lake stores raw, unstructured data in its (________ ) form.

Answer: native

54.

RPA is most effective for tasks that are repetitive and (________ ).

Answer: rule-based

55.

Cybersecurity uses encryption to convert plaintext into (________ ) text.

Answer: cipher

56.

Anomaly detection in analytics is a common tool for identifying (________ ).

Answer: fraud

57.

The primary goal of data governance is maintaining data quality and (________ ).

Answer: integrity

58.

A sandbox environment allows testing without affecting (________ ) data.

Answer: production

59.

A blockchain ledger is immutable because each block contains a cryptographic (________ ).

Answer: hash

60.

The SDLC phase where user training and system rollout occur is (________ ).

Answer: implementation

 

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