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IIA CIA Exam
Certified Internal Auditor Exam (Page 3 )

Updated On: 12-Jan-2026
Page 3 of 342
PDF with 1702 Questions

When managing cash and short-term investments, a corporate treasurer is primarily concerned with

  1. Maximizing rate of return.
  2. Minimizing taxes.
  3. Investing in government bonds since they have no default risk.
  4. Liquidity and safety.

Answer(s): D

Explanation:

Cash and short-term investments are crucial to an entity's continuing success. Sufficient liquidity must be available to meet payments as they come due. At the same time, liquid assets are subject to significant control risk. Therefore. liquidity and safety are the primary concerns of the treasurer when dealing with highly liquid assets. Cash and short- term investments are held because of their ability to facilitate routine operations of the entity. These assets are not held for purposes of achieving investment returns.



Shown below is a forecast of sales for the first 4 months of the year all amounts are in thousands of dollars).

On average, 50% of credit sales are paid for in the month of sale, 30% in the month following the sale, and the remainder is paid 2 months after the month of sale. Assuming there are no bad debts, what is the expected cash inflow in March?

  1. US $138, 000
  2. US $122, 000
  3. US $119, 000
  4. US $108, 000

Answer(s): D

Explanation:

Cash inflows for March would consist of 50% of March credit sales US $90 x 50% = US $45). plus 30% of February credit sales US $120 x 30% = US $36). plus 20% of January credit sales US $ 11-11. 20% = US $20). plus cash sales for March of US $18. Consequently, total collections equal US $1 18, 000.



The following information applies to an entity. Purchases Sales

A cash payment equal to 40% of purchases is made at the time of purchase, and 30% is paid in each of the next 2 months. Purchases for the previous November and December were US $150, 000 per month. Payroll is 10% of sales in the month it occurs, and operation expenses are 20% of the following month's sales July sales were US $220, 000). Interest payments were US , " x, 000 paid quarterly in January and April. What were the entity's cash disbursements for the month of April?

  1. US $140, 000
  2. US $152, 000
  3. US $200, 000
  4. US $254, 000

Answer(s): D

Explanation:

The cash disbursements for the month of April include 40% of April purchases, 30% of March purchases, 30% of February purchases, April payroll 10% of April sales), operating expenses 20 I of May sales), and an interest payment of US $20.000.



The treasury analyst for a manufacturing entity has estimated the cash flows for the first half of next year (ignoring any short-term borrowings) as follows:

The entity has a line of credit of up to US $4 million on which it pays interest monthly at a rate of 1% of the amount used. The entity is expected to have a cash balance of US $2 million on January 1, with no amount of its line of credit used. Assuming all cash flows occur at the end of the month. approximately how much will the entity pay in interest during the first half of the year?

  1. 0
  2. US $61, 000
  3. US $80, 000
  4. US $132, 000

Answer(s): B

Explanation:

The sum of the beginning balance and inflows exceeds the outflows for the first 2 months. At the end of March, however, the entity must use US $2.000.000 of its line of credit US 62.000.000 beginning balance $6, 000, 000 inflows - $10.000.000 outflows)_ Thus, interest for April is US $20.000 1% x $2.000, 000). The net cash outflow for April ignoring short-term borrowings) is US $1.000.000 of an additional US $1, 000, 000 of the line of credit. However, the US $20.000 of interest for April must also be paid, so the amount of the line of credit used in May is US $3, 020, 000 $2.000, 000 + $1.000.000 + $20.000)_ Interest for May is therefore US $30.200 1% $2, 000.000 ) The net cash inflow for May of US $2, 000, 000 again ignoring short-term borrowings) and the borrowing of US $30.200 to pay the interest for May, the amount of the line of credit used in June is US $1.050.200_ Interest in June is US $10.502 1% $1, 050, 200), and total interest is US $60, 702 $20, 000 $ $30, 200 $10, 502). Consequently, the closest answer is
US $61.000.



Why would an entity maintain a compensating cash balance?

  1. To make routine payments and collections.
  2. To pay for banking services.
  3. To provide a reserve in case of unforeseen fluctuations in cash flows.
  4. To take advantage of bargain purchase opportunities that may arise.

Answer(s): B

Explanation:

The compensating cash balance is the money left in a checking account in the bank in order to compensate the bank for services it provides.



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