Certified Management Accountant (CMA) — Questions and Answers

Question 1: A project's net present value (NPV) is positive. This indicates the project:

Creates value above the required rate of return (Correct answer)
Has a payback period exceeding project life
Has an IRR equal to the cost of capital
Destroys shareholder value

Correct answer: Creates value above the required rate of return

A positive NPV means the project's returns exceed the required rate, creating net value for the firm.

Question 2: A CMA learns during the course of his work that a colleague is embezzling funds. The colleague is also a close friend. Which action BEST reflects IMA ethical standards?

Accept partial funds to stay quiet
Confront the colleague privately and give them a chance to correct it
Report the embezzlement through appropriate internal channels (Correct answer)
Do nothing because it is not directly part of his job duties

Correct answer: Report the embezzlement through appropriate internal channels

IMA ethical standards require reporting fraud or illegal acts through appropriate internal channels, regardless of personal relationships.

Question 3: When assessing the impact of a risk, which dimension is NOT typically considered?

Financial impact
The risk owner's personal career risk (Correct answer)
Regulatory or legal impact
Reputational impact

Correct answer: The risk owner's personal career risk

Risk impact assessments focus on organizational dimensions — financial, operational, reputational, and regulatory — not personal career considerations.

Question 4: Scenario analysis differs from sensitivity analysis primarily because it:

Changes multiple variables simultaneously to reflect realistic combined conditions (Correct answer)
Requires full probability distributions for every variable
Focuses only on the worst-case outcome
Analyzes only the effect of the discount rate

Correct answer: Changes multiple variables simultaneously to reflect realistic combined conditions

Scenario analysis evaluates NPV under bundled sets of assumptions (best case, base case, worst case) by varying several variables simultaneously.

Question 5: A rolling (continuous) budget is best described as one that:

Is prepared using regression analysis to project future sales
Adds a new period as the most recent period expires, maintaining a constant planning horizon (Correct answer)
Consolidates multiple departmental budgets into a single master budget
Covers only the current calendar year and is replaced annually

Correct answer: Adds a new period as the most recent period expires, maintaining a constant planning horizon

A rolling budget continuously extends the planning horizon by adding a new future period each time the nearest period ends.

Question 6: Under zero-based budgeting (ZBB), managers must:

Justify every dollar of expenditure from a zero base each period (Correct answer)
Allocate costs based on activity cost drivers
Set budget targets as a fixed percentage of revenue
Start with the prior year budget and adjust for known changes

Correct answer: Justify every dollar of expenditure from a zero base each period

ZBB requires that all activities be re-evaluated and justified each budget period rather than simply adjusting prior-year figures.

Question 7: Under GAAP, which of the following costs related to internally developed software must be EXPENSED as incurred?

Costs during the preliminary project stage (Correct answer)
Costs of coding and testing once technological feasibility is established
Costs of data conversion utilities
Costs during the application development stage

Correct answer: Costs during the preliminary project stage

Under ASC 350-40, costs in the preliminary project stage (feasibility assessment, conceptual evaluation) must be expensed as incurred.

Question 8: Which of the following is NOT a perspective included in the traditional balanced scorecard?

Supplier (Correct answer)
Financial
Customer
Learning and Growth

Correct answer: Supplier

The four traditional balanced scorecard perspectives are Financial, Customer, Internal Business Processes, and Learning and Growth; there is no Supplier perspective.

Question 9: A flexible budget differs from a static budget because it:

Allocates fixed costs based on planned capacity
Focuses exclusively on capital expenditures
Adjusts revenue and cost estimates for the actual level of activity achieved (Correct answer)
Is prepared once per year and never revised

Correct answer: Adjusts revenue and cost estimates for the actual level of activity achieved

A flexible budget recalculates expected revenues and costs at the actual output level, enabling meaningful variance analysis.

Question 10: Which of the following statements about the internal rate of return (IRR) is CORRECT?

IRR always leads to the same decision as NPV for mutually exclusive projects
IRR cannot be used for projects with uneven cash flows
IRR is the discount rate at which NPV equals zero (Correct answer)
IRR is the discount rate that maximizes NPV

Correct answer: IRR is the discount rate at which NPV equals zero

The IRR is the discount rate that makes the net present value of a project's cash flows equal to zero; projects are accepted when IRR exceeds the hurdle rate.

Question 11: Which of the following best describes the concept of a 'variable interest entity' (VIE) under ASC 810?

An entity where the equity at risk is insufficient to finance its activities without additional support (Correct answer)
An entity with fluctuating ownership interests
An entity consolidated based on majority voting interest
An entity that issues variable rate debt instruments

Correct answer: An entity where the equity at risk is insufficient to finance its activities without additional support

A VIE is an entity that lacks sufficient equity investment at risk to finance its activities, or where equity investors lack typical ownership characteristics.

Question 12: Which technique adjusts for project risk by adding a risk premium to the discount rate used in NPV analysis?

Risk-adjusted discount rate method (Correct answer)
Monte Carlo simulation
Sensitivity analysis
Certainty equivalent approach

Correct answer: Risk-adjusted discount rate method

The risk-adjusted discount rate method incorporates project risk by adding a risk premium to the baseline cost of capital before discounting cash flows.

Question 13: Pro forma financial statements in the budgeting context are best described as:

Audited statements required by the SEC for public companies
Historical statements restated to exclude non-recurring items
Projected financial statements prepared to reflect the expected results of planned activities (Correct answer)
Statements prepared under IFRS rather than US GAAP

Correct answer: Projected financial statements prepared to reflect the expected results of planned activities

Pro forma statements are forward-looking financial statements built from budget assumptions to show the projected income statement, balance sheet, and cash flows.

Question 14: When a CMA faces an ethical conflict that cannot be resolved internally after escalating to the audit committee, the IMA recommends:

Consult an attorney about legal obligations and resign if necessary (Correct answer)
Contact a competitor to expose the misconduct
Immediately file a whistleblower complaint with the SEC
Comply with management's directive and document disagreement in writing

Correct answer: Consult an attorney about legal obligations and resign if necessary

If internal resolution fails, the IMA advises consulting legal counsel about obligations and rights, and resignation may ultimately be necessary.

Question 15: A company has 10,000 stock options outstanding with an exercise price of $20 when the average market price is $25. Under the treasury stock method, how many incremental shares are added to diluted EPS?

8,000
2,000 (Correct answer)
10,000
0

Correct answer: 2,000

Treasury stock method: 10,000 options exercised − (10,000 × $20 / $25) = 10,000 − 8,000 = 2,000 incremental shares.

Question 16: Which of the following best describes an operating budget?

A short-term budget covering revenues and expenses for routine business operations (Correct answer)
A long-term plan for acquiring major assets such as property and equipment
A plan for raising debt or equity capital during the year
A budget that focuses exclusively on cash receipts and disbursements

Correct answer: A short-term budget covering revenues and expenses for routine business operations

An operating budget covers the day-to-day revenues and operating expenses (sales, COGS, SG&A) for a defined period, typically one year.

Question 17: The IMA provides an Ethics Hotline primarily to:

Audit member companies for ethical compliance
Certify that companies comply with GAAP
Offer guidance to members facing ethical dilemmas in a confidential manner (Correct answer)
File complaints against CMA certificate holders with state boards

Correct answer: Offer guidance to members facing ethical dilemmas in a confidential manner

The IMA Ethics Hotline offers confidential guidance to members who need help navigating ethical situations in their professional lives.

Question 18: Under the IMA ethical standards, which of the following activities would be considered a violation of confidentiality?

Discussing internal audit findings with the company's external auditors
Reporting fraud to the company's audit committee
Sharing proprietary cost data with a former colleague who now works for a competitor (Correct answer)
Testifying under subpoena about company financials

Correct answer: Sharing proprietary cost data with a former colleague who now works for a competitor

Sharing proprietary data with a competitor via a former colleague breaches the confidentiality obligation, which survives employment changes.

Question 19: Which of the following best describes a 'black swan' event in risk management?

A risk that has been fully mitigated through insurance
A highly predictable risk with known probability
A risk accepted within normal business tolerance
A rare, unpredictable event with severe consequences (Correct answer)

Correct answer: A rare, unpredictable event with severe consequences

Black swan events are extreme outlier occurrences that are nearly impossible to predict but have massive impact when they occur.

Question 20: The Delphi method of forecasting relies on:

Iterative anonymous expert consensus to converge on a forecast (Correct answer)
Running Monte Carlo simulations of possible outcomes
Calculating a weighted average of recent historical data
Extrapolating a time series trend line into the future

Correct answer: Iterative anonymous expert consensus to converge on a forecast

The Delphi method gathers forecasts anonymously from a panel of experts across multiple rounds, feeding back summarized results until consensus is reached.

Question 21: Economic Value Added (EVA) is calculated as:

Gross profit minus operating expenses
Net income plus depreciation
Net operating profit after tax minus a charge for invested capital (Correct answer)
EBITDA divided by total assets

Correct answer: Net operating profit after tax minus a charge for invested capital

EVA = NOPAT − (WACC × Invested Capital), measuring whether a business earns more than its cost of capital.

Question 22: A company has a deferred tax asset of $80,000 and determines it is more likely than not that only $60,000 will be realized. What should the company record?

Write off the entire deferred tax asset
Record a valuation allowance of $20,000 (Correct answer)
Record a valuation allowance of $60,000
No adjustment is needed

Correct answer: Record a valuation allowance of $20,000

A valuation allowance is required for the portion of a deferred tax asset that is more likely than not to be unrealizable, which is $80,000 − $60,000 = $20,000.

Question 23: Which forecasting method uses the relationship between a dependent variable and one or more independent variables to predict future values?

Delphi method
Moving average
Exponential smoothing
Regression analysis (Correct answer)

Correct answer: Regression analysis

Regression analysis models the statistical relationship between variables (e.g., sales and advertising spend) to forecast the dependent variable based on expected inputs.

Question 24: Under zero-based budgeting (ZBB), each budget period requires managers to:

Increase the prior year's budget by an inflation factor
Justify all expenditures from scratch, regardless of prior spending (Correct answer)
Allocate costs based solely on activity drivers
Match budgeted spending to the previous year's actual spending

Correct answer: Justify all expenditures from scratch, regardless of prior spending

ZBB requires every line item to be justified anew each period rather than simply rolling forward prior-period amounts.

Question 25: The sales mix variance arises when:

Variable cost per unit differs from the standard
Total unit sales differ from the master budget
The proportion of individual products sold differs from the budgeted mix (Correct answer)
Actual selling prices differ from budgeted selling prices

Correct answer: The proportion of individual products sold differs from the budgeted mix

The sales mix variance isolates the profitability effect of shifting the actual sales composition away from the planned product mix.

Question 26: What is the most effective approach to risk management in the Certified Management Accountant field?

Reactive problem-solving
Following competitors
Maintaining the status quo
Systematic planning and continuous improvement (Correct answer)

Correct answer: Systematic planning and continuous improvement

Systematic planning combined with continuous improvement ensures sustainable success and allows for proactive management of challenges.

Question 27: Which term describes the risk that remains after management has implemented controls?

Secondary risk
Residual risk (Correct answer)
Inherent risk
Control risk

Correct answer: Residual risk

Residual risk is the level of risk exposure remaining after controls and other risk responses have been applied.

Question 28: Which scenario represents a violation of the Competence standard under the IMA Statement of Ethical Professional Practice?

A CMA refuses a gift from a vendor
A CMA fails to update technical skills needed for a new accounting software implementation (Correct answer)
A CMA reports a colleague's fraud to the audit committee
A CMA discloses a supplier relationship to her manager

Correct answer: A CMA fails to update technical skills needed for a new accounting software implementation

Competence requires CMAs to maintain and develop their professional knowledge and skills; failing to update skills for required tasks violates this standard.

Question 29: Key Risk Indicators (KRIs) are best used to:

Calculate the expected monetary value of a risk event
Quantify residual risk after controls
Provide early warning signals of increasing risk exposure (Correct answer)
Assign accountability for individual risks

Correct answer: Provide early warning signals of increasing risk exposure

KRIs are forward-looking metrics that signal when risk levels are trending toward unacceptable thresholds.

Question 30: In a defined benefit pension plan, which component of net periodic pension cost represents the increase in the projected benefit obligation due to passage of time?

Amortization of prior service cost
Expected return on plan assets
Service cost
Interest cost (Correct answer)

Correct answer: Interest cost

Interest cost is the increase in the PBO during a period due to the passage of time, calculated as the beginning PBO multiplied by the discount rate.

Question 31: In computing earnings per share, which securities are included in the weighted-average shares for diluted EPS but NOT basic EPS?

Convertible bonds assumed converted to common shares (Correct answer)
Stock dividends issued during the year
Common shares outstanding at year-end
Treasury shares repurchased during the year

Correct answer: Convertible bonds assumed converted to common shares

Diluted EPS includes the potential dilutive effect of convertible securities such as convertible bonds, while basic EPS uses only actual common shares outstanding.

Certified Management Accountant (CMA)

The CMA credential, awarded by the Institute of Management Accountants (IMA), validates expertise in financial planning, performance management, and decision-making across two exam parts covering financial reporting, budgeting, corporate finance, risk management, investment decisions, and professional ethics.

Questions

35 min

Time Limit

72%

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