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Total 530 questions
AICPA CPA-Business CPA Business Environment and Concepts CPA Exam Practice Test
Question 1
A company plans to tighten its credit policy. The new policy will decrease the average number of days in collection from 75 to 50 days and will reduce the ratio of credit sales to total revenue from 70 to 60 percent. The company estimates that projected sales would be five percent less if the proposed new credit policy is implemented. If projected sales for the coming year are $50 million, calculate the dollar impact on accounts receivable of this proposed change in credit policy. Assume a 360-day year.
Answer : C
Choice 'c' is correct. $3,333,334 decrease in accounts receivable.
Question 2
When applying value chain analysis, a firm asks it accounting department to perform an analysis of the sources of profits and costs of activities that exist within the firm. The firm is performing which form of value chain analysis?
Answer : B
Choice 'b' is correct. Internal costs analysis includes analyzing the internal value-creating ability of a firm, so the sources of profit and costs of the internal activities of the firm must be analyzed.
Choices 'a', 'c', and 'd' are incorrect, per the above Explanation: .
Question 3
Eller, Fort, and Owens do business as Venture Associates, a general partnership. Trent Corp. brought a breach of contract suit against Venture and Eller individually. Trent won the suit and filed a judgment against both Venture and Eller. Trent will generally be able to collect the judgment from:
Answer : C
Choice 'c' is correct. When a judgment is obtained against both a partnership and an individual general partner, the plaintiff must proceed against the partnership assets first and then the assets of any individual general partner. The partnership assets must be exhausted before any general partner's individual assets can be attached.
Choices 'a', 'b', and 'd' are incorrect, per the above rule.
Question 4
Cobb, Inc., a partner in TLC Partnership, assigns its partnership interest to Bean, who is not made a partner. After the assignment, Bean asserts the rights to:
I Participate in the management of TLC
II Cobb's share of TLC's partnership profits.
Bean is correct as to which of these rights?
Answer : B
Choice 'b' is correct.
Rule: The assignee of a partner's interest in the partnership does not thereby become a partner absent the unanimous consent of the other partners. Thus, the assignee has no right to participate in the management of the partnership and has only a right to receive the assignor's share of the partnership profits.
Choices 'a', 'c', and 'd' are incorrect, per the above rules.
Question 5
Eller, Fort and Owens are members of Venture Associates, LLC. Trent Corp. brought a breach of contract suit against Venture for a contract executed by Eller as an agent of the LLC. If Trent prevails, Trent will generally be able to collect the judgment from:
Answer : A
Choice 'a' is correct.
Rule: Members of an LLC are not personally liable for the LLC's obligations. Moreover, an agent is not liable on a contract the agent enters into on behalf of a disclosed principal. Here, the contract was entered into by Eller on behalf of Venture, an LLC, and Eller disclosed that he was acting only as an agent of Venture. Thus, Trent Corp. can collect from the LLC'S assets only.
Choices 'b', 'c', and 'd' are incorrect, per the above rule.
Question 6
If a firm borrows $500,000 at 10 percent and is required to maintain $50,000 as a minimum compensating balance at the bank, what is the effective interest rate on the loan?
Answer : A
Choice 'a' is correct. 11.1% effective interest rate on loan.
This question pertains to the computation of the effective rate of interest on a $500,000 note with a 10% stated rate that requires a $50,000 compensating balance. The answer computes the effective rate at 11.1% by taking the ratio of the amount paid $50,000 to the funds available $450,000 ($500,000 $50,000). Why would the $50,000 in interest payments not also be deducted in arriving at the effective rate?
The simple answer is that the note is not discounted by the interest. It is only subject to the compensating balance.
The borrower receives $500,000 in proceeds but must hold out $50,000 and pay back $550,000, principal + interest, to the lender. At the conclusion of the loan, the compensating balance requirement is removed.
Question 7
The limited liability of the shareholders of a closely-held corporation will most likely be disregarded if the shareholders:
Answer : C
Choice 'c' is correct. The 'corporate veil' can be pierced in situations in which the corporation was undercapitalized at formation, where it is the alter ego of the shareholders, or when it used to perpetrate a fraud.
Choice 'a' is incorrect. Shareholders may lend money to their corporation. This does not make such shareholders personally liable for the corporation's debt.
Choice 'b' is incorrect. Officers, directors, and employees are not personally liable for the corporation's debt, and there is no reason to change this role merely because such persons also own shares.
Choice 'd' is incorrect. The desire to limit liability is a valid reason to adopt the corporate form and will not, by itself, allow the 'corporate veil' to be pierced.
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