CMCA Financial Reporting and Controls 4

Question 1

What does 'percent funded' measure in the context of reserve funding?

Accepted Answer

The ratio of actual reserve balance to the fully funded ideal

Answer

Percent funded is the ratio of the current reserve balance to what it should ideally be (fully funded benchmark) expressed as a percentage.

Question 2

Which of the following is considered a capital expenditure rather than an operating expense for an HOA?

Accepted Answer

Replacement of the entire roof on a common building

Answer

Replacing a roof is a major capital expenditure because it extends the useful life of an asset, unlike routine operating expenses.

Question 3

An association's governing documents require a reserve fund but the board has been spending reserve funds on operating expenses. What is the primary concern?

Accepted Answer

The association may lack funds for future major repairs, creating a special assessment risk

Answer

Misusing reserve funds depletes the money set aside for capital repairs, potentially forcing large special assessments when those repairs are needed.

Question 4

What information does a cash flow statement provide that the income statement does not?

Accepted Answer

The timing and sources of actual cash inflows and outflows

Answer

The cash flow statement shows when and where cash actually moved, which differs from accrual-based revenue and expense recognition on the income statement.

Question 5

Under GAAP, how should an HOA account for major common-area improvements that will last 20 years?

Accepted Answer

Capitalize the cost and depreciate it over its useful life

Answer

GAAP requires capitalizing long-lived assets and allocating their cost over their useful life through depreciation.

CMCA - Certified Manager of Community Associations Practice Test

CMCA - Certified Manager of Community Associations Practice Test

CMCA Financial Reporting and Controls 4