Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control

(11 questions)

[1] Gleim #: 6.9.176 -- Source: CMA 0205 2-11

Holland Company is in the process of projecting its cash position at the end of the second
quarter. Shown below is pertinent information from Holland’s records.

Cash balance at end of 1st quarter $ 36,000

Cash collections from customers for 2nd quarter 1,300,000
Accounts payable at end of 1st quarter 100,000
Accounts payable at end of 2nd quarter 75,000
All 2nd quarter costs and expenses (accrual basis) 1,200,000
Depreciation (accrued expense included above) 60,000
Purchases of equipment (for cash) 50,000
Gain on sale of asset (for cash) 5,000
Net book value of asset sold 35,000
Repayment of notes payable 66,000

From the data above, determine Holland’s projected cash balance at the end of the second
quarter.

A. $0
B. $25,000
C. $60,000
D. $95,000

Answer (A) is incorrect. The cash balance did change in the second quarter.
Answer (B) is incorrect. Improperly deducting rather than adding the book value of
the sold asset results in $25,000.
Answer (C) is incorrect. Failing to take the book value of the sold asset into
account results in $60,000 (the book value plus the gain is the cash received).

Copyright 2012 Gleim Publications Inc. Page 1

Printed for Wessam Tarek
 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(11 questions)

Answer (D) is correct. The change in Holland’s cash balance can be calculated as follows:

Beginning cash balance $ 36,000

Add: cash collections 1,300,000
Less: net change in accounts payable (25,000)
Less: accrual-basis costs and expenses (1,200,000)
Add: depreciation expense (noncash) 60,000
Less: payment for equipment (50,000)
Add: net cash received from asset sale 40,000
Less: retirement of notes payable (66,000)
Ending cash balance $ 95,000

[2] Gleim #: 6.9.177 -- Source: CMA 0205 2-10

Steers Company has just completed its prospective financial statements for the coming
year. Relevant information is summarized below:

Projected net income $100,000

Anticipated capital expenditures 50,000
Increase in working capital 25,000
Depreciation expense 15,000

From the information provided above, the increase in Steers’ cash account for the coming
year will be

A. $25,000
B. $40,000
C. $90,000
D. $160,000

Answer (A) is incorrect. The increase in working capital is not the only line item
that affects cash.
Answer (B) is correct. The change in cash can be calculated as follows:

Accrual-basis net income $100,000

Less: capital outlays (50,000)
Less: increase in working capital (25,000)
Add: depreciation expense (noncash) 15,000
Increase in cash $ 40,000

Copyright 2012 Gleim Publications Inc. Page 2

Printed for Wessam Tarek
 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(11 questions)

Answer (C) is incorrect. The amount of $90,000 ignores the outlays for capital
expenditures.
Answer (D) is incorrect. Improperly adding the capital outlays and increase in working
capital and subtracting the depreciation expense results in $160,000.

[Fact Pattern #1]

The Raymar Company is preparing its cash budget for the months of April and May. The firm
has established a $200,000 line of credit with its bank at a 12% annual rate of interest on
which borrowings for cash deficits must be made in $10,000 increments. There is no
outstanding balance on the line of credit loan on April 1. Principal repayments are to be made
in any month in which there is a surplus of cash. Interest is to be paid monthly. If there are no
outstanding balances on the loans, Raymar will invest any cash in excess of its desired end-of-
month cash balance in U.S. Treasury bills. Raymar intends to maintain a minimum balance of
$100,000 at the end of each month by either borrowing for deficits below the minimum
balance or investing any excess cash. Expected monthly collection and disbursement patterns
are shown below.

Collections: 50% of the current month’s sales budget and 50% of the previous month’s
sales budget.
Accounts Payable Disbursements: 75% of the current month’s accounts payable budget
and 25% of the previous month’s accounts payable budget.
All other disbursements occur in the month in which they are budgeted.

Budget Information
March April May
Sales $40,000 $50,000 $100,000
Accounts payable 30,000 40,000 40,000
Payroll 60,000 70,000 50,000
Other disbursements 25,000 30,000 10,000

[3] Gleim #: 6.9.178 -- Source: CMA 1293 3-19

(Refers to Fact Pattern #1)

In April, Raymar’s budget will result in

A. $45,000 in excess cash.

B. A need to borrow $50,000 on its line of credit for the cash deficit.
C. A need to borrow $100,000 on its line of credit for the cash deficit.
D. A need to borrow $90,000 on its line of credit for the cash deficit.

Copyright 2012 Gleim Publications Inc. Page 3

Printed for Wessam Tarek
 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(11 questions)

Answer (A) is incorrect. Cash receipts equals $45,000.

Answer (B) is incorrect. The cash deficit will be $92,500 without borrowing.
Answer (C) is correct. Assuming Raymar maintained a $100,000 cash balance at the
end of March, the amount to be borrowed or invested in April is the difference between
cash receipts and disbursements. April’s cash collections are $45,000 [($50,000 April
sales × 50%) + ($40,000 March sales × 50%)]. Disbursements for accounts payable are
$37,500 [($40,000 April payables × 75%) + ($30,000 March payables × 25%)]. In
addition to the accounts payable disbursements, payroll and other disbursements will
require an additional $100,000. Hence, total disbursements are estimated to be $137,500.
The net negative cash flow (amount to be borrowed to reach the required minimum cash
balance of $100,000) is $92,500 ($137,500 – $45,000). Because the line of credit must
be drawn upon in $10,000 increments, the loan must be for $100,000.
Answer (D) is incorrect. A loan of only $90,000 would still leave a negative cash
balance of $2,500.

[4] Gleim #: 6.9.179 -- Source: CMA 1293 3-20

(Refers to Fact Pattern #1)

In May, Raymar will be required to

A. Repay $20,000 principal and pay $1,000 interest.

B. Repay $90,000 principal and pay $100 interest.
C. Pay $900 interest.
D. Borrow an additional $20,000 and pay $1,000 interest.

Answer (A) is incorrect. No funds are available to repay the loan. May receipts are
less than May disbursements.
Answer (B) is incorrect. No funds are available to repay the loan. May receipts are
less than May disbursements.
Answer (C) is incorrect. The 1% interest is calculated on a $100,000 loan, not a
$90,000 loan.

Copyright 2012 Gleim Publications Inc. Page 4

Printed for Wessam Tarek
 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(11 questions)

Answer (D) is correct. The company will have to borrow $100,000 in April, which means
that interest will have to be paid in May at the rate of 1% per month (12% annual rate).
Consequently, interest expense is $1,000 ($100,000 × 1%). May receipts are $75,000
[($100,000 May sales × 50%) + ($50,000 April sales × 50%)]. Disbursements in May are
$40,000 [($40,000 May payables × 75%) + ($40,000 April payables × 25%)]. In addition to
the May accounts payable disbursements, payroll and other disbursements are $60,000,
bringing total disbursements to $101,000 ($60,000 + $40,000 + $1,000). Thus,
disbursements exceed receipts by $26,000 ($101,000 – $75,000). However, cash has a
beginning surplus balance of $7,500 ($100,000 April loan – $92,500 negative cash flow for
April calculated using the collections and disbursements information given). As a result, the
company needs to borrow an additional $18,500 to eliminate its cash deficit. Given the
requirement that loans be in $10,000 increments, the May loan must be for $20,000.

Copyright 2012 Gleim Publications Inc. Page 5

Printed for Wessam Tarek
 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(11 questions)

[Fact Pattern #2]

Karmee Company has been accumulating The variable operating expenses (other than
operating data in order to prepare an annual cost of goods sold) for Karmee are 10% of
profit plan. Details regarding Karmee’s sales sales and are paid for in the month following
for the first 6 months of the coming year are the sale. The annual fixed operating expenses
as follows: are presented below. All of these are incurred
uniformly throughout the year and paid
Estimated Monthly Type of Monthly monthly except for insurance and property
Sales Sale taxes. Insurance is paid quarterly in January,
January $600,000 Cash sales 20% April, July, and October. Property taxes are
February 650,000 Credit 80% paid twice a year in April and October.
sales
March 700,000
Annual Fixed Operating Costs
April 625,000
May 720,000 Advertising $ 720,000
June 800,000 Depreciation 420,000
Insurance 180,000
Property taxes 240,000
Collection Pattern for Credit Sales Salaries 1,080,000
Month of sale 30%
One month following sale 40%
Second month following sale 25%
Karmee’s cost of goods sold averages 40% of
the sales value. Karmee’s objective is to
maintain a target inventory equal to 30% of
the next month’s sales in units. Purchases of
merchandise for resale are paid for in the
month following the sale.

[5] Gleim #: 6.9.180 -- Source: CMA 1296 3-8

(Refers to Fact Pattern #2)

The purchase of merchandise that Karmee Company will need to make during February
will be

A. $254,000
B. $260,000
C. $266,000
D. $338,000

Copyright 2012 Gleim Publications Inc. Page 6

Printed for Wessam Tarek
 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(11 questions)

Answer (A) is incorrect. The amount of $254,000 reverses the treatment of the change
in inventory.
Answer (B) is incorrect. February COGS is $260,000.
Answer (C) is correct. Purchases equal cost of goods sold, plus ending inventory, minus
beginning inventory. Estimated cost of goods sold for February equals $260,000
($650,000 sales × 40%). Ending inventory is given as 30% of sales in units. Stated at
cost, this amount equals $84,000 ($700,000 March sales × 30% × 40%). Furthermore,
beginning inventory is $78,000 ($260,000 COGS for February × 30%). Thus, purchases
equal $266,000 ($260,000 + $84,000 – $78,000).
Answer (D) is incorrect. The sum of COGS and beginning inventory equals $338,000.

[6] Gleim #: 6.9.181 -- Source: CMA 1296 3-9

(Refers to Fact Pattern #2)

The amount for cost of goods sold that will appear on Karmee Company’s pro forma
income statement for the month of February will be

A. $195,000
B. $254,000
C. $260,000
D. $272,000

Answer (A) is incorrect. The amount of $195,000 is based on 30% of sales.

Answer (B) is incorrect. Cost of goods sold, minus ending inventory, plus
beginning inventory equals $254,000.
Answer (C) is correct. Cost of goods sold is expected to be 40% of sales. Thus,
cost of goods sold is $260,000 ($650,000 February sales × 40%).
Answer (D) is incorrect. Purchases, plus ending inventory, minus beginning
inventory equals $272,000.

Copyright 2012 Gleim Publications Inc. Page 7

Printed for Wessam Tarek
 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(11 questions)

[7] Gleim #: 6.9.182 -- Source: CMA 1296 3-10

(Refers to Fact Pattern #2)
The total cash disbursements that Karmee Company will make for the operating expenses
(expenses other than the cost of goods sold) during the month of April will be

A. $255,000
B. $290,000
C. $385,000
D. $420,000

Answer (A) is incorrect. The amount of $255,000 excludes variable selling

expenses and advertising.
Answer (B) is incorrect. The amount of $290,000 includes depreciation but
excludes variable selling expenses and advertising.
Answer (C) is correct. Cash disbursements for variable operating expenses in April
(excluding cost of goods sold) equal $70,000 ($700,000 March sales × 10%). Cash
disbursements for fixed operating expenses (excluding depreciation, a noncash
expense) include advertising ($720,000 ÷ 12 = $60,000), salaries ($1,080,000 ÷ 12
= $90,000), insurance ($180,000 ÷ 4 = $45,000), and property taxes ($240,000 ÷ 2
= $120,000). Hence, cash payments for April operating expenses are $385,000
($70,000 + $60,000 + $90,000 + $45,000 + $120,000).
Answer (D) is incorrect. The amount of $420,000 includes depreciation.

Copyright 2012 Gleim Publications Inc. Page 8

Printed for Wessam Tarek
 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(11 questions)

[Fact Pattern #3]

Information pertaining to Noskey Corporation’s sales revenue is presented in the following
table:

November December January

Year 1 Year 1 Year 2
(Actual) (Budget) (Budget)
Cash sales $ 80,000 $100,000 $ 60,000
Credit sales 240,000 360,000 180,000
Total sales $320,000 $460,000 $240,000

Management estimates that 5% of credit sales are uncollectible. Of the credit sales that are
collectible, 60% are collected in the month of sale and the remainder in the month following
the sale. Purchases of inventory are equal to next month’s sales, and gross profit margin is
30%. All purchases of inventory are on account; 25% are paid in the month of purchase, and
the remainder are paid in the month following the purchase.

[15] Gleim #: 6.9.190 -- Source: CMA 1291 3-25

(Refers to Fact Pattern #3)

Noskey Corporation’s budgeted total cash payments in December Year 1 for inventory
purchases are

A. $405,000
B. $283,500
C. $220,500
D. $168,000

Answer (A) is incorrect. The purchases valued at sales price, not cost, is $405,000.
Answer (B) is correct. The December inventory payments include 75% of
November purchases plus 25% of December purchases. Given a gross margin of
30%, cost must be 70% of sales. November purchases are therefore $322,000
($460,000 December sales × 70%), and the December outlay for November
purchases is $241,500 ($322,000 × 75%). Purchases during December are $168,000
($240,000 January sales × 70%), and the December outlay for December purchases
is $42,000 ($168,000 × 25%), a total cash outlay of $283,500.
Answer (C) is incorrect. The amount of $220,500 is calculated based on credit
sales, not total sales.
Answer (D) is incorrect. The cash payment for December purchases only is
$168,000.

Copyright 2012 Gleim Publications Inc. Page 9

Printed for Wessam Tarek
 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(11 questions)

[Fact Pattern #4]

Cooper Company’s management team is preparing a cash budget for the coming quarter. The
following budgeted information is under review:

January February March

Revenue $700,000 $800,000 $500,000
Inventory purchases 350,000 425,000 225,000
Other expenses 150,000 175,000 175,000

The company expects to collect 40% of its monthly sales in the month of sale and 60% in the
following month. 50% of inventory purchases are paid in the month of purchase and the other
50% in the following month. All payments for other expenses are made in the month incurred.

[17] Gleim #: 6.9.192 -- Source: CMA 0408 2-066

(Refers to Fact Pattern #4)

Cooper forecasts the following account balances at the beginning of the quarter.

Cash $100,000
Accounts receivable 300,000
Accounts payable (inventory) 500,000

Given the above information, the projected change in cash during the coming quarter will
be

A. $412,500
B. $300,000
C. $112,500
D. $0

Answer (A) is incorrect. The amount of $412,500 results from including the
beginning balance in cash and failing to include the beginning balances in accounts
receivable and accounts payable.
Answer (B) is incorrect. The amount of $300,000 is merely the receivables from
the previous quarter that will be collected in the current quarter.

Copyright 2012 Gleim Publications Inc. Page 10

Printed for Wessam Tarek
 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(11 questions)

Answer (C) is correct. Cooper’s collections for the quarter can be calculated as follows:

Collections
Sales January February March
January $700,000 $280,000 $420,000
February 800,000 320,000 $480,000
March 500,000 200,000
$280,000 $740,000 $680,000

Total collections are therefore $1,700,000 ($280,000 + $740,000 + $680,000). The

disbursements for inventory can likewise be calculated as follows:

Disbursements
Inventory
Purchases January February March
January $350,000 $175,000 $175,000
February 425,000 212,500 $212,500
March 225,000 112,500
$175,000 $387,500 $325,000

Total inventory disbursements are therefore $887,500 ($175,000 + $387,500 + $325,000).

Disbursements for other expenses total $500,000 ($150,000 + $175,000 + $175,000). The net
change in Cooper’s balance of cash for the quarter can now be calculated:

Collections on sales $1,700,000

Disbursements for inventory (887,500)
Disbursements for other expenses (500,000)
Beginning accounts receivable 300,000
Beginning accounts payable (500,000)
Change in cash $ 112,500

Answer (D) is incorrect. Cash will increase during the quarter (receipts will exceed
payments).

Copyright 2012 Gleim Publications Inc. Page 11

Printed for Wessam Tarek
 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(11 questions)

[18] Gleim #: 6.9.193 -- Source: CMA 0408 2-070

Monroe Products is preparing a cash forecast based on the following information:

Monthly sales: December, $200,000; January, $200,000; February, $350,000;

March, $400,000.
All sales are on credit and collected the month following the sale.
Purchases are 60% of next month’s sales and are paid for in the month of purchase.
Other monthly expenses are $25,000, including $5,000 of depreciation.

If the January beginning cash balance is $30,000, and Monroe is required to maintain a
minimum cash balance of $10,000, how much short-term borrowing will be required at
the end of February?

A. $60,000
B. $70,000
C. $75,000
D. $80,000

Answer (A) is incorrect. The amount of $60,000 results from failing to include the
minimum balance requirement.
Answer (B) is correct. Monroe’s short-term cash requirements at the end of
February can be calculated as follows:

Beginning cash balance $ 30,000

Collections on December sales (in January) 200,000
Collections on January sales (in February) 200,000
Disbursements for inventory (in January) (210,000)
Disbursements for inventory (in February) (240,000)
Disbursements for other expenses (in January) (20,000)
Disbursements for other expenses (in February) (20,000)
Minimum balance requirement (10,000)
Shortfall $ (70,000)

Answer (C) is incorrect. The amount of $75,000 results from treating that one
month of depreciation as a cash expense, which it is not.
Answer (D) is incorrect. The amount of $80,000 results from treating depreciation
as a cash expense.

Copyright 2012 Gleim Publications Inc. Page 12

Printed for Wessam Tarek
 Gleim CMA Test Prep: Part 1: Financial Planning, Performance, and Control
(11 questions)

[19] Gleim #: 6.9.194 -- Source: CMA 0408 2-078

The Mountain Mule Glove Company is in its first year of business. Mountain Mule had a
beginning cash balance of $85,000 for the quarter. The company has a $50,000 short-
term line of credit. The budgeted information for the first quarter is shown below.

January February March

Sales $60,000 $40,000 $50,000
Purchases 35,000 40,000 75,000
Operating costs 25,000 25,000 25,000

All sales are made on credit and are collected in the second month following the sale.
Purchases are paid in the month following the purchase, while operating costs are paid in
the month that they are incurred. How much will Mountain Mule need to borrow at the
end of the quarter if the company needs to maintain a minimum cash balance of $5,000,
as required by a loan covenant agreement?

A. $0
B. $5,000
C. $10,000
D. $45,000

Answer (A) is incorrect. Expenses will exceed income for the quarter.
Answer (B) is incorrect. The amount of $5,000 is only the minimum required
balance.
Answer (C) is correct. Mountain Mule’s short-term borrowing needs can be
calculated as follows:

Beginning cash balance $ 85,000

Collections on January sales (in March) 60,000
Disbursements for January inventory (in February) (35,000)
Disbursements for February inventory (in March) (40,000)
Disbursements for other expenses ($25,000 × 3) (75,000)
Minimum balance requirement (5,000)
Shortfall $ (10,000)

Answer (D) is incorrect. The amount of $45,000 results from simply drawing the
entire line of credit over the minimum balance.

Copyright 2012 Gleim Publications Inc. Page 13

Printed for Wessam Tarek