AICPA Exam CPA-Business Topic 2 Question 103 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 103
Topic #: 2

Average daily cash outflows are $3 million for Evans Inc. A new cash management system can add two days to the disbursement schedule. Assuming Evans earns 10 percent on excess funds, how much should the firm be willing to pay per year for this cash management system?

A$3,000,000

B$1,500,000

C$600,000

D$150,000

Show Suggested Answer

Suggested Answer: B

Choice 'b' is correct. Whenever accounts receivable (AR) are decreasing when sales are increasing (and the decrease in AR is not due to an increase in bad debt write offs), this would indicate that the average collection period for AR has decreased.

Choices 'a', 'c', and 'd' are incorrect. There is insufficient information in the question to draw conclusions about these items.

by Rosalind at Nov 17, 2024, 01:20 AM

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Jordan

2 months ago

Ooh, this one's a real cash cow! I'm thinking C) $600,000 is the way to go. That's a pretty sweet deal if you ask me.

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Zena

11 days ago

Yeah, it's a smart move to improve cash flow and earn more on excess funds.

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Billye

12 days ago

I think so too. It would definitely be worth it in the long run.

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Carole

14 days ago

I agree, C) $600,000 seems like a reasonable investment for the cash management system.

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Mike

2 months ago

Haha, I bet the guys at Evans are feeling like a million bucks with this new cash management system! I'm gonna go with A) $3,000,000 just to be safe.

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Olive

18 days ago

Definitely, it's better to be safe with that amount.

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Raymon

22 days ago

Yeah, that seems like the safest bet.

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Ryann

2 months ago

I think A) $3,000,000 sounds like a good choice.

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Malcolm

3 months ago

I'm not sure. I think the answer might be A) $3,000,000. Can someone explain the rationale behind choosing C) $600,000?

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Valene

3 months ago

I'm pretty sure the answer is D) $150,000. I mean, who wouldn't want to save $150,000 per year? That's a steal!

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Katlyn

1 months ago

User 2: Yeah, saving $150,000 per year sounds like a good deal.

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Clarinda

1 months ago

User 1: I think the answer is D) $150,000.

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Chantay

3 months ago

Wow, this is a tricky one. I'm going to go with B) $1,500,000 since that seems like a reasonable amount for a new cash management system.

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Stephanie

3 months ago

I agree with Dylan. The firm should be willing to pay $600,000 for the cash management system because it can earn 10 percent on excess funds.

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Frederica

3 months ago

Hmm, I think the correct answer is C) $600,000. Adding two days to the disbursement schedule would save Evans $3 million x 2 days = $6 million per year, and with a 10% return, that's $600,000 in savings.

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