AICPA Exam CPA-Business Topic 3 Question 31 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 31
Topic #: 3

All of the following are valid reasons for a business to hold cash and marketable securities, except to:

ASatisfy compensating balance requirements.

BMaintain adequate cash needed for transactions.

CMaintain a precautionary balance.

DEarn maximum returns on investment assets.

Show Suggested Answer

Suggested Answer: D

Choice 'd' is correct. There are three primary motives for holding cash:

1. Transactions demand

2. Precautionary demand

3. Speculative demand

However, cash is generally held in very short-term liquid investments which are low risk, low return.

by Cecilia at May 05, 2022, 08:48 PM

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