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IIA CIA Exam
Certified Internal Auditor Exam (Page 4 )

Updated On: 12-Jan-2026
Page 4 of 342
PDF with 1702 Questions

All of the following are alternative marketable securities suitable for investment except

  1. U.S. Treasury bills.
  2. Eurodollars.
  3. Commercial paper.
  4. Convertible bonds.

Answer(s): D

Explanation:

Marketable securities are near-cash items used primarily for short-term investment. Examples include U.S. Treasury bills, Eurodollars. commercial paper, money-market mutual funds with portfolios of short-term securities, bankers' acceptances, floating rate preference stock, and negotiable CDs of U.S. banks. A convertible bond is not a short- term investment because its maturity date is usually more than one year in the future and its price can be influenced substantially by changes in interest rates or by changes in the investee's stock price.



An entity sells to retail stores on credit terms of 2/10 net 30. Daily sales average 150 units at a price of US $300 each. Assuming that all sales are on credit and 60% of customers take the discount and pay on day 10 while the rest of the customers pay on day 30. what is the amount of the entity's accounts receivable?

  1. US $1, 350, 00
  2. US $990, 000
  3. US $900, 000
  4. US $810, 00

Answer(s): D

Explanation:

The entity has daily sales of US $45, 000 consisting of 150 units at US $300 each. For 30 days. sales total US $1.350.000. Forty percent of these sales. or US $540, 000. will be uncollected because customers do not take their discounts. The remaining 60%. or US $810, 000. will be paid within the discount pen 1. However, by the end of 30 days. only 213 of the US $810, 000 will be collected because the sales from days 21 through 30 are still within the discount period. Therefore, an additional US $270, 000 $810, 000 - $5...I0, Ori0) will still be uncollected after the 30th day, but will be subject to a discount. In total, the average rep ~atl~~ balance is US $810, 000. consisting of US $540, 000 on
which no discount will be taken and US '1.270.000 that will be paid within the discount period.



Which or the following models is essentially an application to cash management of the inventory economic order quantity EDO) formula?

  1. Miller-Orr cash management model.
  2. Baumol cash management model.
  3. Altman's Z-Score model.
  4. Arbitrage pricing model.

Answer(s): B

Explanation:

The Baumol cash management model is essentially the inventory EOQ model in that it minimizes the total of fixed trading costs and cash carrying costs. It is a deterministic model in the same way that the EOQ model is deterministic.



A compensating balance

  1. Compensates a financial institution for services rendered by providing it with deposits of funds.
  2. Is used to compensate for possible losses on a marketable securities portfolio.
  3. Is a level of inventory held to compensate for variations in usage rate and lead time.
  4. Is the amount of prepaid interest on a loan.

Answer(s): A

Explanation:

Banks sometimes require a borrower to keep a certain percentage of the face amount of a loan in a noni nterest-bearing checking account. This requirement raises the effective rate of interest paid by the borrower. This greater rate compensates a bank for services provided and results in greater profitability for the financial institution. Funds kept as a compensating balance can often be withdrawn if a certain average balance is maintained.



A working capital technique that increases the payable float and therefore delays the outflow of cash is

  1. Concentration banking.
  2. A draft.
  3. Electronic Data Interchange EDO.
  4. A lockbox system.

Answer(s): B

Explanation:

Payment by draft, a three-parry instrument in which the drawer orders the drawer to pay money to the payee, is a means of slowing cash outflows A check is the most common type of draft. Check float arises from the delay between an expenditure and the clearing of the check through the banking system.



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