Entrance Examination
(Time Allowed: 4 hours)
Notes:
i) All answers must be indicated on the multiple-choice answer sheet. Work done
on the question paper and examination foolscap will NOT be marked.
TABLE OF CONTENTS
Examination:
Instructions ........................................................................................ 1
Questions ........................................................................................... 3
Solution:
Summary ......................................................................................... 46
Solutions .......................................................................................... 47
INSTRUCTIONS:
Use the multiple-choice answer sheet provided to record your answers to the questions.
Be sure to enter your four-digit envelope number on the multiple-choice answer sheet.
Select the BEST answer for each of the following 116 questions and record your
answer on the multiple-choice answer sheet by blackening the appropriate answer
space (i.e. oval) with a soft lead (HB) pencil. Answer all questions. Mark ONLY ONE
ANSWER for each question.
Sample Question:
Assuming you select choice d) for your answer, you should blacken the “d” space on
line 189 in the “ANSWERS” area of the multiple-choice answer sheet as shown below:
189 a b c d e
Question Weighting:
Your performance will be based on the total weighted value of the questions answered
correctly. Note that all questions are assigned the same weight, except for those
specified with a plus (+) sign (i.e. has a higher weight) or minus (-) sign (i.e. has a lower
weight). In the above example, there is a minus sign at the beginning of the question,
signifying that the question has a lower weighted value than the average question.
For simplicity of wording, all questions are phrased as though there is a single correct
answer, even when there are multiple correct answers. For example, the correct answer
to a question that is worded, “Which of the following is...,” may be the choice that refers
to two or more of the other choices, e.g. “Both a) and b) above.”
CMA Canada 1
2010 Sample Entrance Examination
The following models of calculators are authorized for use on the Entrance Examination
effective January 2008:
2 CMA Canada
2010 Sample Entrance Examination
Strategic Management
1. (-) The main purpose of a company’s mission statement is to provide a context and
direction for
a) The technical know-how that a company uses to create leading edge product
features.
b) Something a company does very well relative to competitors.
c) A primary activity that the company uses to create value for customers.
d) The ability of a company to perform an activity consistently well and at an acceptable
cost.
e) Something a company does well relative to other internal activities.
CMA Canada 3
2010 Sample Entrance Examination
7. In which of the following situations would a joint venture strategy be LEAST useful?
4 CMA Canada
2010 Sample Entrance Examination
10. Which of the following statements about the implementation of balanced scorecard in an
organization is correct?
a) The scorecard should include only four performance perspectives, including learning
and growth, internal business process, customers and financial.
b) Performance perspectives and indicators included in an organization’s corporate
scorecard, divisional scorecard and individual employee scorecard should be
identical.
c) Performance perspectives and indicators of critical success factors should be driven
by the organization’s mission, vision, and strategy.
d) The scorecard should include a balanced set of financial, quantitative, objective, and
lagging indicators.
e) The cause-and-effect relationship among the different performance perspectives
must be precise and tested.
a) provide timely and relevant information to the organization about its goals and
objectives.
b) safeguard the assets within the organization.
c) confirm the reliability and integrity of information within the organization.
d) ensure efficient use of resources.
e) ensure the behaviour of employees are consistent with organizational objectives and
strategies.
CMA Canada 5
2010 Sample Entrance Examination
14. Effective internal control in a small company that has an insufficient number of
employees to permit proper division of responsibilities can best be enhanced by
15. The role or duties of the board of directors of public companies has become increasingly
important since the passing of legislation such as Sarbanes-Oxley in the United States
and the Canadian Securities Administrators Multi-Lateral Instruments. Which of the
following is NOT a role of the board of directors?
16. John works for a small company and is responsible for making disbursements by cheque
and also to reconcile the monthly bank statements. Which of the following best describes
the control impact of this arrangement?
a) This arrangement improves the companies control over the cash account.
b) John is in a position to make and conceal unauthorized payments.
c) John is able to make unauthorized adjustments to the cash account.
d) Internal control is enhanced because John has two opportunities to discover
inappropriate disbursements.
e) There is no negative impact since this is best practice for small companies.
6 CMA Canada
2010 Sample Entrance Examination
19. A Canadian exporting company wishes to reduce the risk of the Canadian dollar
dropping in value relative to the foreign currency (FC) of its customers. However, it
wants to retain the flexibility to benefit from any possible future increases in value of the
Canadian dollar relative to the FC. Which of the following strategies should the company
use with respect to the FC?
Probability of
Government Approval Development Annual Cash Flow
of the Drug Costs (if the drug is approved)
Drug H 30% $6,000,000 $6,500,000
Drug I 40% $5,800,000 $4,450,000
Drug J 20% $6,800,000 $9,500,000
CMA Canada 7
2010 Sample Entrance Examination
Performance Management
21. A company manufactures two products, Y and Q. Each product requires the following
processing:
Process I Process II
Y 2 hours 1 hour
Q 4 hours 3 hours
The available time for processing the two products is 100 hours per week in Process I
and 90 hours per week in Process II. The contribution margin is $5 per unit of Y and $7
per unit of Q. The company would like to maximize profits, but the time availability of
these two processes have constrained the number of units that can be produced.
Applying the linear programming technique, how would the objective function be
expressed?
8 CMA Canada
2010 Sample Entrance Examination
22. Assuming no further processing work is done after the split-off point, the amount of joint
cost allocated to product A using the relative sales value method would be
a) $75,000.
b) $180,000.
c) $100,000.
d) $225,000.
e) $120,000.
23. (+) Assume that product B must be further processed at a cost of $200,000 per
production run. During the process, 10,000 units are lost. These spoiled units have no
discernible value. The remaining units of product B are saleable at $10 per unit. Assume
also that product A must be further processed at a cost of $100,000 per production run
and then sold for $5 per unit. No units of product A are lost in this process.
Using the net realizable value method, the completed cost assigned to each unit of
product B would be
a) $2.92.
b) $5.63.
c) $5.00.
d) $5.31.
e) $4.75.
_____________________
24. At the end of the financial year, the cost accountant finds that the actual expenses for
fixed factory overhead exceed the budgeted amounts by $15,000. If the decision is
made to close out the balance remaining in the manufacturing overhead account to cost
of goods sold, what would be the effect on the company’s financial results?
CMA Canada 9
2010 Sample Entrance Examination
25. (+) ZZ Co. has two production departments, A and B, and two service departments,
information technology (IT) and maintenance. The service department costs are
allocated to departments based on number of computer hours used for IT and the
department size in square metres for maintenance.
Assuming ZZ Co. uses the direct allocation method, what is the total cost of
Department A after allocating the service department costs (rounded to the nearest
dollar)?
a) $1,048,167
b) $981,359
c) $982,647
d) $974,706
e) $978,243
10 CMA Canada
2010 Sample Entrance Examination
26. JYD Inc. is introducing a new product next year. Costs pertaining to this product are
budgeted as follows:
The marketing department estimates the following sales at various selling prices:
Price Volume
$180 59,000
$170 75,000
$160 90,000
$150 120,000
$140 145,000
In order to maximize profits, what price should JYD Inc. set for the new product?
a) $180
b) $170
c) $160
d) $150
e) $140
CMA Canada 11
2010 Sample Entrance Examination
For Year 5, the standard costs per equivalent unit for material XY, material RT and conversion
costs are $15.00, $21.00 and $9.00, respectively. Production data for May Year 5 are as
follows:
a) $ 7,140.
b) $ 9,000.
c) $10,710.
d) $ 8,820.
e) $ 7,320.
a) $225,000.
b) $165,000.
c) $207,000.
d) $183,000.
e) $161,250.
12 CMA Canada
2010 Sample Entrance Examination
29. HEB Ltd. manufactures widgets. In the production of the widgets, two different types of
materials are used: 100% of Material K is added at the beginning of the production
process; 100% of Material Z is added when the widget is 60% converted. Conversion
costs are added uniformly throughout the entire production process. Quality testing is
conducted at the 60% conversion point prior to adding Material Z. Rejected units at
quality testing are accounted for as spoilage.
(+) Assume HEB Ltd. uses a first-in, first-out (FIFO) process costing system. The
equivalent units of production for conversion costs for June are
a) 8,965.
b) 9,415.
c) 9,115
d) 9,500.
e) 9,175.
30. (+) Yabco Inc. produces three design types of product X: A, B, and C. The budgeted
gross margin per unit for Year 5 is as follows:
A B C
Price $400 $250 $150
Direct materials 100 80 40
Direct labour 50 50 50
Variable overhead 60 40 10
Fixed overhead 20 20 20
230 190 120
Gross margin per unit $170 $ 60 $ 30
The fixed overhead allocation rate is based on the Year 4 sales of 5,000 units of A,
10,000 units of B and 20,000 units of C.
In addition, the budgeted total administration costs for Year 5 amount to $500,000, all of
which are fixed costs. Assuming the sales mix in Year 5 will be the same as in Year 4,
what is the breakeven sales volume for Year 5 (rounded up to the nearest 10 units)?
a) 8,540 units
b) 2,180 units
c) 11,250 units
d) 8,840 units
e) 15,280 units
CMA Canada 13
2010 Sample Entrance Examination
31. The following represents the budgeted and actual manufacturing data for LPT Ltd. for
Year 3:
Budget Actual
Units of direct materials 65,000 units 75,000 units
Direct labour hours 100,000 hours 120,000 hours
Machine hours 60,000 hours 70,000 hours
Direct materials $325,000 $380,000
Direct labour $275,000 $340,000
Overhead $300,000 $320,000
Assuming overhead is applied based on direct labour hours, by how much was overhead
overapplied or underapplied in Year 3?
a) $40,000 overapplied
b) $70,000 underapplied
c) $20,000 underapplied
d) $60,000 overapplied
e) $10,000 underapplied
32. Enterprise Resource Planning (ERP) has been around since the early 1990s. A
successful ERP
14 CMA Canada
2010 Sample Entrance Examination
33. (+) AUP Ltd. produces three chemicals from a joint process. The three chemicals can be
sold immediately after the split-off point. One of the chemicals, Chemical O, can be
further processed and sold as Chemical O3. In addition to the main chemicals, a by-
product emerges from the joint process. This by-product must be disposed of at the end
of the joint process. During August, 5,000 litres of inputs were processed in the joint
process and 1,000 litres of Chemical O were further refined to produce 1,000 litres of
Chemical O3. The following are data regarding production and sales for the month of
August:
Chemical
A D O O3 By-product
Selling price per litre $200 $120 $150 $225 $0
Total output at split-off 1,200 2,200 1,500 100
Sales during August 900 2,100 1,400 950 0
There were no inventories of any of the chemicals at the beginning of August. During the
month, the joint processing costs incurred by the company amounted to $480,000 and
the additional costs to produce Chemical O3 amounted to $40,000.
Using the estimated net realizable value method of joint cost allocation, the total joint
costs for August allocated to Chemical O (rounded to the nearest hundred dollars) is
a) $116,200.
b) $ 47,100.
c) $ 44,800.
d) $ 49,000.
e) $ 62,200.
CMA Canada 15
2010 Sample Entrance Examination
34. Assuming DBS Ltd. uses standard variable (direct) costing, what is its budgeted net
profit for the current year?
a) $3,600,000
b) $2,930,000
c) $3,740,000
d) $1,660,000
e) $3,210,000
35. If DBS Ltd. changes from standard variable costing to standard absorption costing, by
what amount would budgeted net profit for the current year change?
a) $311,111 increase
b) $311,111 decrease
c) no change
d) $280,000 increase
e) $280,000 decrease
Standard Extreme
Expected selling price $280 $350
Standard cost per unit:
Direct materials $ 80 $100
Direct labour (@$20 per hour) 20 40
Variable overhead (@$10 per DLH) 10 20
Fixed overhead (@$30 per DLH) 30 60
Standard cost per unit $140 $220
16 CMA Canada
2010 Sample Entrance Examination
Direct labour is a variable manufacturing cost and factory workers are paid by the hour. An
annual practical capacity of 24,000 direct labour hours (DLH) is used in establishing the
manufacturing overhead rates. Plant capacity allows up to a maximum of 30,000 direct labour
hours. Overtime pay above and beyond the practical capacity is 1½ times regular pay and a
maximum of 6,000 direct labour hours is allowed for overtime under the union contract. YEH
also has a hiring freeze policy for Year 8. Variable selling and administrative costs are $10 per
unit for each of the Standard and Extreme model, and the total fixed selling and administrative
costs budgeted for Year 8 are $480,000. Fixed manufacturing overhead as well as fixed selling
and administrative costs budgeted for Year 8 will not be affected by the production plan.
CP Hardware Store, a national chain, approaches YEH and increases its order of the Standard
Model from 1,000 units to 4,000 units for Year 8, and a price discount of 5% is given on the
order. Ms Yoon revises her sales forecasts for the Standard model from 12,000 units to 15,000
units (including the CP order) and the Extreme model from 12,000 units to 10,000 units,
respectively, to reflect changes in the industry’s economic condition.
36. (+) YEH should accept the CP order of 4,000 units as net income will increase by:
a) $438,000.
b) $ 78,000.
c) $108,000.
d) $154,000.
e) $168,000.
37. (+) Because of changes in consumers’ preference, YEH decides to focus its labour
capacity on the production of the Extreme model first. Ms Yoon revises her sales
forecast of the Extreme model to 12,000 units for Year 8, and the remaining capacity will
be used to manufacture the Standard model. In Year 8, YEH should produce 12,000
units of the Extreme model
38. Which one of the following statements about the cost hierarchies of activity-based
costing is correct?
CMA Canada 17
2010 Sample Entrance Examination
a) Target price, a cost-based price, is the estimated price for a product or service that
potential customers will pay.
b) Peak-load pricing is the practice of charging a lower price for the same product or
service when demand approaches physical capacity limits.
c) Collusive pricing, which is in compliance with regulations, occurs when companies in
an industry conspire in their pricing and output decisions to achieve a price above
the competitive price.
d) Predatory pricing or dumping occurs when a company sells a product in a foreign
country at a price below the market value in its home country and this action
materially injures or threatens to materially injure an industry in the foreign country.
e) Discriminatory pricing occurs when a company charges different customers different
prices for a product because of differences in the costs of manufacturing, marketing
and distributing the product.
40. CCN Inc. manufactures hockey sticks, and expected sales for the four quarters of Year 6
are as follows:
Quarter Units
First 115,000
Second 27,000
Third 122,000
Fourth 138,000
The company generally maintains an ending finished goods inventory volume of 15% of
the next quarter’s sales volume and it keeps no work-in-process inventory. The hockey
stick sells for $55 and the standard cost of production is $24 per unit.
What will be the budgeted cost of goods manufactured for the third quarter of Year 6?
a) $2,870,400
b) $2,928,000
c) $3,782,000
d) $2,985,600
e) $3,424,800
18 CMA Canada
2010 Sample Entrance Examination
Predetermined overhead rates are based on a practical capacity of 12,000 machine hours per
month.
In July, 35,000 kg of direct materials, 7,500 direct labour hours, and 5,000 machine hours were
used in producing 15,900 units of Product K.
42. (+) Assume that actual total overhead incurred in July is $365,500 and the fixed
overhead spending variance is $15,000 favourable. What is the variable overhead
spending variance?
a) $ 90,500 favourable.
b) $ 5,500 unfavourable.
c) $236,000 unfavourable.
d) $ 9,500 favourable.
e) $140,500 favourable.
CMA Canada 19
2010 Sample Entrance Examination
The baseballs sell for $5.40 each and the soccer balls sell for $9.55 each. There is an unlimited
market for the baseballs, but the retailer demand for soccer balls is limited to 25,000 balls per
year. Factory operations of each process are limited to 10,000 hours per year. Direct labour is
$10 per hour. Variable overhead is applied based on total processing hours at $2 per hour.
Direct materials cost $1 and $2.25 per ball for baseballs and soccer balls, respectively.
Processing hours per ball are as follows:
43. Which of the following would be an appropriate objective function in determining the
production mix that would maximize total contribution?
44. Assume that, to maximize total contribution, the company should maximize its
production of soccer balls. How many units of baseballs can be produced?
a) 6,500
b) 35,000
c) Zero
d) 25,000
e) 50,000
_____________________
45. Manufacturing costs incurred in April to produce 500 units of a product were as follows:
$3,000 for direct materials, $2,000 for direct labour, $4,000 for variable overhead and
$6,000 for fixed overhead.
Assuming the manufacturing cost behaviour in May will be the same as that in April and
that 400 units will be produced in May, what would be the manufacturing cost per unit in
May?
a) $34.50
b) $33.00
c) $35.00
d) $37.50
e) $30.00
20 CMA Canada
2010 Sample Entrance Examination
46. Company RT would like to increase overall sales by marketing its current product to new
markets. This market-product approach is best described as a
Performance Measurement
47. A balanced scorecard is a multi-faceted performance evaluation system that is tied in to
a company’s strategy. Measures that evaluate innovation in operations, such as creating
new services for customers, relate mainly to which component of the balanced
scorecard?
a) Financial perspective.
b) Customer perspective.
c) Internal business process perspective.
d) Learning and growth perspective.
e) None of the above.
48. Job design strategies can be used to improve employee motivation. One strategy that is
designed to give employees more autonomy and responsibility over the work that they
do is called
a) job enrichment.
b) job rotation.
c) job sharing.
d) job enlargement.
e) mutual goal setting.
49. In his first week of employment, an employee completed projects beyond his job
description. Since then, the employee stopped completing extra projects and his
performance was marginal. This resulted in an overall favourable performance review for
the employee. This is an example of the employee taking advantage of which of the
following perceptual errors?
a) Primacy effect.
b) Recency effect.
c) Projection.
d) Halo effect.
e) Self-fulfilling prophecy.
CMA Canada 21
2010 Sample Entrance Examination
Operating Income
Before Taxes Total Assets Total Liabilities
North $50,000 $450,000 $225,000
South $40,000 $375,000 $275,000
West $65,000 $475,000 $110,000
XYZ Company requires a minimum return on investment (ROI) of 10% in evaluating the
performance of the investment centres. There is a new proposal which requires an investment
of $80,000 with an expected operating income before taxes of $10,000.
50. If the managers are awarded increasing bonuses for increasing investment centre ROI
above 10%, which manager would be most motivated to accept the proposal?
a) North.
b) South.
c) West.
d) Both a) and b) above.
e) All of a), b), and c) above.
51. If the managers’ bonuses are determined using residual income (RI), the manager of
which investment centre would be motivated to accept the proposal?
a) North.
b) South.
c) West.
d) Both a) and c) above.
e) All of a), b) and c) above.
_____________________
52. Residual income is a better measure for performance evaluation of an investment center
manager than return on investment because
a) the problems associated with measuring the asset base are eliminated.
b) desirable investment decisions will not be neglected by high-return divisions.
c) only the gross book value of assets needs to be calculated.
d) returns do not increase as assets are depreciated.
e) the arguments over the implicit cost of interest are eliminated.
22 CMA Canada
2010 Sample Entrance Examination
53. (-) Various theories of motivation recognize that achievement and self actualization are
high level needs that motivate employee performance. To encourage employees to
strive towards higher achievement, a manager should
55. Data for two divisions that are treated as investment centres are as follows
Division X Division Y
(000's) (000's)
Revenue $35,000 $65,000
Net income $15,000 $22,000
Average total investment $79,000 $130,000
The company’s balanced scorecard includes a target minimum rate of return of 18% for
all investments. In evaluating the performance of these divisions, it can be concluded
that
a) Division X performed better because both its return on investment and residual
income are higher.
b) Division Y performed better because its net income is higher.
c) Division Y performed better because its return on investment is higher.
d) Division X did not meet the target minimum rate of return.
e) Both divisions met the target minimum rate of return.
CMA Canada 23
2010 Sample Entrance Examination
a) The minimum transfer price the East Division is willing to accept on sales to the West
Division is $50.
b) The minimum transfer price the East Division is willing to accept on sales to the West
Division is $90.
c) The maximum transfer price the West Division is willing to pay on purchases from
the East Division is $90.
d) Both b) and c) above.
e) Both a) and c) above.
57. Leather Division is transferring 12,000 units of leather to the Stitching Division. Costing
from the Leather Division is as follows
Based on absorption costing, the 12,000 units of leather would be transferred at a total
cost of
a) $351,000.
b) $435,000.
c) $375,000.
d) $500,000.
e) $210,000.
24 CMA Canada
2010 Sample Entrance Examination
58. An electrician is working on a new building among various other tradespeople and is
paid an individual bonus based on the number of fixtures installed within a specified
period of time. The benefit(s) of including this incentive based on individual performance
includes
59. After an analysis of a company's operations, it was evident that department performance
varied and that every department worked independently to achieve departmental
objectives. The company would like to improve overall product output which would
require improvement from all departments. To achieve this improvement, the
organization should
60. (+) OKP Corporation has the following results for two of its divisions.
a) The Coastal Division outperformed the West Division because they have a higher
profit margin.
b) The Coastal Division outperformed the West Division because they generated a
better return on investment and residual income.
c) The West Division performed better because it required fewer assets to achieve its
targets.
d) The West Division outperformed the Coastal Division because they carried fewer
liabilities.
e) The divisions performed equally.
CMA Canada 25
2010 Sample Entrance Examination
62. An employee is motivated to work harder because he believes more effort leads to better
performance which would then lead to better rewards. This belief is based on which
motivational theory?
a) Theory Y/Theory X
b) Maslow's hierarchy of needs
c) Expectancy Theory
d) Motivation-Hygiene
e) Equity Theory
63. (-) Incentives for ethical behaviour comes from several sources. An incentive that
motivates employees to comply with company ethical standards would be best described
as an incentive that is
a) professional-based.
b) organization-based.
c) individual-based.
d) market-based.
e) regulatory-based.
Financial Management
64. Why does the Capital Asset Pricing Model (CAPM) NOT value unsystematic risk?
a) The CAPM assumes that investors are risk neutral, and not risk averse.
b) The CAPM assumes that investors will be holding anywhere from one security to the
entire market of securities.
c) The CAPM assumes that unsystematic risk represents that aspect of financial risk
which is unique to that security and not related to the financial risk of the market.
d) The CAPM assumes that unsystematic risk can be eliminated in a well-diversified
portfolio.
e) The CAPM only values systematic risk.
26 CMA Canada
2010 Sample Entrance Examination
65. (+) BG Corporation is considering a bid to take over SM Limited. Should the takeover
occur, BG Corporation would benefit from SM Limited's before-tax operating cash flows
of:
i) $500,000 per year for the first three years,
ii) $700,000 per year from the fourth year into perpetuity, and
iii) $225,000 per year of synergistic savings before taxes in perpetuity.
Assume that the cash flows occur at the end of each year, the tax rate is 40% for both
companies, and BG Corporation’s after-tax required rate of return is 13%. What is the
maximum amount that BG Corporation should be willing to pay to take over SM
Corporation (rounded to the nearest thousand dollars)?
a) $7,666,000
b) $2,947,000
c) $1,909,000
d) $6,643,000
e) $3,986,000
66. (-) Normally, the issuance of a stock dividend of one share for every ten shares currently
held will
67. The following table sets out the aging schedule for a firm’s accounts receivables. What is
the average collection period?
Aging Schedule
Age of Account % of Total Value of Sales
Cash Sales 20%
20 days 40%
60 days 40%
a) 32 days
b) 40 days
c) 60 days
d) 24 days
e) 27 days
CMA Canada 27
2010 Sample Entrance Examination
68. A profitable company buys a depreciable class 8 asset (i.e. 20% CCA rate) for $500,000
at the beginning of Year 1. The company uses straight-line amortization for capital
assets. This asset has an expected useful life of 8 years and has an estimated residual
value of $50,000 at the end of 8 years. At the beginning of Year 3, the company sold this
asset, which was the last asset in this class held by the company, for $370,000. What is
the effect of this sale on the company’s Year 3 taxable income?
a) $46,000 recapture
b) $17,500 terminal loss
c) $50,000 recapture
d) $80,000 terminal loss
e) $10,000 recapture
69. XYZ company recently issued rights to raise financing. The shares are currently trading
for $18 per share on the TSX. The subscription price for the rights offering is $14 per
share and an investor will require 3 rights to purchase one share. The value of one right
is
a) $12.00.
b) $1.67.
c) $1.00.
d) $0.
e) $4.00.
The long-term debt consists of a single bond issue paying 7.5% interest annually. These
bonds currently yield 6.5% in the market. The current cost of the preferred shares is 6%.
The current cost of the common shares is 15%. The company’s tax rate is 40%. What is
HTY Inc.’s weighted average cost of capital (rounded to the nearest tenth of a percent)?
a) 10.3%
b) 10.9%
c) 6.8%
d) 9.2%
e) 11.3%
28 CMA Canada
2010 Sample Entrance Examination
a) $50,000
b) $75,000
c) $33,800
d) $54,080
e) $70,780
72. LPY Ltd. has cash of $500,000 that will be used to create an investment portfolio. The
portfolio will be invested evenly in two assets: an equity investment that has a beta of
1.70 and a risk-free, interest bearing certificate. The current risk-free rate in the market
is 3% and the expected market return is 9%. What return should LPY Ltd. expect to
earn on its portfolio?
a) $ 7,500
b) $30,000
c) $33,000
d) $66,000
e) $40,500
73. Management constantly makes decisions regarding financial leverage. Which of the
following ratios would management NOT consider in estimating financial leverage?
a) Contribution margin
b) Debt-to-equity ratio
c) The difference between Return on Equity and Return on Assets
d) Debt-to-asset ratio
e) Times Interest Earned
a) Only A.
b) Only B.
c) Only C.
d) Either A or B.
e) Any of the three as they all have the same effective annual rate.
CMA Canada 29
2010 Sample Entrance Examination
75. The following information relates to Reward Inc (RI), a Canadian Controlled Private
Corporation (CCPC):
a) $33,000.
b) $20,000.
c) $13,000.
d) $ 8,000.
e) $ 5,000.
W X Y
Annual after-tax cash inflows $620,000 $1,000,000 $2,000,000
Initial Project Cost $2,000,000 $5,000,000 $10,000,000
Discount rate 9% 11% 13%
Project life 4 years 5 years 7 years
Based only on profitability index, which project(s) should the company invest in?
a) Only W.
b) Only X.
c) Only Y.
d) Both W and Y.
e) All three projects.
30 CMA Canada
2010 Sample Entrance Examination
77. A company requires new equipment with a 5-year life and is considering the following
equipment options:
Operating
Lease Buy
Equipment Price $4,000,000
After-tax annual lease payment $550,000
Lease term 5 years
Annual CCA (straight-line basis) $600,000
Salvage value after 5 years $1,000,000
The first lease payment would be due on delivery and the remaining lease payments are
due at the beginning of the year. The company's after-tax cost of borrowing is 6% and its
tax rate is 40%. Based on this information and ignoring the half-year rule, the net present
value of leasing the equipment is (rounded to the nearest thousand)
a) ($ 580,000).
b) $ 28,000.
c) ($ 214,000).
d) ($1,730,000).
e) $ 797,000.
a) a junk bond.
b) an investment grade bond.
c) a bond with a lower yield than an AA graded bond.
d) very highly speculative.
e) a bond sold only on high-yield US markets.
79. A portfolio is equally made up of three stocks with the following projections
Expected Return
Probability Stock V Stock W Stock X
Bull market 0.30 15% 18% 10%
Bear market 0.70 8% 2% 9%
a) 14.3%
b) 8.7%
c) 4.2%
d) 10.3%
e) 8.0%
CMA Canada 31
2010 Sample Entrance Examination
80. (+) A company is introducing 30-day credit terms for customers with the expectation that
annual sales will increase from $700,000 to $775,000. To finance this investment in
receivables, the company will use its line of credit, which has a 5% rate of interest. It
estimates that it would have to hire an AR clerk for $45,000 and incur annual bad debt of
$20,000. If the company's tax rate is 40%, what is the NPV of extending credit (rounded
to the nearest hundred)?
a) $ 56,300
b) $136,300
c) ($ 53,700)
d) $ 10,000
e) $200,000
a) 3.93
b) 4.83
c) 2.25
d) 1.26
e) 0.76
82. TTE Inc. plans to issue preferred shares to raise capital. Each preferred share will be
issued with a par value of $500 and a cumulative dividend of $35. The preferred shares
will result in underwriting expenses of $15 per share. The underwriting expenses are tax
deductible and TTE’s tax rate is 40%.
If TTE Inc. decided to issue these preferred shares, which one of the following
represents the cost of the preferred shares?
a) 7.00%
b) 4.52%
c) 7.13%
d) 4.20%
e) 7.21%
32 CMA Canada
2010 Sample Entrance Examination
Financial Reporting
83. HIJ Ltd. has five operating segments all producing different products with the following
results:
a) T only.
b) S and T only.
c) S, T and U only.
d) Q, R and U only.
e) All segments would report separately.
84. On March 1, Year 8, Muchmoney Inc. purchases 25% of the outstanding shares of FD
Ltd. for $5,000,000. On August 31, Year 8 FD announces and pays a cash dividend of
$100,000 and an annual net income of $400,000. What is the balance in the investment
in FD Ltd. account on Muchmoney Inc.'s records on August 31, Year 8?
a) $5,000,000
b) $5,075,000
c) $5,500,000
d) $5,100,000
e) $5,200,000
85. As a result of a water leak during July, a portion of XYZ Ltd’s inventory was damaged.
After assessing the damaged goods, the following values were determined on July 31.
Net Realizable
Item Units Cost per Unit Value per Unit
A 5,000 $25 $15
B 3,000 $35 $30
C 2,000 $80 $85
a) $400,000
b) $335,000
c) $390,000
d) $325,000
e) $430,000
CMA Canada 33
2010 Sample Entrance Examination
86. The following selected amounts are taken from an adjusted trial balance.
Sales $500,000
Sales discounts $ 10,000
Cost of goods sold $245,000
Accrued liabilities $ 12,000
Allowance for doubtful accounts $ 8,000
Operating expenses $125,000
Contributed surplus $ 20,000
Unrealized holding gain $ 5,000
a) $ 62,000.
b) $ 70,000.
c) $ 85,000.
d) $145,000.
e) $125,000.
87. (+) The following information relates to Senior Ltd.’s defined benefit pension plan:
What was Senior Ltd.’s net pension expense for Year 20?
a) $251,000
b) $196,000
c) $ 76,000
d) $126,000
e) $ 44,000
88. HUL Ltd. owns 10,000 shares of ML Company. To minimize market risk, HUL purchased
an option to sell the ML shares. Three months later, HUL sold the ML shares for a gain.
How should the option be recorded at the time the shares of ML were sold?
a) Since there was a gain, the option does not need to be recorded.
b) The option remains in Other Comprehensive Income.
c) The option is only recorded at the time of purchase.
d) The loss on the option is recorded at the same time as the sale of the ML shares.
e) The option remains a liability until adjustment at fiscal year end.
34 CMA Canada
2010 Sample Entrance Examination
89. Company K purchased 35% of the outstanding shares of Company W giving Company K
significant influence over Company W. How would this investment be classified?
a) Held-to-maturity
b) Available-for-sale
c) Strategic
d) Fair Value through Profit and Loss
e) Temporary
90. Which one of the following accounting treatments for inventory is appropriate?
a) Telco Phones is creating their first batch of cell phones and the entire fiscal year has
been geared towards production only. It is planning on using either the LIFO or
weighted-average methods to account for their inventory for fiscal year and beyond.
b) PA Corp had $20,000 in inventory as at December 31, 2008. In May 2009, PA Corp
wrote down their inventory to its net realizable value of $13,000. In June 2009, the
inventory was back in favour, resulting in a new net realizable value of $26,000. PA
Corp reversed the inventory impairment loss, and recorded inventory at the new
value of $26,000.
c) Auto Pro Ltd. had an abnormal amount of wasted material during their production of
certain transmissions. Auto Pro Ltd. included these abnormal costs into inventory
because management believes that the cost of the goods will still be recovered by
future sales.
d) Texas Utensils had adopted a policy to test their inventory for the lower of cost and
market, whereby the market is defined as replacement cost.
e) During fiscal 2008, LR Corp wrote down their inventory to a net realizable value of
$30,000. The original cost of the inventory was $40,000. In June 2009, the inventory
was back in favour, resulting in a new net realizable value of $45,000. LR Corp
reversed the inventory impairment loss recorded in fiscal 2008 and recorded the
inventory cost at $40,000.
91. Which of the following qualitative characteristics of accounting information provides the
connection between the users of the financial information and the decisions they make?
a) Relevance
b) Understandability.
c) Completeness.
d) Reliability.
e) Neutrality.
CMA Canada 35
2010 Sample Entrance Examination
92. TCH Inc.’s year-end long-term debt and shareholders’ equity at December 31, Year 5,
consisted of the following:
In Year 5, TCH Inc. reported net income after taxes of $5,000,000 (assume a 40% tax
rate). At the end of Year 5, a common dividend of $0.10 per share was declared and
paid.
What is TCH Inc.’s basic earnings per share for Year 5 (rounded to the nearest cent)?
a) $5.00
b) $4.97
c) $4.83
d) $2.83
e) $4.95
93. On April 15, Year 5, SFC Inc. consigned 80 units of Product A to HGL Inc. Each unit cost
SFC Inc. $450 to produce and it cost $1,000 to ship the consigned units to HGL Inc. On
December 31, Year 5, HGL Inc. reported that it had sold 40 units for $800 each, and
remitted to SFC Inc. the proceeds of sales, less a 15% commission, and $850 in delivery
costs to customers. What profit on the consigned sales will SFC Inc. report for Year 5?
a) $7,850
b) $15,700
c) $26,350
d) $7,350
e) $13,500
94. On January 1, Year 9, ABC Inc. issued $500,000 of 10% bonds due in ten years, with
semi-annual interest payments of $25,000 payable on June 30 and December 31 each
year. Investors are willing to accept an annual interest rate of 6% (compounded semi-
annually). What will be the amount of the premium on bonds payable on January 1,
Year 10, assuming the effective interest method is used to amortize premiums and
discounts (rounded to the nearest hundred dollars)?
a) $136,100
b) $137,300
c) $ 20,000
d) $148,900
e) $147,000
36 CMA Canada
2010 Sample Entrance Examination
96. (+) FRC Ltd. is a foreign subsidiary of a Canadian company. At the end of the first fiscal
year (December 31), the following balances appeared on FRC Ltd.’s financial
statements denominated in the host country’s foreign currency (FC):
Other Information:
1) Accounts receivable (A/R) relates to sales that occurred evenly over the 4th quarter.
2) The goods in inventory at year end were purchased evenly over the 4th quarter.
3) Sales, purchases and expenses occurred evenly throughout the year.
4) Exchange rates were as follows:
1 FC = $ CDN
January 1 0.85
December 31 0.70
Average for the year 0.82
Average for the 4th quarter 0.73
If the functional currency is the foreign currency (FC), the amounts that should appear
on the current year’s translated financial statements of FRC Ltd. (in Canadian dollars)
are
97. Which of the following actions would result in an improvement in a company’s cash total
debt coverage ratio?
CMA Canada 37
2010 Sample Entrance Examination
Year 12 Year 11
Cash $ 34,100 $ 24,600
Accounts receivable 57,300 52,000
Inventory 114,800 120,500
Property, plant and equipment (net) 372,800 365,200
$579,000 $562,300
98. What is Company A’s gross margin ratio for Year 12?
a) 65.9%
b) 7.9%
c) 18.6%
d) 47.3%
e) None of the above
38 CMA Canada
2010 Sample Entrance Examination
99. What is Company A’s inventory turnover ratio for Year 12?
a) 2.32 times
b) 1.22 times
c) 0.82 times
d) 2.43 times
e) 0.61 times
a) 1.81
b) 1.22
c) 0.82
d) 1.84
e) 0.65
_________________________
101. During Year 8, TIL Construction Ltd. started a construction job with a contract price of $2
million. The initial estimated profit on the project was $800,000. The job was completed
in Year 10 and the following information is available:
According to IAS 11, what is the profit that would have been recognized for the year
ended December 31, Year 9?
a) $ 25,000
b) $332,142
c) $152,100
d) $316,666
e) $ 84,000
CMA Canada 39
2010 Sample Entrance Examination
102. (+) Nu-Row Co. is a manufacturing company with the following transactions during
Year 10:
What would be the net increase in cash from operating activities reported on the Cash
Flow Statement for the year ended Year 10?
a) $1,135,000
b) $1,060,000
c) $ 930,000
d) $1,075,000
e) $ 995,000
103. VB Ltd. has agreed to lease a piece of equipment for $15,000 per year over 10 years
with the first payment due January 1, Year 10. At the end of the lease, the equipment will
have a market value of $20,000 and VB Ltd. can purchase the equipment for $8,000.
The interest rate implicit in the lease contract is 4% and the fair value of the equipment is
$115,000.
According to IAS 17, what asset amount should VB Ltd. record for this lease on
January 1, Year 10?
a) $131,933
b) $115,000
c) $107,000
d) $121,665
e) $0 since this is an operating lease.
40 CMA Canada
2010 Sample Entrance Examination
During Year 2:
PL Recreation uses the deferral method of accounting for contributions and does not set
up a separate fund for restricted donations for equipment. What is the total amount that
PL Recreation should report as revenue in the statement of operations for Year 2?
a) $400,000
b) $266,000
c) $350,000
d) $356,000
e) $191,000
105. Prior to year-end adjusting entries, WRX Ltd. has the following available for sale
investment information.
To adjust for the change in market values, the year-end journal entry to the Other
Comprehensive Income account should be
a) $35,000.
b) $45,000.
c) $55,000.
d) $20,000.
e) $25,000.
106. A preferred share that gives the investor the right to sell the shares back to the issuer is
best described as:
a) retractable.
b) floating rate.
c) hybrid.
d) cumulative.
e) convertible.
CMA Canada 41
2010 Sample Entrance Examination
108. When assets are acquired as a donation or gift a company is required to record that
asset at fair value. If that donation is made by an owner or shareholder, what account
should be credited?
109. PLT Ltd. has calculated its basic EPS at $6.00 at the end of Year 8. It also has the
following outstanding debt and equity information.
The corporate tax rate is 40%. Which of the above items would dilute the basic EPS?
a) i) only
b) ii) only
c) iii) only
d) i) and ii) only
e) All of i), ii) and iii)
42 CMA Canada
2010 Sample Entrance Examination
Cross Competency
The purchase price of the new equipment is $250,000 with a salvage value zero at the end of
four years. The new machine will be amortized over four years on a straight-line basis. Both
machines belong to asset pool class 46 with a maximum capital cost allowance (CCA) rate of
30%. The corporate tax rate is 40%.
110. (-) The original cost of the current equipment would be classified as a
a) conversion cost.
b) period cost.
c) sunk cost.
d) relevant cost.
e) product cost.
111. If Hightow Ltd. uses a discount rate of 14%, what is the present value of the CCA tax
shield from the new equipment (rounded to the nearest ten dollars)?
a) $89,590
b) $75,000
c) $52,140
d) $64,000
e) $25,600
CMA Canada 43
2010 Sample Entrance Examination
Revenue $880,000
EBITD $290,000
Basic EPS $8.50
Net Assets $975,000
Shares Outstanding 10,000
Dividends Paid $2.00
Research has shown that the price-earnings ratio for companies like Smallfirm Ltd. is
16.5. Based on that ratio, what is the value of Smallfirm Ltd.?
a) $1,402,500
b) $975,000
c) $850,000
d) $4,785,000
e) $880,000
113. Brook Ltd. decided to purchase all outstanding shares of Smallfirm Ltd. to enter new
markets and achieve its growth targets. This growth strategy would be best described as
a) horizontal growth.
b) organic growth.
c) a joint venture.
d) conglomerate diversification.
e) vertical growth.
114. Brook Ltd. gained some land through the acquisition of Smallfirm. In the fourth year after
acquisition, Brook Ltd. sold an excess piece of land that resulted in a capital gain of
$50,000. It anticipates that it will sell a second piece of land that will result in a capital
loss of $10,000. Good tax planning would suggest the company should declare a capital
dividend
44 CMA Canada
2010 Sample Entrance Examination
115. JH Fashions has no variable costs, except for cost of goods, and sells clothing at a 55%
gross margin. What revenue does JH need to generate to break even (rounded up to the
nearest hundred dollars)?
a) $500,000
b) $387,900
c) $292,200
d) $409,100
e) $432,700
116. How much revenue does JH Fashions need to generate to achieve John’s required
return on investment of 25% (rounded up to the nearest hundred dollars)?
a) $432,700
b) $577,000
c) $545,500
d) $714,300
e) $517,300
End of Exam
CMA Canada 45
2010 Sample Entrance Examination
Solution Summary
1 e 40 d 79 b
2 e 41 d 80 b
3 d 42 a 81 d
4 e 43 c 82 c
5 b 44 d 83 c
6 b 45 b 84 b
7 c 46 a 85 d
8 c 47 c 86 e
9 b 48 a 87 b
10 c 49 a 88 d
11 d 50 d 89 c
12 d 51 e 90 e
13 e 52 b 91 a
14 b 53 e 92 e
15 b 54 d 93 a
16 b 55 a 94 b
17 a 56 e 95 c
18 a 57 c 96 d
19 c 58 a 97 c
20 b 59 d 98 d
21 c 60 b 99 b
22 a 61 d 100 c
23 d 62 c 101 c
24 c 63 b 102 d
25 b 64 d 103 b
26 b 65 e 104 b
27 a 66 e 105 d
28 b 67 a 106 a
29 c 68 e 107 e
30 e 69 c 108 a
31 a 70 b 109 c
32 e 71 d 110 c
33 b 72 e 111 d
34 b 73 a 112 a
35 d 74 a 113 d
36 d 75 c 114 a
37 c 76 a 115 e
38 c 77 c 116 b
39 d 78 b
46 CMA Canada
2010 Sample Entrance Examination
Solutions
1. Answer: e.
A mission statement may or may not cover legislative lobby groups, depending on the
type of business the company is engaged in. Although choices b), c) and d) are
embodied in a mission statement, its ultimate purpose is to integrate b), c) and d) into
the company’s strategy formulation process.
2. Answer: e.
Strategy evaluation is important because organizations face dynamic environments in
which key external and internal factors often change quickly and dramatically. Examples
of this include greater fluctuations in the world economies (choice a), shorter times
required to develop (choice b) and get products into the marketplace to maintain a
competitive advantage, and dealing with foreign competitors such as India and China
who are much stronger (choice c) than they were in the past. Therefore, since choices
a), b) and c) are all reasons that strategy evaluation is more important for companies
today, choice e) is correct and choice d) is incorrect.
3. Answer: d.
A diversification strategy focuses on diversifying into new markets, which involve new
customers and new products and services.
4. Answer: e.
The extent of the threat of new entrants to existing competitors in a market depends on
barriers to entry (choice a) and the expected reaction of existing competitors to new
entrants. Barriers to entry include government policies (choice c), brand preference and
customer loyalty (choice d), economies of scale, product differentiation, and capital costs
(choice b), among others. Therefore, choice e) is the correct answer.
5. Answer: b.
A distinctive competence is a core competence that is competitively superior.
6. Answer: b.
Weakening brand image in relation to competitors is an internal weakness, not an
external threat. Choices a), c), d) and e) are all examples of external threats.
7. Answer: c.
Joint ventures are useful when the supply chain is long and uncertain (not short and
established). Choices a), b), d) and e) represent situations where a joint venture strategy
would be beneficial.
CMA Canada 47
2010 Sample Entrance Examination
8. Answer: c.
Although there is no shortage of the raw material, and many suppliers, the supplier
bargaining power is low.
Choice a) There are many companies in the industry and the skill level of the labour is
low. These are all indicators that there are low barriers to entry. The only
barrier in evidence is the limited number of suppliers of the raw material.
However, because there appears to be no shortage of the material, this is
likely not a significant barrier to entry.
Choice b) There is no indication of brand loyalty nor consumers readily switching
brands so consumer bargaining power cannot be clearly identified.
Choice d) With a high number of competitors and plentiful raw materials, rivalry would
be high.
Choice e) There is evidence that a few consumers place more value on quality than
price (i.e. some of the smaller companies use quality as a competitive
advantage); however, it appears that the majority of consumers place more
value on price than quality (i.e. the larger companies compete on price and
there is low brand loyalty).
9. Answer: b.
Diversification strategies strive to reduce the dependency of the firm on a single industry
or single class of product or service.
Choice a) A forward integration strategy would be expanding to gain control over its
distribution (not supply) chain.
Choice c) A horizontal integration strategy would involve strengthening its presence in
the current industry internally (e.g. through research and development) or
externally (e.g. acquiring a competitor).
Choice d) Differentiation strategies emphasize creating value through the uniqueness of
the good or services being provided.
Choice e) Vertical integration involves gaining control over a function in the value chain
that was previously performed by a supplier (backward integration) or by a
distributor (forward integration). Gaining control of the supply chain is an
example of backward integration.
48 CMA Canada
2010 Sample Entrance Examination
10. Answer: c.
Performance perspectives and indicators of critical success factors should be driven by
the organization’s mission, vision, and strategy.
Choice a) There are organizations, e.g. the Faculty of Health Sciences, University of
Newcastle, in which their balanced scorecard include more than four
performance perspectives: Our People: Learning, Growth and Innovation;
Our Financial Sustainability and Accountability; Our Partners; Our Internal
Processes; and Our Students and Community.
Choice b) The performance perspectives of an organization’s corporate scorecard,
divisional scorecard and individual employee scorecard can be identical but
the performance indicators are not necessarily the same. For example, return
on investment is the financial indicator for the corporation while sales revenue
is the financial indicator for the sales manager.
Choice d) The scorecard should include a balanced set of financial and nonfinancial,
quantitative and qualitative, objective and subjective, as well as leading and
lagging indicators.
Choice e) The cause-and-effect relationship is not necessarily precise and may not be
tested.
CMA Canada 49
2010 Sample Entrance Examination
11. Answer: d.
There are various ways to deal with resistance to internal controls, such as the following:
1. Augment the total company image by establishing an overall company reputation for
competence and integrity throughout the organization.
2. Provide adequate rationale for the controls. Controls are better received if there is
some understanding of the objectives of the control process and how it needs to
operate.
3. Communicate and present the controls in a courteous manner and provide affected
individuals the opportunity to question them and adjust to them. [Therefore choice a)
is correct.]
4. Ensure that the controls are sponsored by a sufficiently high level of authority.
People especially resent controls that are imposed by persons not believed to have
the authority to impose them.
5. Allow affected individuals the opportunity to participate in the formulation of the
control itself. Although it is often not practical for all parties who are subject to control
to be able to participate in the formulation of the control itself, the further the
organization moves in that direction, the greater will be the acceptance of the control.
As such, the participation of the responsible manager with his superiors in setting the
controls would significantly contribute to minimizing resistance to controls.
[Therefore, choice b) is correct.]
6. Administer the control in a manner that is not arbitrary and demonstrates an
understanding of the problems involved.
Both choices a) and b) would minimize resistant to internal controls; therefore, choice d)
is the correct answer.
Choice c) – Individuals are less likely to accept controls if they feel that the person
imposing the controls does not have sufficient authority. Line workers would feel that a
staff person does not have the authority or sufficient understanding of the operational
challenges to set or implement the controls.
12. Answer: d.
One purpose of the audit committee is to keep management and auditors independent.
Hence, they would not delegate audit responsibilities to management.
Choice a), b), c), e) are all typical duties performed by an audit committee.
13. Answer: e.
a) to d) are all parts of internal control but in a broader sense, internal control is mainly
concerned with how policies and procedures affect the total effectiveness of the
management process and consistency with the organizations objectives and strategies.
50 CMA Canada
2010 Sample Entrance Examination
14. Answer: b.
The most effective means of mitigating the risks resulting from having insufficient
employees for proper division of responsibilities is the continuous review by the owner of
all aspects of the business.
Choice a) Hiring temporary personnel would be helpful, but would not be as effective as
owner involvement in all aspects of the business.
Choice c) Relying on one accountant, either internal or external, to handle all aspects of
accounting and cash handling is at great risk.
Choice d) Delegation of clear-cut responsibilities would not mitigate the initial risks
resulting from improper division of responsibilities.
Choice e) Although the accounting function is important for internal control, it would
likely not be efficient or effective to shift priorities from the operating
functions.
15. Answer: b.
The board of directors has many roles or duties including overseeing the company’s
direction, strategy, and business approaches (choice a); evaluating the calibre of senior
executives’ strategy-making and strategy-executing skills (choice c); monitoring the
effectiveness of the company’s governance practices (choice d); and, ensuring the
integrity of the corporation’s accounting and financial reporting systems (choice e). Key
executives and board remuneration should be aligned with the longer-term interests
rather than the shorter-term interests of the company and shareholders. Therefore,
choice b) as stated is not correct and is the answer.
16. Answer: b.
Independent reconciliation of bank accounts is necessary for effective internal control.
Persons involved in making disbursements or receiving payments should not reconcile
the bank statement with the accounting records. Segregating these functions reduce the
opportunity for perpetrating and concealing an irregularity.
Choice a) is incorrect because someone who does not have custody of assets (i.e. does
not make disbursements by cheque) should reconcile the bank statements to
accounting records.
Choice c) is incorrect because there is no indication that the treasurer has access to the
accounting records and thus have the ability to make unauthorized
adjustments to the cash account.
Choice d) is incorrect because effective control measures would provide the two
opportunities to two different persons in positions of responsibility (e.g. the
treasurer and the controller).
Choice e) is incorrect because best practice in this case is to segregate these functions.
CMA Canada 51
2010 Sample Entrance Examination
17. Answer: a.
The internal auditors are responsible for examining and evaluating the effectiveness of
other functions within the organization. These responsibilities include assessing the
control systems, identifying areas of risk that need to be addressed in the control
system, and making recommendations for improving the internal control process.
Choice b) The responsibility for monitoring and maintaining internal controls is part of
management’s overall responsibility for the ongoing activities of the business
– it is not the internal auditor’s responsibility.
Choice c) The board of directors or the audit committee is responsible for appointing the
external auditors, not the internal auditors.
18. Answer: a.
When a control risk is identified, it is necessary to determine the cost of implementing
and maintaining the controls that would mitigate the risk. It is not always cost-effective to
adopt the controls. Choices b), c), d) and e) are all valid concepts of internal control.
19. Answer: c.
Buying an option gives the buyer the opportunity, but not the obligation, to buy FC at a
given price in the future. If the Canadian dollar increases in value, the company can let
the option expire.
Buying a forward contract in FC (choice a), and buying FC (choice b) tie the Canadian
company into a commitment which it cannot get out of if the Canadian dollar increases in
value.
20. Answer: b.
Correct order based on greatest NPV.
(A) (D)
Potential (B) PVIFA (F)
Annual Prob. of (C) = (20%, (E) = Development NPV
Cash Flow Success (A) * (B) 10yrs) (C) * (D) Costs =(E) – (F)
Drug H $6,500,000 30% 1,950,000 4.193 8,176,350 $6,000,000 $2,176,350
52 CMA Canada
2010 Sample Entrance Examination
21. Answer: c.
The objective function would be to maximize the contribution margin, which is correctly
expressed in choice c: Contribution margin = 5Y + 7Q.
22. Answer: a.
Using the relative sales value method, joint costs would be allocated to product A as
follows:
23. Answer: d.
The net realizable value method allocates joint costs on the basis of relative estimated
net realizable value. The cost of each unit of product B would be calculated as follows:
Total cost = $200,000 + {$300,000 × [80,000 × $10 - $200,000]/[(60,000 × $5
- $100,000) + (80,000 × $10 - $200,000)]}
= $200,000 + {$300,000 × $600,000/($200,000 + $600,000)}
= $425,000
Cost per unit = $425,000/80,000 = $5.31
24. Answer: c.
The decision to close the excess of actual cost over budgeted costs to cost of goods
sold would result in an increase in cost of goods sold and a decrease in gross profit. The
cost of goods manufactured would increase, the operating income would decrease and
there would be no effect on contribution margin or ending inventory.
25. Answer: b.
Department A costs = Direct costs + IT allocated costs + Maintenance allocated costs
= $925,000 + [2,000/(2,000 + 1,500)] x $80,000) + [(2,200/(2,200 + 4,000)] x $30,000)
= $925,000 + $45,714 + $10,645 = $981,359
CMA Canada 53
2010 Sample Entrance Examination
26. Answer: b.
Price Var. Cost/Unit CM/Unit Volume Monthly CM
a) $180 $122.40 $57.60 59,000 $3,398,400
b) $170 $122.40 $47.60 75,000 $3,570,000
c) $160 $122.40 $37.60 90,000 $3,384,000
d) $150 $122.40 $27.60 120,000 $3,312,000
e) $140 $122.40 $17.60 145,000 $2,552,000
Total fixed costs for this product = $870,000 + $545,000 + $275,000 = $1,690,000. The
contribution margin at each price is enough to cover fixed costs. The highest expected
monthly income would occur at a price of $170 per unit (i.e. $3,570,000 - $1,690,000
= $1,880,000).
27. Answer: a.
Spoiled units = 5,500 + 8,800 – 9,100 – 5,000 = 200 units
Spoilage costs = ($15 x 200) + ($21 x 60% x 200) + ($9 x 90% x 200) = $7,140
28. Answer: b.
Actual Percentage Cost
units complete per EU
Material XY 5,000 100% $15.00 $75,000
Material RT 5,000 60% $21.00 $63,000
Conversion costs 5,000 60% $9.00 $27,000
Total value $165,000
54 CMA Canada
2010 Sample Entrance Examination
29. Answer: c.
30. Answer: e.
Total fixed costs: [$20(5,000 + 10,000 + 20,000)] + $500,000 = $1,200,000
Contribution margin per unit:
A = $400 - ($100 + $50 + $60) = $190
B = $250 - ($80 + $50 + $40) = $80
C = $150 - ($40 + $50 + $10) = $50
Weighted average contribution margin per unit:
[($190 x 1) + ($80 x 2) + ($50 x 4)]/(1 + 2 + 4) = ($190 + $160 + $200)/7
= $550/7 = $78.57
Breakeven volume = $1,200,000/$78.57 = 15,280 (rounded)
31. Answer: a.
Budgeted overhead application rate = $300,000/100,000 hours = $3/hour
Applied overhead = 120,000 hours x $3 = $360,000
$320,000 actual - $360,000 applied = $40,000 overapplied
Choice b) Uses actual direct labour hours to determine the overhead rate and uses
budgeted activity for applied overhead: $320,000 - [($300,000/120,000) x
100,000] = $320,000 - $250,000 = $70,000 underapplied
Choice c) Uses total budgeted overhead instead of applied overhead: $320,000 -
$300,000 = $20,000 underapplied
Choice d) Uses budgeted instead of actual overhead: $300,000 - $360,000 applied
= $60,000 overapplied
Choice e) Uses applied direct labour instead of overhead: $340,000 -
($275,000/100,000 x 120,000) = $340,000 - $330,000 = $10,000
underapplied
CMA Canada 55
2010 Sample Entrance Examination
32. Answer: e.
All of the items listed are present in a successful ERP.
Choice a) Because an ERP deals with internal processes and not directly with
customers, it is considered back office.
Choice b) Systems can extend beyond the organization.
Choice c) This is one of the goals of ERP to have all of the information in one place and
accessible to all.
Choice d) In order to achieve success the business must change to take advantage of
the ERP system.
33. Answer: b.
A D O O3 Total
Sales price $200 $120 $150 $225
Produced (litres) 1,200 2,200 500 1,000 4,900
Final sales value $240,000 $264,000 $75,000 $225,000 $804,000
Less separable $40,000 $40,000
costs
Net realizable sales $240,000 $264,000 $75,000 $185,000 $764,000
value
Weighting 31.41% 34.55% 9.82% 24.21% 100%
Joint cost allocated $150,785 $165,864 $47,120 $116,230 $480,000
(rounded)
34. Answer: b.
Budgeted profit = [($200 - $70 - $30 - $27 - $6) x 90,000] - ($2,800,000 + $300,000)
= $6,030,000 - $3,100,000 = $2,930,000
Choice a) Uses 100,000 units instead of 90,000 units for sales: ($67 x 100,000) -
$3,100,000 = $3,600,000.
Choice c) Does not multiply variable overhead by 1.5 direct labour hours: [($200 - $70 -
$30 - $18 - $6) x 90,000] - $2,010,000 = $6,840,000 - $3,100,000 =
$3,740,000
Choice d) Uses 90,000 units for sales and 100,000 units for manufacturing costs (i.e. no
inventory): [($200 - $6) x 90,000] - [($70 + $30 + $27) x 100,000] -
$3,100,000 = $12,700,000 - $3,100,000 = $1,660,000
Choice e) Uses absorption costing: Fixed manufacturing rate = $2,800,000/100,000 =
$28 per unit; Budgeted profit = [($200 - $70 - $30 - $27 - $28 - $6) x 90,000] -
$300,000 = $3,510,000 - $300,000 = $3,210,000.
56 CMA Canada
2010 Sample Entrance Examination
35. Answer: d.
$28/unit fixed manufacturing overhead x 10,000 units ending inventory = $280,000
increase in net profit ($3,210,000 using absorption costing - $2,930,000 using variable
costing = $280,000 increase in net profit).
36. Answer: d.
The Standard and Extreme models require 1 DLH and 2 DLH per unit in production,
respectively. Contribution margin per unit:
Standard (CP): $280 - $110 - $10 – 5% x $280 = $146 (for CP order)
Standard: $280 - $110 - $10 = $160 (between 6,000 and 15,000 units)
Extreme: $350 - $160 - $10 = $180 (without overtime)
Extreme (OT): $350 – ($160 + 2DLH x 50% x $20) - $10 = $160 (with overtime)
Contribution margin per DLH:
Standard (CP): $146/ 1 DLH = $146 per DLH
Standard: $160 / 1 DLH = $160 per DLH
Extreme: $180 / 2 DLH = $ 90 per DLH
Extreme (OT): $160 / 2 DLH = $ 80 per DLH
Optimal production plan without CP order:
Standard: 12,000 units 12,000 DLH
Extreme: 6,000 units 12,000 DLH
Extreme (OT): 3,000 units 6,000 DLH
Revised production plan with CP order:
Standard: 11,000 units 11,000 DLH
Standard (CP): 4,000 units 4,000 DLH
Extreme: 4,500 units 9,000 DLH
Extreme (OT): 3,000 units 6,000 DLH
Change in operating income with CP order
= -1,000 units x $160 + 4,000 units x $146 – 1,500 units x $180
= $154,000
The CP order should be accepted with an increase in income of $154,000.
CMA Canada 57
2010 Sample Entrance Examination
37. Answer: c.
Total fixed manufacturing overhead = $30 x 24,000 = $720,000
Total fixed selling and administrative costs = $480,000
Total fixed costs = $1,200,000
The Standard and Extreme models require 1 DLH and 2 DLH per unit in production,
respectively.
Production plan and DLH requirement:
Extreme: 12,000 units 24,000 DLH
Standard (OT): 6,000 units 6,000 DLH (with overtime)
Contribution margin per unit:
Standard (OT): $280 - ($110 + 1 DLH x 50% x $20) - $10 = $150 (with overtime)
Extreme: $350 - $160 - $10 = $180 (without overtime)
Operating income = 12,000 units x $180 + 6,000 units x $150 - $1,200,000
= $1,860,000
38. Answer: c.
Setup resources, which are used each time when the machine is set up to produce a
batch, is a batch-level cost.
58 CMA Canada
2010 Sample Entrance Examination
39. Answer: d.
Predatory pricing or dumping occurs when a company sells a product in a foreign
country at a price below the market value in its home country and this action materially
injures or threatens to materially injure an industry in the foreign country.
Choice a) Target price is a market-based price. It is the estimated price for a product or
service that potential customers will pay.
Choice b) Peak-load pricing is the practice of charging a higher price for the same
product or service when demand approaches physical capacity limits.
Choice c) Collusive pricing is illegal and it occurs when companies in an industry
conspire in their pricing and output decisions to achieve a price above the
competitive price.
Choice e) Discriminatory pricing occurs when a company charges some customers a
higher price than is charged to other customers for the same product in which
the costs of manufacturing, marketing and distributing the product to different
customers are the same.
40. Answer: d.
Third quarter cost of goods manufactured:
41. Answer: d.
Direct materials quantity variance = $6 x (35,000 – 2 x 15,900) = $19,200 unfavourable
Direct labour efficiency variance = $24 x (7,500 – 0.5 x 15,900) = $10,800 favourable
Variable overhead efficiency variance = $10 x (5,000 – 0.3 x 15,900) =
$2,300 unfavourable
Both direct materials quantity variance and variable overhead efficiency variance are
unfavourable, i.e. (a) and (c) are TRUE.
Choice a), b), c) and e) - see solution.
CMA Canada 59
2010 Sample Entrance Examination
42. Answer: a.
Budgeted total fixed overhead = $20 x 12,000 MCH = $240,000
Actual total fixed overhead = $240,000 - $15,000 favourable = $225,000
Actual total variable overhead = $365,500 - $225,000 = $140,500
Variable overhead spending variance = $140,500 - [$10 x 5,000] = $90,500 (F)
Choice b) Does not adjust for the fixed overhead spending variance
Budgeted total fixed overhead = $20 x 12,000 MCH = $240,000
Actual total variable overhead = $365,500 - $240,000 = $125,500
Variable overhead spending variance = $125,500 - $10 x 12,000 = $5,500
unfavourable
Choice c) Used the denominator activity level to determined budgeted total fixed
overhead:
Budgeted total fixed overhead = $20 x 0.1 MCH x 12,000 = $24,000
Actual total fixed overhead = $24,000 - $15,000 unfavourable = $9,000
Actual total variable overhead = $365,000 - $9,000 = $356,000
Variable overhead spending variance = $356,000 - $10 x 12,000 = $236,000
unfavourable
Choice d) Added rather than deducted the fixed overhead spending variance:
Actual total fixed overhead = $240,000 + $15,000 favourable = $255,000
Actual total variable overhead = $365,500 - $255,000 = $110,500
Variable overhead spending variance = $110,500 - $10 x 12,000 = $9,500
favourable
Choice e) Assumes variable overhead is favourable.
43. Answer: c.
Baseball Soccer ball
Selling price $5.40 $9.55
Direct material 1.00 2.25
Direct labour @ $10/cutting hr. 2.00 5.00
Variable overhead @ $2 per total hours 0.40 1.00
Total variable costs 3.40 8.25
Contribution margin per unit $2.00 $1.30
Therefore, the objective function is to maximize $2.00 baseball + $1.30 soccer ball.
44. Answer: d.
Cutting hours constraint:
10,000 - (.2 x 25,000) = 5,000 cutting hours available
5,000 ÷ 0.1 = 50,000 baseballs can be produced
From the above, we see that the stitching hours constraint is binding; therefore, only
25,000 baseballs can be produced.
60 CMA Canada
2010 Sample Entrance Examination
45. Answer: b.
($3,000 + $2,000 + $4,000) ÷ 500 + ($6,000 ÷ 400) = $18.00 + $15.00 = $33.00
46. Answer: a.
This is the description of a market development strategy.
Choice b) This strategy takes current products and tries to sell more to the current
market.
Choice c) This is an overall strategy that companies use to separate themselves from
the competition.
Choice d) This strategy takes new products to existing markets.
Choice e) This strategy takes new products to new markets.
47. Answer: c.
The internal business process perspective focuses on internal operations that further
both the customer perspective and the value perspective. It comprises three principal
sub-processes: the innovation process, the operations process and post-sales services.
Measures that evaluate a company’s ability to create products, services and processes
that will meet the needs of customers relate mainly to the internal business process
perspective.
48. Answer: a.
Job enrichment adds tasks to employees’ jobs, allowing them to assume more
responsibility and accountability for planning, organizing, controlling and evaluating their
own work. It is based on the idea that motivation is increased when the job provides
opportunities for recognition, responsibility, advancement, achievement and personal
growth.
CMA Canada 61
2010 Sample Entrance Examination
49. Answer: a.
The primacy effect is where we quickly form an opinion about persons based on the first
information we receive about them. In the performance review, the initial good
performance was given more weight than the overall marginal performance.
Choice b) The recency effect is a perceptual error in which the most recent information
dominates our perception about a person.
Choice c) Projection bias occurs when we believe that other people hold the same
beliefs and attitudes that we do.
Choice d) The halo effect is when our general impression of a person, usually based on
a prominent characteristic, biases our perception of other characteristics of
that person.
Choice e) Self-fulfilling prophecy is a phenomenon in which an observer’s expectations
of someone cause that person to act in a way consistent with the observer’s
expectations.
50. Answer: d.
The current return on investment without the investment proposal for each division is as
follows:
North ($50,000 ÷ $450,000) = 11.1%
South ($40,000 ÷ $375,000) = 10.7%
West ($65,000 ÷ $475,000) = 13.7%
Return on investment on investment proposal: ($10,000 ÷ $80,000) = 12.5%
The ROI for each division with the investment proposal would be as follows:
North ($50,000 + $10,000) ÷ ($450,000 + $80,000) = 11.3%
South ($40,000 + $10,000) ÷ ($375,000 + $80,000) = 11.0%
West ($65,000 + $10,000) ÷ ($475,000 + $80,000) = 13.5%
Since the investment will improve the ROI for both North and South, those managers
would be motivated to accept the investment.
51. Answer: e.
As long as the residual income for the investment proposal is positive, all the managers
should be willing to accept the proposal.
Therefore, all three managers would be willing to accept the investment proposal.
52. Answer: b.
The objective of maximizing return on investment may induce managers of highly
profitable divisions to reject projects that, from the viewpoint of the organization as a
whole, should be accepted. Using residual income would avoid this motivation – as long
as the project earns a rate of return in excess of the required return for investments,
divisional managers would be motivated to accept the project. Choices a), c) and d) all
pertain to the asset base used in the calculation – the problems involved in asset base
are the same for calculating residual income as they are for calculating return on
investment. The implicit cost of interest (choice e) is not an argument related to
management performance evaluation measures.
62 CMA Canada
2010 Sample Entrance Examination
53. Answer: e.
Achievement motivation does not work well when employees are performing routine or
boring tasks, or where there is no competition. The development of recognition programs
would motivate employees to strive towards higher achievement; therefore, choice a) is
correct. High achievers like to set their own goals that are challenging, but achievable;
they avoid extremely difficult goals (i.e. goals that require a significant amount of luck
rather than ability); therefore, choice b) is correct. High achievers prefer tasks that
provide immediate feedback; therefore, choice c) is correct. Consequently, choice e) is
the correct answer.
54. Answer: d.
Production resources include direct materials, direct labour and other manufacturing
overhead. Thus, units of output per dollar of production resources is a total factor
productivity measure.
55. Answer: a.
ROI Division X = $15,000 ÷ $79,000 = 18.99%
ROI Division Y = $22,000 ÷ $130,000 = 16.9%
Division X met the target minimum rate of return of 18% and has a higher ROI and RI.
Choice b) Division Y’s net income was higher, but because its investment was also
greater, it did not perform as well as Division X.
Choice c) Division Y’s return on investment was lower than that of Division X.
Choice d) Division X met the 18% target rate of return.
Choice e) Only Division X met the 18% target rate of return.
CMA Canada 63
2010 Sample Entrance Examination
56. Answer: e
Since the East Division has excess capacity, there is no opportunity cost for transferring
the parts to the West Division up to full capacity. Thus, the minimum transfer price
acceptable to the East Division is the incremental costs for manufacturing the parts, $50
per part (choice a). If East Division were operating at full capacity, there would be
opportunity costs associated transferring to the West Division and the minimum
acceptable transfer price would $90. On the other hand, since the West Division can
purchase the parts for $90 in the market, this is the maximum transfer price the West
Division is willing to pay (choice c). Since choices a) and c) are both correct and choice
b) is incorrect, the correct answer is choice e.
57. Answer: c.
Absorption cost in ’000s = $150 + $36 + $24 + $165 = $375,000
58. Answer: a.
Individual incentives encourage employees to exceed the standard to achieve their
bonus which leads to improved output.
Choice b) Individual incentives lead to pursuit of individual goals and away from
improved teamwork/cooperation.
Choice c) Given a prescribed period of time to complete the task, the electrician is
under time constraints which would lead to cutting corners in order to meet
the time constraint and achieve the incentive.
Choice d) b) is not a benefit.
Choice e) a) is a benefit.
59. Answer: d.
Although this will not address the varying performance, it will direct the efforts of all
employees towards a common goal of improved product output.
Choices
a) and c) These do not address the differences between departments nor the need for
overall improvement. It may increase the gaps in departmental performance.
Choice b) A wage structure creates a logical hierarchy of wages with more important
jobs paid more and does not address the overall goal of output improvement.
Choice e) d) is an appropriate recommendation.
64 CMA Canada
2010 Sample Entrance Examination
60. Answer: b.
West Coastal
ROI 510,000 ÷ 2,180,000 = 23.4% 750,000 ÷ 2,525,000 = 29.7%
RI 510,000 – (2,180,000 X 15%) = 750,000 – (2,525,000 X 18%) =
183,000 295,500
Profit Margin 510,000 ÷ 1,850,000 = 27.6% 750,000 ÷ 3,500,000 = 21.4%
61. Answer: d.
Both statements (a) and (b) are TRUE.
62. Answer: c.
This theory maintains that performance will achieve a goal. Motivation is a combination
of effort, achievability of goals, and desire. An individual who has a particular goal must
practice a certain behaviour to achieve it.
Choice a) Theory Y suggests that people are fundamentally born good (conversely in
theory X: evil) and are thus naturally motivated (conversely: lazy) .
Choice b) People have multiple needs, loosely classifiable as physiological,
psychological, growth and transcendent needs. As one need is satisfied, then
another (higher) need becomes apparent.
Choice d) This proposes that intrinsic job factors motivate and extrinsic factors placate
employees.
Choice e) Equity theory of motivation suggests that people will compare outcomes for
themselves with others.
63. Answer: b.
This describes an organization-based incentive.
64. Answer: d.
The CAPM is based on a number of assumptions, including one that bases the price on
the investor holding a well-diversified portfolio (the market portfolio). It has been shown
that the vast majority of security-specific risk can be diversified away in such a portfolio.
CMA Canada 65
2010 Sample Entrance Examination
65. Answer: e.
The maximum amount that BG Corporation should be willing to pay for SM Corporation
is the present value of the incremental cash flows using a discount rate of 13%.
Year 1 to 3 – present value of operating after-tax cash flows from SM Corporation
= $500,000 x .6 x 2.361 = $708,300
Year 4 and beyond – present value of operating after-tax cash flows from SM
Corporation = ($700,000 x .6) ÷ .13 x .693 = $2,238,923
Present value of synergies = ($225,000 x .6) ÷ .13 = $1,038,462
Net present value = $708,300 + $2,238,923 + 1,038,462 = $3,985,685 =
$3,986,000 (rounded)
Choice a) Uses the values of the perpetuities at the beginning of Year 4 (i.e. they are
not discounted to the present): $708,300 + [($700,000) x .6]/.13 + $3,727,000
= $7,666,069 = $7,666,000 (rounded).
Choice b) Ignores the synergies of $225,000 per year: $708,300 + $2,238,923
= $2,947,223 = $2,947,000 (rounded).
Choice c) The synergies are subtracted from cash flows instead of added: $708,300 +
$2,238,923 - $1,038,462 = $1,908,761 = $1,909,000 (rounded).
Choice d) Uses before tax cash flows: ($500,000 x 2.361) + ($700,000 ÷ .13 x .693) +
($225,000 ÷ .13) = $1,180,500 + $3,731,538 + $1,730,769 = $6,642,807 =
$6,643,000 (rounded)
66. Answer: e.
A stock dividend is simply the distribution of additional shares to shareholders. It
represents a recapitalization of the company – a shareholder’s proportional ownership
remains unchanged. All other things being equal, the market price of the shares will drop
so that the total market value of a shareholder’s holdings stays the same and the
company’s total shareholders’ equity remains unchanged (i.e. new price equals old price
divided by 1.1). Because there are additional shares over which to distribute earnings,
the future earnings per share will drop.
67. Answer: a.
Average collection period = (.2 x 0) + (.4 x 20) + (.4 x 60) = 32 days.
66 CMA Canada
2010 Sample Entrance Examination
68. Answer: e.
Capital cost allowance will be recaptured when the proceeds of disposition exceed
undepreciated capital cost (UCC) (i.e. when assets in a class have been over-
depreciated relative to their disposal value):
UCC at the end of Year 1 = $500,000 - ($500,000 x 20% x 50%) = $450,000.
UCC at the end of Year 2 = $450,000 x 80% = $360,000.
Proceeds of $370,000 - UCC of $360,000 = $10,000 recapture.
69. Answer: c.
Vr = ($18-$14)/(3+1) = $1
CMA Canada 67
2010 Sample Entrance Examination
70. Answer: b.
After-tax cost of debt = 6.5% x (1 - .4) = 3.9%
Cost of preferred shares = 6%; Cost of common equity = 15%
Total long-term debt + equity = $1,300,000 + $2,920,000 + $5,780,000 = $10,000,000
Choice a) Includes current liabilities as part of debt: WACC = (3.9% x 2.25 ÷ 10.95) +
(6% x 2.920 ÷ 10.95) + (15% x 5.780 ÷ 10.95) = .8014% + 1.6% + 7.918% =
10.319 = 10.3% (rounded)
Choice c) Incorrectly converts cost of preferred (6% x (1 - 40%)) and cost of common
(15% x (1 – 40%)) to an after-tax cost:
WACC = (3.9% x 1.3 ÷ 10) + (3.6% x 2.92 ÷ 10) + (9% x 5.78 ÷ 10) = 6.76%
= 6.8% (rounded)
Choice d) Uses average of all three rates: (6.5 + 6 + 15) ÷ 3 = 9.167% = 9.2%
(rounded)
Choice e) Does not take after-tax cost of debt:
WACC = (6.5% x 1.3 ÷ 10) + (6% x 2.920 ÷ 10) + (15% x 5.780 ÷ 10)
= .845% + 1.752% + 8.67% = 11.267% = 11.3% (rounded)
71. Answer: d.
The price of the bond when it was issued is not relevant to the current market price. The
current market value is equal to the present value of the future cash flows, using 10
periods at 4%: ($50,000 x 0.676) + ($2,500 x 8.111) = $33,800 + $20,277 = $54,077.50
= $54,080 (rounded)
Choice a) Switches the coupon rate and the required rate: ($50,000 x 0.614) + ($2,500
x 7.722) = $30,700 + $19,305 = $50,005 = $50,000 (rounded)
Choice b) Uses the face value only. $50,000 + (10 x $2,500) = $75,000
Choice c) PV of bonds only: $50,000 x 0.676 = $33,800
Choice e) Does not use the present value on the principal: $50,000 + ($2,500 x 8.111) =
$50,000 + $20,277 = $70,277 = $70,780 (rounded)
72. Answer: e.
The expected return on the equity investment is calculated with the Capital Asset Pricing
Model (CAPM) = 3% + 1.7(6%) = 13.2%.
Expected return = $250,000 x 13.2% = $33,000.
68 CMA Canada
2010 Sample Entrance Examination
73. Answer: a.
Financial leverage measures a company’s use of debt with fixed interest rates. The
contribution margin measures the degree of operating leverage (variable versus fixed
costs).
74. Answer: a.
Effective interest rate = (1+Ratequoted/n)n -1
Since Investment A has the highest effective rate, the company should invest all her
money in A.
75. Answer: c.
Dividends ($24,000 + 15,000) x 1/3; cash and stock dividends are included in the
calculation
76. Answer: a.
Profitability Index = PV cash inflows/PV cash outflows
Project W = [620(3.240)]/2,000 = 1.004
Project X = [1,000(3.696)]/5,000 = 0.7392
Project Y = [2,000(4.423)]/10,000 = 0.8846
Since project W has a profitability index greater than 1, it is the only project the
company should invest in.
CMA Canada 69
2010 Sample Entrance Examination
77. Answer: c.
NPV of the lease
= $4,000 - $550 - $550PVIFA6%,4 - ($600 x 40%)PVIFA6%,5 - $1,000PVIF6%,5
= $3,450 - $1,905.75 - $1,010.88 - $747
= - $213.63
78. Answer: b.
A BBB-graded bond is the lowest grade for an investment grade bond.
79. Answer: b.
Expected Return (V) = 15%(.30) + 8%(0.70) = 10.1%
Expected Return (W) = 18%(.30) + 2%(0.70) = 6.8%
Expected Return (X) = 10%(.30) + 9%(0.70) = 9.3%
Expected Return (Portfolio) = (1/3 x 10.1%) + (1/3 x 6.8%) + (1/3 x 9.3%) = 8.72%
80. Answer: b.
Initial investment is the cash that will be tied up in receivables.
= 30 days X ($775,000 ÷ 365) = $63,699
70 CMA Canada
2010 Sample Entrance Examination
81. Answer: d
DOL = [25,000 x ($250 - $110)] ÷ [25,000 x ($250 - $110) - $725,000] = 1.261
82. Answer: c
83. Answer: c.
An operating segment must only satisfy one of the following quantitative thresholds to be
considered a reportable segment.
(a) its reported revenue, including both sales to external customers and
intersegment sales or transfers, is 10 per cent or more of the combined revenue,
internal and external, of all operating segments;
(b) the absolute amount of its reported profit or loss is 10 per cent or more of the
greater, in absolute amount, of:
(i) the combined reported profit of all operating segments that did not report a
loss; or
(ii) the combined reported loss of all operating segments that did report a loss;
and
(c) its assets are 10 per cent or more of the combined assets of all operating
segments.
84. Answer: b.
Because Muchmoney owns 25%, it has significant influence, so the equity method is
used.
CMA Canada 71
2010 Sample Entrance Examination
85. Answer: d.
Cost Net Realizable Lower of Cost
Units per Unit Total Value per Unit Total and NRV
A 5,000 $25 $125,000 $15 $75,000 $75,000
B 3,000 $35 $105,000 $30 $90,000 $90,000
C 2,000 $80 $160,000 $85 $170,000 $160,000
$325,000
86. Answer: e.
Comprehensive Income includes Net Income plus Other Comprehensive Income that
bypasses net income but affects shareholders' equity.
The calculation includes: Sales - Sales Discounts - Cost of Goods Sold – Operating
expenses + Unrealized Holding Gain
(500 - 10 - 245 - 125 + 5 = 125)
Choice a) Fails to include the Unrealized Holding Gain and deducts the Allowance for
Doubtful Accounts as an expense ($75 – 5 – 8 = $62).
Choice b) Fails to include the Unrealized Holding Gain in the calculation ($75 – 5 =
$70).
Choice c) Fails to deduct the Sales Discount in the calculation ($75 + 10 = $85).
Choice d) Includes the contributed surplus ($125 + 20 = $145).
87. Answer: b.
Pension expense = service costs + interest on accrued benefits - return on pension fund
assets = $120,000 + $250,000 - $174,000 = $196,000.
88. Answer: d.
Accounting standards require that the gain/loss on a hedge be recorded in net income at
the same time that the gain/loss on the item being hedged is recognized.
89. Answer: c.
Strategic investments occur when we take a significant equity position in another
company and are in a position to either control the other company or significantly
influence its operational or financial policies.
72 CMA Canada
2010 Sample Entrance Examination
90. Answer: e.
IAS 2 - Inventory, allows for the reversal of a writedown in a subsequent period if the net
realizable value of the inventory increases, but not above the original cost.
In this case, inventory with an original cost of $40,000 was written down to $30,000 (loss
of $10,000). Once conditions changed, the inventory had a new NRV of $45,000 but LT
correctly recorded the inventory at its original cost.
Choice a) LIFO is no longer an appropriate cost flow formula. Therefore, this alternative
is inappropriate.
Choice b) The reversal of the writedown is limited to the amount of the original
writedown (i.e. cannot be greater than the original cost). Since PA Corp
reversed the writedown to $26,000, which is beyond the cost of $20,000 this
alternative is inappropriate.
Choice c) Abnormal amounts of wasted material, labour or other production costs are
not included in inventories (IAS 2. Para 16a).
Choice d) Inventory is valued at the lower of cost or net realizable value, not
replacement cost.
91. Answer: a
Relevance - information is relevant when it influences the economic decisions of users.
92. Answer: e.
Net income available for common shareholders = $5,000,000 - (6% x $875,000) =
$4,947,500
Basic EPS = net income available for common shareholder ÷ weighted average common
shares outstanding = $4,947,500/1,000,000 = $4.95
CMA Canada 73
2010 Sample Entrance Examination
93. Answer: a.
Proceeds from sale of 40 units = [($800 - $120 commission) x 40] - $850 delivery costs
= $26,350
Cost of sales = ($450 x 40) + ($1,000 x 40/80) = $18,500
Profit from consignment sales = $26,350 - $18,500 = $7,850
Choice b) Assumes SFC Inc. records sales for all 80 units on consignment and accrues
the expected expenses associated with the unsold units: [($800 - $120 -
$450) x 80] - [$850 x 80/40] - $1,000 = $15,700.
Choice c) Remittance amount of ($800 - $120) x 40 - $850 = $26,350.
Choice d) Deducts full $1,000 shipping cost: $26,350 - [($450 x 40) + $1,000] = $7,350.
Choice e) Ignores the costs incurred by the consignee: ($800 - $450) x 40 - ($1,000 x
40/80) = $13,500.
94. Answer: b.
n = 18; i = 3%
Premium = (PV of $500,000 + PV of semi-annual interest of $25,000) - $500,000;
= [$500,000 x .587) + ($25,000 x 13.753)] - $500,000
= $293,500 + $343,825 - $500,000 = $137,325 = $137,300 (rounded)
95. Answer: c.
This is the only cost eligible for capitalization. It has future benefit and can be
distinguished from other costs and appropriately measured.
74 CMA Canada
2010 Sample Entrance Examination
96. Answer: d.
In this case, its statements should be translated using the current rate method. Under
the current rate method, assets and liabilities should be translated using the December
31 exchange rate of 0.70 and income statement items should be translated using the
0.82 average rate for the year:
A/R = 85,000 FC x .70 = $59,500
Cost of goods sold = (625,000 FC - 55,000 FC) x .82 = 570,000 FC x .82 = $467,400.
Amortization expense = 45,000 FC x .82 = $36,900
97. Answer: c.
Candidates need to consider the impact of the items on cash flow from operations and/or
total liabilities. Cash total debt coverage = Cash provided by (used in) operations ÷
average total liabilities.
Capitalizing product development costs would not change total cash but would improve
cash from operations as cash would be classified as an investment rather than operating
expense.
Choice a) Selling surplus equipment for cash would improve cash but not cash from
operations.
Choice b) Acquiring an asset through a capital lease would increase liabilities as lease
capitalized. (Provides some symmetry with response c) as both involve
capitalization.)
Choice d) Changing from declining balance to straight-line depreciation on its
equipment would impact the add back on the cash flow statement but not the
net cash flow from operations.
98. Answer: d.
Gross margin ratio = (Sales – Cost of goods sold) ÷ Sales = ($273,000 - $144,000) ÷
$273,000 = $129,000 ÷ $273,000 = 47.3%
CMA Canada 75
2010 Sample Entrance Examination
99. Answer: b.
Inventory turnover ratio = Cost of goods sold/Average inventory = $144,000 ÷
[($114,800 + $120,500) ÷ 2] = $144,000 ÷ $117,650 = 1.22 times
100. Answer: c.
Quick ratio = Cash + accounts receivable/Accounts payable + Other current liabilities
= ($34,100 + $57,300)/($50,410 + $61,400) = $91,400/$111,810 = 0.82
101. Answer: c.
Year 8 expected gross profit is $750,000 ($2M - $1.25M).
Therefore, recorded gross profit in Year 8 is $180,000 (24% of $750,000).
Choice a) Used the difference between the billings to date and the costs incurred to
date to determine the gross profit in each year. Year 8: $400,000 - $300,000;
Year 9: $800,000 - $775,000
Choice b) For Year 9, the gross of $332,142 represents 55.35% of $600,000, which
therefore does not deduct the portion of gross profit that was earned in Year
8 (i.e. $180,000).
Choice d) Does not adjust the total project costs for the new information obtained in
each year.
Year 8 – $300,000 / $1,200,000 = 25%; 25% of $800,000 = $200,000
Year 9 – $775,000 / $1,200,000 = 64.58%; 64.58% of $800,000 = $516,666
Less Year 8 gross profit of $200,000 = $316,666
Choice e) Uses billings to date as a metric to measure progress.
Year 8 - $400,000 / $2,000,000 = 20%; 20% of $750,000 = $150,000
Year 9 - $780,000 / $2,000,000 = 39%; 39% of $600,000 ($2,000,000 -
$775,000 - $625,000) = $234,000
Less gross profit in Year 8 of $150,000 = $84,000
76 CMA Canada
2010 Sample Entrance Examination
102. Answer: d
The amounts would be reported under operating activities on the Cash Flow Statement.
103. Answer: b.
Value recorded is the lower of fair value or PV of minimum lease payments.
PV of minimum lease payments: $15,000 + $15,000 PV 9,4% + $8,000 PV 10,4%
= $131,933
Therefore, the lease is recorded as a $115,000 asset.
CMA Canada 77
2010 Sample Entrance Examination
104. Answer: b.
Restricted contributions – Match revenues to expenses for the period; revenues to be
used against expenses for future periods should be deferred. The $50,000 received in
Year 1 was not recognized as revenue in Year 1, it was deferred. The amount of
revenue from this donation to be recognized in Year 2 will be equal to the amortization
expensed in Year 2. Therefore, recognize $10,000 ($50,000/5) of restricted contributions
in Year 2.
Choice a) Recognizes all the restricted contributions including those deferred from Year
4: $250,000 + $100,000 + $50,000 = $400,000.
Choice c) Treats interest as a restricted revenue: $250,000 + $100,000 = $350,000.
Choice d) Includes all revenue received in Year 5: $250,000 + $100,000 + $6,000
= $356,000.
Choice e) Matches all revenue to expenses and includes the endowment: $50,000 +
$35,000 + $6,000 + $100,000= $191,000.
105. Answer: d.
As available for sale investments, the adjustment should be the difference between the
current market value and the carrying value ($185,000 - $205,000).
Choice a) Incorrectly uses the difference between carrying value and original cost.
Choice b) Incorrectly uses the difference between market value and carrying value for
LP and HW only.
Choice c) Incorrectly uses the difference between market value and original cost.
Choice e) Incorrectly uses the difference between market value and original cost for EB
only.
106. Answer: a.
This is the description of a retractable preferred share.
Choice b) This refers to a preferred share whose dividend is readjusted every three to
six months to be in line with current market interest rates.
Choice c) This refers to a security that is part equity and part debt.
Choice d) This refers to preferred shares that must receive dividends that are current
and in arrears before dividends are paid to common shares.
Choice e) This refers to preferred shares that can be converted to common shares.
107. Answer: e.
All of the choices are criteria to determine whether or not to capitalize development
costs.
78 CMA Canada
2010 Sample Entrance Examination
108. Answer: a
Since the contribution is made by an owner or shareholder, the account that is credited
would be a Contributed Surplus account, Donated Capital.
Choice b) Other comprehensive income or net income would be the correct answer if
the contribution were made by a non-owner. A contribution by a non-owner
meets the definition of an item of comprehensive income and can be included
in Other comprehensive income.
Choice c) Other comprehensive income or net income would be the correct answer if
the contribution were made by a non-owner. A contribution by a non-owner
meets the definition of an item of comprehensive income and can be included
in Net Income.
Choice d) A contribution by a non-owner meets the definition of an item of
comprehensive income and can be included in other comprehensive income
or net income, therefore b) or c) is acceptable if the contribution were from a
non-owner.
Choice e) This foil may be attractive if the student does not realize that there is a
difference in the treatment of donated assets depending on the source of the
donation.
109. Answer: c.
i) ($1,000,000 x 8%) (1-0.4) = $48,000
1,000 bonds x 7 = 7,000 common shares
$48,000/7,000 = $6.86 Æ NOT dilutive
ii) options are not in the money Æ NOT dilutive
iii) $50/20 common shares = $2.50 Æ dilutive
110. Answer: c.
The original cost of the old equipment is not relevant (choice d) to the decision to
dispose of it and purchase new equipment. Therefore, it is a sunk cost in this situation
(choice c). The amortization of the production equipment would be classified as a
product cost (choice e) as part of overhead rather than a period cost (choice b). The
costs have nothing to do with production so conversion cost is not correct (choice a).
Therefore, choice c) is correct.
111. Answer: d.
CdT ⎛ 1 + 0.5k ⎞
Present Value = ⎜ ⎟
(d + k ) ⎝ 1 + k ⎠
250,000x30%x40% ⎛ 1 + 0.5(14%) ⎞
= ⎜ ⎟ = 68,182 x 0.9386 = $63,995.62 = $64,000
(30% + 14%) ⎝ 1 + 14% ⎠
Choice a) uses old equipment cost of $350,000: = 89,593.64 = $89,590 (rounded)
Choice b) amortization for one year: = 30% of $250,000 = $75,000
Choice c) uses 40% in denominator = $52,144.44 = $52,140 (rounded)
Choice e) uses difference in equipment costs in numerator (i.e. $100,000) = $25,598.18
= $25,600 (rounded)
CMA Canada 79
2010 Sample Entrance Examination
112. Answer: a.
Fair share price = $8.50 x 16.5 = $140.25
Value = $140.25 x 10,000 shares = $1,402,500
113. Answer: d.
The definition is diversifying into an industry unrelated to the current industry, which is
what Brook Ltd. is doing with Smallfirm.
114. Answer: a.
It is best to pay a capital dividend before the sale of the second property as the loss will
reduce the balance in the capital dividend account (CDA) that can be paid out tax free to
shareholders.
115. Answer: e.
Breakeven Revenue = FC/Contribution Margin %
= $225,000/(55%-3%) = $432,692 = $432,700 rounded
116. Answer: b.
ROI = income / investment
25% = income / $300,000 Î income = $75,000
80 CMA Canada
2010 Sample Entrance Examination
Formulae
1. CAPITAL STRUCTURE
CMA Canada 81
2010 Sample Entrance Examination
a) Present Value of Total Tax Shield from CCA for a New Asset
Ctd ⎛ 2 + k ⎞ CdT ⎛ 1 + 0.5k ⎞
Present Value = ⎜⎜ ⎟⎟ = ⎜ ⎟
(d + k ) ⎝ 2 (1 + k ) ⎠ (d + k ) ⎝ 1 + k ⎠
b) Present Value of Total Tax Shield from CCA for an Asset that is Not Newly
Acquired
⎛ dT ⎞
Present Value = UCC⎜ ⎟
⎝d +k ⎠
c) Present Value of Total Tax Shield Lost From Salvage
Sn ⎛ dT ⎞ Sn ⎛ dT ⎞
n ⎜ ⎟ or n −1 ⎜ ⎟, depending on cash
Present Value =
(1 + k ) ⎝ d + k ⎠ (1 + k ) ⎝ d + k ⎠
flow assumptions
82 CMA Canada
2010 Sample Entrance Examination
Table 1
n 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
01 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909
02 .980 .961 .943 .925 .907 .890 .873 .857 .842 .826
03 .971 .942 .915 .889 .864 .840 .816 .794 .772 .751
04 .961 .924 .888 .855 .823 .792 .763 .735 .708 .683
05 .951 .906 .863 .822 .784 .747 .713 .681 .650 .621
06 .942 .888 .837 .790 .746 .705 .666 .630 .596 .564
07 .933 .871 .813 .760 .711 .665 .623 .583 .547 .513
08 .923 .853 .789 .731 .677 .627 .582 .540 .502 .467
09 .914 .837 .766 .703 .645 .592 .544 .500 .460 .424
10 .905 .820 .744 .676 .614 .558 .508 .463 .422 .386
11 .896 .804 .722 .650 .585 .527 .475 .429 .388 .350
12 .887 .788 .701 .625 .557 .497 .444 .397 .356 .319
13 .879 .773 .681 .601 .530 .469 .415 .368 .326 .290
14 .870 .758 .661 .577 .505 .442 .388 .340 .299 .263
15 .861 .743 .642 .555 .481 .417 .362 .315 .275 .239
16 .853 .728 .623 .534 .458 .394 .339 .292 .252 .218
17 .844 .714 .605 .513 .436 .371 .317 .270 .231 .198
18 .836 .700 .587 .494 .416 .350 .296 .250 .212 .180
19 .828 .686 .570 .475 .396 .331 .277 .232 .194 .164
20 .820 .673 .554 .456 .377 .312 .258 .215 .178 .149
21 .811 .660 .538 .439 .359 .294 .242 .199 .164 .135
22 .803 .647 .522 .422 .342 .278 .226 .184 .150 .123
23 .795 .634 .507 .406 .326 .262 .211 .170 .138 .112
24 .788 .622 .492 .390 .310 .247 .197 .158 .126 .102
25 .780 .610 .478 .375 .295 .233 .184 .146 .116 .092
CMA Canada 83
2010 Sample Entrance Examination
Table 1 (cont’d)
n 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
01 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
02 .812 .797 .783 .769 .756 .743 .731 .718 .706 .694
03 .731 .712 .693 .675 .658 .641 .624 .609 .593 .579
04 .659 .636 .613 .592 .572 .552 .534 .516 .499 .482
05 .593 .567 .543 .519 .497 .476 .456 .437 .419 .402
06 .535 .507 .480 .456 .432 .410 .390 .370 .352 .335
07 .482 .452 .425 .400 .376 .354 .333 .314 .296 .279
08 .434 .404 .376 .351 .327 .305 .285 .266 .249 .233
09 .391 .361 .333 .308 .284 .263 .243 .225 .209 .194
10 .352 .322 .295 .270 .247 .227 .208 .191 .176 .162
11 .317 .287 .261 .237 .215 .195 .178 .162 .148 .135
12 .286 .257 .231 .208 .187 .168 .152 .137 .124 .112
13 .258 .229 .204 .182 .163 .145 .130 .116 .104 .093
14 .232 .205 .181 .160 .141 .125 .111 .099 .088 .078
15 .209 .183 .160 .140 .123 .108 .095 .084 .074 .065
16 .188 .163 .142 .123 .107 .093 .081 .071 .062 .054
17 .170 .146 .125 .108 .093 .080 .069 .060 .052 .045
18 .153 .130 .111 .095 .081 .069 .059 .051 .044 .038
19 .138 .116 .098 .083 .070 .060 .051 .043 .037 .031
20 .124 .104 .087 .073 .061 .051 .043 .037 .031 .026
21 .112 .093 .077 .064 .053 .044 .037 .031 .026 .022
22 .101 .083 .068 .056 .046 .038 .032 .026 .022 .018
23 .091 .074 .060 .049 .040 .033 .027 .022 .018 .015
24 .082 .066 .053 .043 .035 .028 .023 .019 .015 .013
25 .074 .059 .047 .038 .030 .024 .020 .016 .013 .010
84 CMA Canada
2010 Sample Entrance Examination
Table 1 (cont’d)
n 21% 22% 23% 24% 25% 26% 27% 28% 29% 30%
01 0.826 0.820 0.813 0.806 0.800 0.794 0.787 0.781 0.775 0.769
02 .683 .672 .661 .650 .640 .630 .620 .610 .601 .592
03 .564 .551 .537 .524 .512 .500 .488 .477 .466 .455
04 .467 .451 .437 .423 .410 .397 .384 .373 .361 .350
05 .386 .370 .355 .341 .328 .315 .303 .291 .280 .269
06 .319 .303 .289 .275 .262 .250 .238 .227 .217 .207
07 .263 .249 .235 .222 .210 .198 .188 .178 .168 .159
08 .218 .204 .191 .179 .168 .157 .148 .139 .130 .123
09 .180 .167 .155 .144 .134 .125 .116 .108 .101 .094
10 .149 .137 .126 .116 .107 .099 .092 .085 .078 .073
11 .123 .112 .103 .094 .086 .079 .072 .066 .061 .056
12 .102 .092 .083 .076 .069 .062 .057 .052 .047 .043
13 .084 .075 .068 .061 .055 .050 .045 .040 .037 .033
14 .069 .062 .055 .049 .044 .039 .035 .032 .028 .025
15 .057 .051 .045 .040 .035 .031 .028 .025 .022 .020
16 .047 .042 .036 .032 .028 .025 .022 .019 .017 .015
17 .039 .034 .030 .026 .023 .020 .017 .015 .013 .012
18 .032 .028 .024 .021 .018 .016 .014 .012 .010 .009
19 .027 .023 .020 .017 .014 .012 .011 .009 .008 .007
20 .022 .019 .016 .014 .012 .010 .008 .007 .006 .005
21 .018 .015 .013 .011 .009 .008 .007 .006 .005 .004
22 .015 .013 .011 .009 .007 .006 .005 .004 .004 .003
23 .012 .010 .009 .007 .006 .005 .004 .003 .003 .002
24 .010 .008 .007 .006 .005 .004 .003 .003 .002 .002
25 .009 .007 .006 .005 .004 .003 .003 .002 .002 .001
CMA Canada 85
2010 Sample Entrance Examination
Table 1 (cont’d)
n 31% 32% 33% 34% 35% 36% 37% 38% 39% 40%
01 0.763 0.758 0.752 0.746 0.741 0.735 0.730 0.725 0.719 0.714
02 .583 .574 .565 .557 .549 .541 .533 .525 .518 .510
03 .445 .435 .425 .416 .406 .398 .389 .381 .372 .364
04 .340 .329 .320 .310 .301 .292 .284 .276 .268 .260
05 .259 .250 .240 .231 .223 .215 .207 .200 .193 .186
06 .198 .189 .181 .173 .165 .158 .151 .145 .139 .133
07 .151 .143 .136 .129 .122 .116 .110 .105 .100 .095
08 .115 .108 .102 .096 .091 .085 .081 .076 .072 .068
09 .088 .082 .077 .072 .067 .063 .059 .055 .052 .048
10 .067 .062 .058 .054 .050 .046 .043 .040 .037 .035
11 .051 .047 .043 .040 .037 .034 .031 .029 .027 .025
12 .039 .036 .033 .030 .027 .025 .023 .021 .019 .018
13 .030 .027 .025 .022 .020 .018 .017 .015 .014 .013
14 .023 .021 .018 .017 .015 .014 .012 .011 .010 .009
15 .017 .016 .014 .012 .011 .010 .009 .008 .007 .006
16 .013 .012 .010 .009 .008 .007 .006 .006 .005 .005
17 .010 .009 .008 .007 .006 .005 .005 .004 .004 .003
18 .008 .007 .006 .005 .005 .004 .003 .003 .003 .002
19 .006 .005 .004 .004 .003 .003 .003 .002 .002 .002
20 .005 .004 .003 .003 .002 .002 .002 .002 .001 .001
21 .003 .003 .003 .002 .002 .002 .001 .001 .001 .001
22 .003 .002 .002 .002 .001 .001 .001 .001 .001 .001
23 .002 .002 .001 .001 .001 .001 .001 .001 .001 .001
24 .002 .001 .001 .001 .001 .001 .001 .001 .001 .001
25 .001 .001 .001 .001 .001 .001 .001 .001 .001 .001
86 CMA Canada
2010 Sample Entrance Examination
Table 2
n 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
01 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909
02 1.970 1.942 1.914 1.886 1.859 1.833 1.808 1.783 1.759 1.736
03 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487
04 3.902 3.808 3.717 3.630 3.547 3.465 3.387 3.312 3.240 3.170
05 4.854 4.713 4.580 4.452 4.330 4.212 4.100 3.993 3.890 3.791
06 5.796 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355
07 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868
08 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335
09 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759
10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145
11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495
12 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814
13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103
14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.224 7.786 7.367
15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.560 8.061 7.606
16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824
17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022
18 16.398 14.992 13.753 12.659 11.690 10.828 10.059 9.372 8.756 8.201
19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365
20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514
21 18.857 17.011 15.415 14.029 12.821 11.764 10.836 10.017 9.292 8.649
22 19.661 17.658 15.937 14.451 13.163 12.042 11.061 10.201 9.442 8.772
23 20.456 18.292 16.444 14.857 13.489 12.303 11.272 10.371 9.580 8.883
24 21.244 18.914 16.936 15.247 13.799 12.550 11.469 10.529 9.707 8.985
25 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077
CMA Canada 87
2010 Sample Entrance Examination
Table 2 (cont’d)
n 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
01 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.848 0.840 0.833
02 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528
03 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.107
04 3.102 3.037 2.975 2.914 2.855 2.798 2.743 2.690 2.639 2.589
05 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991
06 4.231 4.111 3.998 3.889 3.785 3.685 3.589 3.498 3.410 3.326
07 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605
08 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837
09 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031
10 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.193
11 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.487 4.327
12 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439
13 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533
14 6.982 6.628 6.303 6.002 5.725 5.468 5.229 5.008 4.802 4.611
15 7.191 6.811 6.462 6.142 5.847 5.576 5.324 5.092 4.876 4.676
16 7.379 6.974 6.604 6.265 5.954 5.669 5.405 5.162 4.938 4.730
17 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775
18 7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812
19 7.839 7.366 6.938 6.550 6.198 5.878 5.585 5.316 5.070 4.844
20 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870
21 8.075 7.562 7.102 6.687 6.313 5.973 5.665 5.384 5.127 4.891
22 8.176 7.645 7.170 6.743 6.359 6.011 5.696 5.410 5.149 4.909
23 8.266 7.718 7.230 6.792 6.399 6.044 5.723 5.432 5.167 4.925
24 8.348 7.784 7.283 6.835 6.434 6.073 5.747 5.451 5.182 4.937
25 8.422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948
88 CMA Canada
2010 Sample Entrance Examination
Table 2 (cont’d)
n 21% 22% 23% 24% 25% 26% 27% 28% 29% 30%
01 0.826 0.820 0.813 0.807 0.800 0.794 0.787 0.781 0.775 0.769
02 1.510 1.492 1.474 1.457 1.440 1.424 1.407 1.392 1.376 1.361
03 2.074 2.042 2.011 1.981 1.952 1.923 1.896 1.868 1.842 1.816
04 2.540 2.494 2.448 2.404 2.362 2.320 2.280 2.241 2.203 2.166
05 2.926 2.864 2.804 2.745 2.689 2.635 2.583 2.532 2.483 2.436
06 3.245 3.167 3.092 3.021 2.951 2.885 2.821 2.759 2.700 2.643
07 3.508 3.416 3.327 3.242 3.161 3.083 3.009 2.937 2.868 2.802
08 3.726 3.619 3.518 3.421 3.329 3.241 3.156 3.076 2.999 2.925
09 3.905 3.786 3.673 3.566 3.463 3.366 3.273 3.184 3.100 3.019
10 4.054 3.923 3.799 3.682 3.571 3.465 3.364 3.269 3.178 3.092
11 4.177 4.035 3.902 3.776 3.656 3.543 3.437 3.335 3.239 3.147
12 4.279 4.127 3.985 3.851 3.725 3.606 3.493 3.387 3.286 3.190
13 4.362 4.203 4.053 3.912 3.780 3.656 3.538 3.427 3.322 3.223
14 4.432 4.265 4.108 3.962 3.824 3.695 3.573 3.459 3.351 3.249
15 4.489 4.315 4.153 4.001 3.859 3.726 3.601 3.483 3.373 3.268
16 4.536 4.357 4.189 4.033 3.887 3.751 3.623 3.503 3.390 3.283
17 4.576 4.391 4.219 4.059 3.910 3.771 3.640 3.518 3.403 3.295
18 4.608 4.419 4.243 4.080 3.928 3.786 3.654 3.529 3.413 3.304
19 4.635 4.442 4.263 4.097 3.942 3.799 3.664 3.539 3.421 3.311
20 4.657 4.460 4.279 4.110 3.954 3.808 3.673 3.546 3.427 3.316
21 4.675 4.476 4.292 4.121 3.963 3.816 3.679 3.551 3.432 3.320
22 4.690 4.488 4.302 4.130 3.971 3.822 3.684 3.556 3.436 3.323
23 4.703 4.499 4.311 4.137 3.976 3.827 3.689 3.559 3.438 3.325
24 4.713 4.507 4.318 4.143 3.981 3.831 3.692 3.562 3.441 3.327
25 4.721 4.514 4.323 4.147 3.985 3.834 3.694 3.564 3.442 3.329
CMA Canada 89
2010 Sample Entrance Examination
Table 2 (cont’d)
n 31% 32% 33% 34% 35% 36% 37% 38% 39% 40%
01 0.763 0.758 0.752 0.746 0.741 0.735 0.730 0.725 0.719 0.714
02 1.346 1.332 1.317 1.303 1.289 1.276 1.263 1.250 1.237 1.225
03 1.791 1.766 1.742 1.719 1.696 1.674 1.652 1.630 1.609 1.589
04 2.131 2.096 2.062 2.029 1.997 1.966 1.936 1.906 1.877 1.849
05 2.390 2.345 2.302 2.260 2.220 2.181 2.143 2.106 2.070 2.035
06 2.588 2.534 2.483 2.433 2.385 2.339 2.294 2.251 2.209 2.168
07 2.739 2.678 2.619 2.562 2.508 2.455 2.404 2.356 2.308 2.263
08 2.854 2.786 2.721 2.658 2.598 2.540 2.485 2.432 2.380 2.331
09 2.942 2.868 2.798 2.730 2.665 2.603 2.544 2.487 2.432 2.379
10 3.009 2.930 2.855 2.784 2.715 2.650 2.587 2.527 2.469 2.414
11 3.060 2.978 2.899 2.824 2.752 2.683 2.618 2.556 2.496 2.438
12 3.100 3.013 2.931 2.853 2.779 2.708 2.641 2.576 2.515 2.456
13 3.129 3.040 2.956 2.876 2.799 2.727 2.658 2.592 2.529 2.469
14 3.152 3.061 2.974 2.892 2.814 2.740 2.670 2.603 2.539 2.478
15 3.170 3.076 2.988 2.905 2.826 2.750 2.679 2.611 2.546 2.484
16 3.183 3.088 2.999 2.914 2.834 2.758 2.685 2.616 2.551 2.489
17 3.193 3.097 3.007 2.921 2.840 2.763 2.690 2.621 2.555 2.492
18 3.201 3.104 3.012 2.926 2.844 2.767 2.693 2.624 2.557 2.494
19 3.207 3.109 3.017 2.930 2.848 2.770 2.696 2.626 2.559 2.496
20 3.211 3.113 3.020 2.933 2.850 2.772 2.698 2.627 2.561 2.497
21 3.215 3.116 3.023 2.935 2.852 2.773 2.699 2.629 2.562 2.498
22 3.217 3.118 3.025 2.937 2.853 2.775 2.700 2.629 2.562 2.499
23 3.219 3.120 3.026 2.938 2.854 2.775 2.701 2.630 2.563 2.499
24 3.221 3.121 3.027 2.939 2.855 2.776 2.701 2.630 2.563 2.499
25 3.222 3.122 3.028 2.939 2.856 2.777 2.702 2.631 2.563 2.499
90 CMA Canada