IMANET IMANET-CMA Online Practice Questions and Exam Preparation

IMANET IMANET-CMA Online Questions & Answers

• Question 351:

  Mason Compass board of directors has determined 4 options to increase working capital next year.

  Option 1 is to increase current assets by $120 and decrease current liabilities by $50.

  Option 2 is to increase current assets by $180 and increase current liabilities by $30.

  Option 3 is to decrease current assets by $140 and increase current liabilities by $20.

  Option 4 is to decrease current assets by $100 and decrease current liabilities by $75.

  Whitch option should Mason choose to maximize networking capital?

  A. Option 1. B. Option 2.
  C. Option 3.
  D. Option 4.
  A. Option 1. B. Option 2.

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  Explanation

  Net working capital is the excess of current assets over current liabilities. An increase in current assets or a decrease in current liabilities will increase networking capital. Option 1 maximizes Mason Doman's networking capital, increasing it by $170 ($120 + $50).

• Question 352:

  A company's stock trades rights-on for $50.00 and ex-rights for $48.00. The subscription price for rights holders is $40.00, and four rights are required to purchase one share of stock. The value of a right when the stock is trading ex-rights is

  A. $0.40
  B. $0.50
  C. $2. 00
  D. $2. 50
  C. $2. 00

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  Explanation

  If a stock can be purchased for $48 on the open market, or for $40 with four rights, each right must be worth $2. 00 ($8 savings ?4 rights).

• Question 353:

  Willis, Inc. has a desired rate of return of 15% and is considering the acquisition of a new machine which costs $400,000 and has a useful life of 5 years. Willis projects that earnings and cash flow will increase as follows:

  

  The net present value of Willis' investment is

  A. Negative, $64,000.
  B. Negative, $14,000.
  C. Positive, $18,600.
  D. Positive, $200,000.
  C. Positive, $18,600.

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  Explanation

  The NPV is calculated by discounting the after-tax cash flows by the desired rate of return. The cash flows of this company constitute an annuity of $100,000 per year plus additional flows of $60,000 in Year 1 and $40,000 in Year 2. Thus, the present value of these flows is $418,600 [($100,000 x 3. 36 PV of an annuity of $1 for 5 periods at 15%) + ($60,000 x .87 PV of $1 for 1 period at 15%) + ($40,000 x .76 PV of $1 for 2 periods at 15%)]. The NPV is therefore $18,600 ($418,600 --$400,000).

• Question 354:

  Products may be classified in a hierarchy according to ascending levels of customer value. At which level of this customer value hierarchy does most competition occur in developed countries?

  A. Potential product
  B. Augmented product
  C. Expected product
  D. Basic product
  B. Augmented product

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  Explanation

  An augmented product exceeds expectations. In industrialized nations, product augmentation through customer service, delivery options, packaging, financing, etc, is the basis for competition. Hence, the customer's consumption system must be understood, that is , how the customer acquires, uses, pays for, and maintains the product.

• Question 355:

  Randolf Castell opened a small general store in 1964. A cousin, Alfred Bedford, served as bookkeeper and office manager while Castell concentrated on operations. The business prospered and each of Castell's three sons joined their father in the business. In fact, as each son finished school, Castell opened a new store and put the son in charge. In time, each son began to specialize: one in hardware; another in dry goods, and the third in furniture. Further expansion took place, and the business was incorporated as Four Castles Inc. with all of the stock being held by the family. Castell closed his original store to serve as president and concentrate on administration. As Four Castles prospered and more stores opened, the company needed additional capital Bedford suggested "going public" but pointed out that this required accounting and reporting procedures with which he was unfamiliar. Therefore, a trained and qualified accountant was hired as controller. The new controller has had to provide explanations to Castell and Bedford on the accounting and reporting requirements of public companies. From the viewpoint of the investor, which of the following securities provides the least risk?

  A. Mortgage bond.
  B. Subordinated debenture
  C. Income bond.
  D. Debentures.
  A. Mortgage bond.

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  Explanation

  A mortgage bond is secured with specific fixed assets, usually real property. Thus, under the rights enumerated in the bond indenture, creditors will be able to receive payments from liquidation of the property in case of default. In a bankruptcy proceeding, these amounts are paid before any transfers are made to other creditors, including those preferences. Hence, mortgage bonds are less risky than the others listed.

• Question 356:

  The terms direct cost and indirect cost are commonly used in accounting. A particular cost might be considered a direct cost of a manufacturing department but an indirect cost of the product produced in the manufacturing department. Classifying a cost as either direct or indirect depends upon

  A. The behavior of the cost in response to volume changes.
  B. Whether the cost is expensed in the period in which it is incurred.
  C. The cost object to which the cost is being related.
  D. Whether an expenditure is unavoidable because it cannot be changed regardless of any action taken.
  C. The cost object to which the cost is being related.

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  Explanation

  A direct cost can be specifically associated with a single cost object in an economically feasible way. An indirect cost cannot be specifically associated with a single cost object. Thus, the specific cost object influences whether a cost is direct or indirect. For example, a cost might be directly associated with a single plant. The same cost, however, might not be directly associated with a particular department in the plant.

• Question 357:

  An inventory management technique designed to minimize inventory investment by having materials arrive at the time they are needed for use is known as

  A. The economic order quantity model (EOQ).
  B. Materials requirements planning (MRP).
  C. First-in first-out (FIFO).
  D. Just-in-time (JIT).
  D. Just-in-time (JIT).

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  Explanation

  A just-in-time (JIT) inventory management system limits the output of each manufacturing operation to the demand of the next operation. Shipment of raw materials from vendors are scheduled to arrive "just in time" to be used in the production process. Inventory storage is considered a nonvalue-adding activity, and raw materials on hand are thus kept to a minimum.

• Question 358:

  Benet, Inc. uses the net present value method to evaluate capital projects. Bonnet's required rate of return is 10%. Benet is considering two mutually exclusive projects for its manufacturing business. Both projects require an initial outlay of $120,000 and are expected to have a useful life of four years. The projected after-tax cash flows associated with these projects are as follows:

  

  Assuming adequate funds are available, which of the following project options would you recommend that Bennet's management undertake?

  A. Project X only.
  B. Project Y only.
  C. Projects X and Y.
  D. Neither project.
  A. Project X only.

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  Explanation

  The net present value of Project X can be determined using the present value factor for an annually (3. 170) because the cash flows are even over the life of the project. An ordinarqannuilyof$401000 discounted at 10% for the next four years has a present value of $1 26800. The cash inflows of Project Y are uneven and so must be discounted with individual factors for each of the four years as follows:

  

  Since the projects are mutually exclusive, the one with the higher net present value is the correct choice.

• Question 359:

  Gatsby, Inc. is going to begin factoring its accounts receivable and has collected information on the following four finance companies:

  

  Which company will give Gatsby the highest proceeds from a $100,000 account due in 60 days? Assume a 360-day year.

  A. Company A.
  B. Company B
  C. Company C.
  D. Company D.
  A. Company A.

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  Explanation

  Company A will withhold $6,000 ($100,000 x 6%) as a reserve against returns and allowances and $1,400 ($100,000 x 14%) as a commission. The remaining $92,600 will be reduced by interest at the rate of 15% annually. The interest charge will be $2,315, assuming a 360-day year [($92,600 x 15) x (60-day payment period - 360 days)). The proceeds to be received by Gatsby equal $90,285 ($92,600 - $2,315).

• Question 360:

  Oradell Company sells is single product at a price of $60 per unit and incurs the following variable costs per unit of product

  

  Oradell's annual fixed costs are $880,000, and Oradell is subject toe 30% income tax rate .A production and sales volume of 4. 000 units of product per month would result in an annual after-tax income (loss) Oradell Comp of?

  A. $80000
  B. $(800.000)
  C. $56000
  D. $(560.000)
  C. $56000

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  Explanation