39.

(-) The management discussion and analysis (MD&A) is best described as a supplement that a)
explains items in the financial statements. b) has a forward-looking orientation. c) attests as to whether
the financial statements are free from material misstatements. d) describes accounting policies used for
the financial statements. 40. Rich Corp. adheres to IFRS and on January 1, Year 1, acquires 400,000
shares of XYZ Ltd. at $25 per share. This represents 35% of XYZ’s common shares. On December 31, Year
1, XYZ reports net income of $1,000,000, and the share price of XYZ is $26 per share. Assuming Rich
Corp. has significant influence over XYZ, what amount should Rich Corp. report for investment income as
a result of its ownership of XYZ in Year 1? a) $0 b) $350,000 c) $400,000 d) $750,000 41. LSJ Inc. has a
December 31 fiscal year-end. Based on past experience, 2% of LSJ’s credit sales are uncollectible. As at
December 31, Year 1, the company had a credit balance of $10,000 in the allowance for uncollectible
accounts. Sales for Year 2 were $3,000,000, and 70% of the sales were credit sales. During Year 2, LSJ
wrote off $12,000 of uncollectible accounts from sales in Year 1 and received $6,500 as payment of an
account receivable that had been written off as uncollectible in Year 1. Using the percentage-of-sales
method, what credit balance should LSJ report for the allowance for uncollectible accounts in its
December 31, Year 2, balance sheet? a) $40,000 b) $42,000 c) $46,500 d) $58,500 2013 Sample Entrance
Examination CMA Canada Page 17 42. (+) Presented below are the transactions of Absolute Inc. that
occurred during Year 10: i) A tract of land was purchased for $18,000 cash. ii) Sold machinery for $42,200
and recorded a loss of $5,200. iii) Long-term notes payable in the amount of $27,800 were paid off in
cash. iv) Inventory decreased from $110,000 to $95,000. v) Recorded net income of $32,000. vi)
Accounts payable increased by $26,000. vii) Accounts receivable increased by $56,000. viii) Recorded
depreciation expense of $25,000. What would be the net increase or decrease in cash from operating
activities reported on the Statement of Cash Flows for the year ended December 31, Year 10? a)
$107,200 increase b) $47,200 increase c) $1,400 increase d) $13,200 decrease 43. (+) Cross Aid Charities
(CAC) received the following in Year 5: i) $6,000 of restricted donations for water and irrigation project;
ii) $30,000 of restricted donations for building clinics; iii) $10,000 of restricted contributions for the
acquisition of land; iv) $18,000 of unrestricted grants for the general fund; and v) $20,000 of endowment
contributions. During Year 5, the following expenses were incurred: i) $4,000 spent on water and
irrigation project; and ii) $17,000 spent on Year 5 general operating activities. CAC uses the deferral
method of accounting for contributions and does not set up a separate fund for restricted donations.
What is the total amount that CAC should report as revenue in the statement of operations for Year 5? a)
$22,000 b) $24,000 c) $52,000 d) $84,000 2013 Sample Entrance Examination CMA Canada Page 18 44.
GBSJ Refining, a publicly traded company, has entered into an agreement with FP Inc. to lease a
specialized piece of equipment. Significant modification would be required to make this equipment
available to others after the lease has expired. Terms of the lease are as follows: Lease term 8 years
Expected life of the equipment 10 years Implicit interest rate 6% GBSJ’s borrowing rate 4% Annual lease
minimum payment $80,000 (made at the beginning of the year) Fair value of the equipment $600,000
Based on the information given, GBSJ would recognize the equipment in the first year of the lease as a)
an operating lease of $80,000. b) a finance lease of $496,800. c) a finance lease of $526,600. d) a finance
lease of $600,000. 45. TL Company purchased a machine with an estimated 6-year useful life on January
1, Year 12, for $12,000. TL Company incorrectly expensed this machine in Year 12, and the error was
discovered in Year 13. Assuming TL Company uses straight-line depreciation and the Year 13 books are
not closed, what would be the impact on retained earnings on December 31, Year 13, to correct this
error? a) No impact on retained earnings. b) Decrease retained earnings by $4,000. c) Increase retained
earnings by $8,000. d) Increase retained earnings by $10,000. 46. (+) Erin Company is a publicly traded
company. The following information is available for Erin Company’s defined benefit pension plan for Year
13: Service costs $13,800 Accrued benefit obligation, January 1, Year 13 $298,000 Fair value of plan
assets, January 1, Year 13 $172,500 Actual earnings on plan assets $25,000 Post-retirement benefits paid
$35,000 Discount rate 9% Expected earnings on plan assets for Year 13 10% Cash paid into pension plan
$75,000 What is the balance in pension assets on December 31, Year 13? a) $237,500 b) $229,750 c)
$272,500 d) $398,000 2013 Sample Entrance Examination CMA Canada Page 19 Internal Control 47.
Which of the following is NOT a component of the audit risk model? a) Inherent risk b) Detection risk c)
Control risk d) Enterprise risk 48. The practice of preparing bank reconciliations every month is an
example of a a) detective control. b) preventative control. c) corrective control. d) compensating control.
49. The Board of Governors of Canadian University (CU) is addressing various risk management issues.
One issue of concern is the use of unlicensed, unauthorized or pirated software on CU computers.
Management was instructed to identify specific programs to address the legal issues pertaining to the
use of software governed by copyright laws. Which of the following would be LEAST likely to support the
Board’s objectives? a) Management develops and provides a policy to all employees that the use of
unauthorized or illegally copied software or data is not acceptable. b) The IT department implements a
program that tracks the expiry date of all software licenses. Department managers must apply for
renewal of existing licenses; otherwise, IT staff will remove the software from affected computers. c)
Department managers must keep an inventory of all software purchased, including information such as
the date of purchase, serial number, pertinent license information, and how outdated software is
destroyed. d) The IT department implements a program of unannounced annual software audits. At least
annually, IT staff will examine each university computer to ensure all software is authorized. 50. Which of
the following is a requirement of the Sarbanes-Oxley Act? Company management must a) certify the
accuracy and completeness of financial statements. b) describe material changes to internal controls. c)
verify the existence of adequate internal controls. d) all of the above. 2013 Sample Entrance Examination
CMA Canada Page 20 51. In order for a fraud to be perpetrated, three conditions exist; these conditions
are described as the fraud triangle. Which of the following is true? a) The primary tool used by internal
audit to detect fraud is to identify risks indicated by the fraud triangle. b) Pressure on management to
achieve financial targets is an example of a risk factor that may lead to misappropriation of assets. c)
Appropriate controls are designed to remove the fraud factors in the fraud triangle. d) The components
in the fraud triangle include pressures, opportunities and rationalization. 52. The responsibility for
establishing internal controls rests with the a) internal auditor. b) external auditor. c) company’s
management. d) audit committee. 53. A strong accounting information and communication system will
satisfy the transaction-related audit objectives, which include the following EXCEPT a) completeness. b)
segregation of duties. c) classification. d) accuracy. 54. The primary responsibility of the external auditor
is to a) review an organization for efficiency and effectiveness. b) analyze controls to ensure operational
performance in the future. c) recommend changes to procedures to improve op