CPA-Business Exam Questions & Answers
CPA Business Environment and Concepts • AICPA
100% money-back guarantee
Sample CPA-Business Questions
Practice with real exam-style questions, each with the verified correct answer and explanation.
Whatney Co. is considering the acquisition of a new, more efficient press. The cost of the press is $360,000, and the press has an estimated six-year life with zero salvage value. Whatney uses straightline depreciation for both financial reporting and income tax reporting purposes and has a 40 percent corporate income tax rate. In evaluating equipment acquisitions of this type, Whatney uses a goal of a four-year payback period. To meet Whatney's desired payback period, the press must produce a minimum annual before-tax, operating cash savings of:
Choice 'b' is correct. $110,000 minimum annual before-tax operating cash savings.
Step 1: Determine the after-tax annual cash savings. The question provides the cash outflow and the desired payback period (which is calculated using after-tax cash flows). The $90,000 annual after-tax cash flows is calculated as follows:
Step 2: Determine the amount of the annual depreciation expense. Because the question asks for annual before-tax cash savings, we will need to convert the $90,000 after-tax cash savings we calculated in Step 1,above, to a before-tax amount. The depreciation tax shield plays a role in the after-tax cash flows, so the annual depreciation of $60,000 must be calculated, as follows:
Step 3: Use algebra to determine the before-tax cash savings. Before-tax cash savings is equal to the after-tax cash savings plus the taxes paid. So:
Let B = annual before-tax operating cash savings
$90,000 after tax cash savings + [(B $60,000 depreciation expense ) (.40 tax rate)] = B
$90,000 + [(B $60,000) (.40)] = B
$90,000 + [.40B $24,000] = B
$90,000 $24,000 = .60B
$66,000 = .60B
$110,000 = B = annual before-tax operating cash savings
The benefits of a just-in-time system for raw materials usually include:
Choice 'a' is correct. The just-in-time system focuses on expediting the production process by having materials available as needed without having to store them prior to usage. Thus, the nonvalue adding operation of storing materials is eliminated.
Choice 'b' is incorrect. A just-in-time system is designed to facilitate the flow of materials whether the materials come from one or more suppliers. Competitive bidding is not a major benefit of the just-in-time system.
Choice 'c' is incorrect. Maximizing the delivery quantity of materials may increase the need to store the materials prior to using them. The just-in-time system focuses on minimizing storage time and storage costs. Lessening paperwork is not a focus of the just-in-time system.
Choice 'd' is incorrect. With a just-in-time system, deliveries are made as materials are needed. A decrease in deliveries may increase the delivery quantity, thus increasing the need to store the materials prior to using them. The just-in-time system focuses on minimizing storage time and storage costs.
Which one of the following most accurately describes the normal sequence of a business cycle?
Choice 'b' is correct. The sequence of a typical business cycle includes an expansionary phase, a peak of economic activity, a contractionary phase, and a trough of economic activity.
Choice 'a' is incorrect. A peak does not follow a trough.
Choice 'c' is incorrect. A trough does not follow an expansion.
Choice 'd' is incorrect. A contraction does not follow a trough.
Under monopolistic competition, strategic plans focus on:
Choice 'c' is correct. Under monopolistic competition, strategic plans include maintaining the market share (as with pure competition), but they also likely include plans for enhanced product differentiation and allocation of resources to advertising, product research, etc.
Choices 'a', 'b', and 'd' are incorrect because they are characteristics of other types of market structures.
A firm averages $4,000 in sales per day and is paid, on an average, within 30 days of the sale. After they receive their invoice, 55 percent of the customers pay by check, while the remaining 45 percent pay by credit card. Approximately how much would the company show in accounts receivable on its balance sheet on any given date?
Choice 'a' is correct. $120,000 accounts receivable approximation. There is no effect on total A/R based on how (i.e., check or credit card) the customers actually pay their A/R.
Get access to all 530 verified questions with detailed answers.
Unlock All CPA-Business Questions