Question 1

Dividends paid to company shareholders would be shown on the statement of cash flows as

Options :

A : operating cash inflows

B : operating cash outflows

C : cash flows from financing activities

D : cash flows from investing activities

Answer: B

Question 2

Elite Running Ltd has recently implemented a new evaluation process that bases bonuses primarily on the variance between budgeted andactual cost for cost centers. Individuals with budgeted to actual variances in excess of 20% will receive no bonus. Richard Banes overseesone cost center of Elite and is concerned that his bonus will be adversely impacted. He has a strong personal relationship with the controller,who is responsible for developing, reviewing, and approving budgets. He has asked the controller to accept his budget with estimated costshigher than would be reasonably expected for the next fiscal year. In appreciation for accepting these inflated costs, Banes offered thecontroller season tickets to the sport of his choice. Which one of the following standards of IMA’s Statement of Ethical Professional Practiceis relevant?

Options :

A : Confidentiality, if the controller fails to report the incident to the audit committee.

B : Integrity, if the controller accepts the tickets because acceptance would prejudice his ability to carry out his duties.

C : Competence, if the controller accepts the tickets because he has not performed his duties in accordance with established laws.

D : Credibility, if the controller shares Banes’ offer with another member of the management team.

Answer: B

Question 3

A company has net sales of $4,000,000, operating income of $1,200,000, and net income of $1,000,000. Average total assets are $9,000,000 and average total equity is $7,000,000. What is the company’s return on equity (ROE) and return on assets (ROA)?

Options :

A : ROE is greater than 12%, and ROA is less than 12%.

B : ROE is less than 12%, and ROA is greater than 12%.

C : ROE and ROA are both greater than 12%.

D : ROE and ROA are both less than 12%.

Answer: A

Question 4

Contribution margin focuses on which one of the following?

Options :

A : The amount of revenue available to cover fixed costs.

B : The total variable manufacturing costs.

C : How competitive a company is compared to other companies.

D : The total revenue expected during the year.

Answer: A

Question 5

Which one of the following is the best reason for using variable costing?

Options :

A : Variable costing is acceptable for income tax reporting purposes.

B : All costs are variable in the long term.

C : Fixed factory overhead is more closely related to the capacity to produce than to the production of specific units.

D : Variable costing usually results in higher operating income than if a company uses absorption costing.

Answer: C