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AICPA CPA-Business Exam Questions
- Topic 1: Auditing and Attestation
- Topic 2: Business Environment and Concepts
- Topic 3: Financial Accounting and Reporting.
Free AICPA CPA-Business Exam Actual Questions
Note: Premium Questions for CPA-Business were last updated On Nov. 18, 2024 (see below)
A change in credit policy has caused an increase in sales, an increase in discounts taken, a reduction in the investment in accounts receivable, and a reduction in the number of doubtful accounts. Based upon this information, we know that:
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.
The following information pertains to Quest Co.'s Gold Division for 1993:
Quest's return on investment was:
Choice 'c' is correct. Return on investment equals net income divided by average invested capital:
Choices 'a', 'b', and 'd' are incorrect, per the above calculation.
The sales manager at Ryan Company feels confident that if the credit policy at Ryan's was changed, sales would increase and, consequently, the company would utilize excess capacity. The two credit proposals being considered are as follows:
Currently, payment terms are net 30. The proposal payment terms for Proposal A and Proposal B are net 45 and net 90, respectively. An analysis to compare these two proposals for the change in credit policy would include all of the following factors, except the:
Choice 'b' is correct. Because the bad debt percentage is the same under either of the two proposals, there is no differential cost associated with bad debt. Because it is not a differential cost, it is not considered in comparing the two alternatives.
Choice 'a' is incorrect. Because Proposal A and B have different net collection dates, Proposal B will cause a greater amount of accounts receivable with a corresponding increase in working capital. The cost to fund this will be greater for Proposal B, so this is a legitimate concern.
Choice 'c' is incorrect. Customers may feel they should be given the extended terms. If this is granted, the additional working capital need will be even greater.
Choice 'd' is incorrect. Banks may require that days sales outstanding cannot exceed a certain number of days. If so, it will be harder to meet this covenant with Proposal B.
The amount of inventory that a company would tend to hold in safety stock would increase as the:
Choice 'a' is correct. As the cost of carrying inventory decreases, safety stock would tend to increase to reduce the risk of stock outs.
Choice 'b' is incorrect. As sales become more predictable (sales variability decreases), less (not more) safety stock would be needed because the risk of stock outs would have decreased.
Choice 'c' is incorrect. If the cost of stock outs decrease, safety stock would decrease.
Choice 'd' is incorrect. If lead-time decreases, safety stock would decrease.
The level of safety stock in inventory management depends on all of the following, except the:
Choice 'd' is correct. Reorder costs do not impact the level of safety stock.
Choices 'a', 'b', and 'c' are incorrect. Safety stock levels are affected by:
1. Uncertain sales forecasts - greater uncertainty means a higher level of safety stock should be carried.
2. Dissatisfaction of customers - if customers are dissatisfied with back orders (which occur when there are stock outs), then more safety stock should be carried to prevent stock outs.
3. Uncertain lead times - greater uncertainty means a higher level of safety stock is needed.
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