Question 1

In planning and controlling capital expenditures, the most logical sequence is to begin with:

Accepted Answer

C

Explanation: Choice "c" is correct. The most logical sequence in planning and controlling capital expenditures is to begin with identifying capital addition projects and other capital needs. Choice "a" is incorrect. Analyzing capital addition proposals omits other capital needs. Choice "b" is incorrect. Analyzing and evaluating all promising alternatives is beyond the scope of planning and controlling capital expenditures. Choice "d" is incorrect. Developing capital budgets is the same as planning and controlling capital expenditures.

Question 2

Price owns 2,000 shares of Universal Corp.'s $10 cumulative preferred stock. During its first year of
operations, cash dividends of $5 per share were declared on the preferred stock but were never paid.
In the second year, dividends on the preferred stock were neither declared nor paiD. If Universal is
dissolved, which of the following statements is correct?

Accepted Answer

A

Explanation: Choice "a" is correct. After a dividend is declared but not paid on cumulative preferred stock, the unpaid dividend ranks with other "unsecured" debts. Choice "b" is incorrect. The unpaid dividend ranks as an "unsecured" not a "secured" debt and Price has no right to a dividend for the second year because no dividend was declared that year. Choice "c" is incorrect. As an "unsecured" creditor, Price does not have priority over the company's bondholders. Choice "d" is incorrect. The "unsecured" creditors will share in the "unsecured" category as a whole and not with any priority within the class.

Question 3

Entry into monopolistic competition is:

Accepted Answer

D

Explanation: Choice "d" is correct. The characteristics of monopolistic competition include: • Numerous firms with differentiated products. • Ease of entry - few barriers. • Firms exact some influence over price and market. • Non-price competition is frequent and critical. Choice "a" is incorrect. Monopolistic competition has a few obstacles. A market with no obstacles is in perfect competition. Choice "b" is incorrect. Significant obstacles are characteristic of oligopoly. Choice "c" is incorrect. Significant capital requirements represent a significant barrier to entry, which is characteristic of oligopoly.

Question 4

Which of the following is incorrect with regard to government intervention in market operations?

Accepted Answer

B

Explanation: Choice "b" is an incorrect statement and the correct choice. A price ceiling is a price that is established below the equilibrium price, which causes a shortage to develop. The statement in choice "b" defines a price floor. Choices "a", "c", and "d" are correct statements.

Question 5

Which of the following is incorrect with regard to value chain analysis?

Accepted Answer

D

Explanation: Choice "d" is an incorrect statement and the correct choice. The best description of a value chain is that value starts with the suppliers who provide the raw materials for a production process, continues with the firm and its strategic plan, continues with the value created by the customers, and then ends with the disposal and recycling of the materials. Choices "a", "b", and "c" are incorrect, as all are correct statements with regard to value chain analysis.

Question 6

Having identified their mission, overall strategy, and critical success factors, organizations often
review the internal and external factors that will contribute to their success. This analysis is often
referred to as:

Accepted Answer

D

Explanation: Choice "d" is correct. Evaluation of internal and external factors contributing to an organization's success is referred to as Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis. Strengths and weaknesses focus on internal factors while opportunities and threats relate to external factors. Choice "a" is incorrect. The acronym TOC stands for Theory of Constraints, which is an evaluation technique for optimizing throughput time, it does not relate to overall strategy evaluation. Choice "b" is incorrect. Brainstorming is a meeting technique used to generate ideas. Although brainstorming could be used as part of an organization's approach to SWOT analysis, it is not, itself, the evaluation of internal and external factors. Choice "c" is incorrect. A review of the balanced scorecard, which summarizes measures of achievement of critical success factors, does not represent the objective review of internal and external factors that may impact achievement of strategy.

Question 7

Factors internal to the organization that impact strategy and are sources of strengths and weaknesses include all of the following, except:

Accepted Answer

D

Explanation: Choice "d" is correct. Regulations and laws are external factors of opportunities and threats that affect the overall industry. Choices "a", "b", and "c" are incorrect, as all of these factors are examples of internal factors of an organization.

Question 8

In which stage of supply chain management will the firm's management turn its attention to
consolidation of the various departments that make up operations in order to solve the firm's
problems, with a focus on customer service?

Accepted Answer

A

Explanation: Choice "a" is correct. In the cross-functional teams stage of supply chain management, the firm's management will turn its attention to consolidation of the various departments that make up operations in order to solve the firm's problems, and the focus will be on customer service. Choice "b" is incorrect. In the integrated enterprise stage of supply chain management, the firm's management will move away from simple consolidation of its operations to an internally-integrated supply chain, which all work together towards the main business issue of the cost of customer service. Choice "c" is incorrect. In the extended supply chain stage of supply chain management, integration moves external to the firm to involve those outside the firm who are able to work as a unified team in an attempt to obtain slow, profitable growth. Choice "d" is incorrect. In the supply chain communities stage of supply chain management, the extended supply chain forms a single competitive entity with a synchronized supply chain and a complex system of networks.

Question 9

Initially the nominal interest rate is 8 percent and the inflation rate is 6 percent. One year later, the
nominal interest rate rises to 12 percent while the inflation rate rises to 10 percent. It follows that
the real rate of interest:

Accepted Answer

A

Explanation: Choice "a" is correct. The real interest rate equals the nominal interest rate minus the inflation rate. Thus, the real interest rate in the first year is: real interest rate = 8 − 6 = 2 and the real interest rate in the next year is: real interest rate = 12 − 10 = 2.

Question 10

Which of the following ratios is appropriate for the evaluation of accounts receivable?

Accepted Answer

A

Explanation: Choice "a" is correct. Among the ratios listed, the ratio that is appropriate for the evaluation of accounts receivable is the number of days sales are outstanding. Sales are related to accounts receivable, so the more days the sales are outstanding, the longer the receivables are outstanding. Choice "b" is incorrect. Return on total assets is not appropriate for the evaluation of accounts receivable. It is appropriate for the evaluation of return and of total assets, but not for the evaluation of account receivable specifically. Choice "c" is incorrect. The collection to debt ratio has nothing to do with the evaluation of accounts receivable. Choice "d" is incorrect. The current ratio is appropriate for the evaluation of liquidity (one of the ways to evaluate liquidity) but has nothing to do with the evaluation of accounts receivable, other than that accounts receivable is in the numerator of the current ratio.

Question 11

Investment managers develop portfolios of different investments to combine, offset, and thereby
reduce overall risk. Not all risks can be eliminated by development of a portfolio. Risks that cannot
be eliminated through a portfolio are called:

Accepted Answer

D

Explanation: Rule: Portfolio theory is concerned with construction of an investment portfolio that efficiently balances its risk with its rate of return. Risk is often reduced by diversification, the process of mixing investments of different or offsetting risks. The broad categories of risk are summarized in the following mnemonic to get us DUNS. Diversifiable Unsystematic (non market/firm-specific) Non-diversifiable Systematic (market) Choice "d" is correct. Non-diversifiable risk cannot be eliminated by the application of portfolio theory. Non-diversifiable risk is also referred to as systematic risk. (DUNS) Choice "a" is incorrect. Diversifiable risk can be eliminated through effective application of portfolio theory. Diversifiable risks are also termed non-market risk. Choice "b" is incorrect. Diversifiable risk can be eliminated through effective application of portfolio theory. Diversifiable risks are also termed unsystematic risk. Choice "c" is incorrect. Diversifiable risk can be eliminated through effective application of portfolio theory. Diversifiable risks are also termed firm-specific risk.

Question 12

A divisional manager receives a bonus based on 20% of the residual income from the division. The
results of the division include: Divisional revenues, $1,000,000; divisional expenses, $500,000;
divisional assets, $2,000,000; and the required rate of return is 15%. What amount represents the
manager's bonus?

Accepted Answer

D

Explanation: Choice "d" is correct as shown in the computation below: https://kxbjsyuhceggsyvxdkof.supabase.co/storage/v1/object/public/file-images/AICPA_CPA-Business/page_167_img_1.jpg Choice "a" is incorrect. The amount of the residual income itself is not the amount of the bonus. Choice "b" is incorrect. The difference between revenues (before consideration of divisional expenses) and the hurdle amount is not residual income. The bonus would be improperly calculated if residual income were to be inflated by divisional expenses as suggested by this answer. Choice "c" is incorrect. The difference between the hurdle amount and the residual income ($100,000) is not the bonus amount.

Question 13

The basic objective of the residual income approach of performance measurement and evaluation is to have a division maximize its:

Accepted Answer

D

Explanation: Choice "d" is correct. Residual income is defined as income in excess of a desired minimum return. Choices "a" and "b" are incorrect, as residual income is not a "rate" of return; it is a dollar amount. Choice "c" is incorrect, as residual income is an accrual method.

Question 14

The Frame Supply Company has just acquired a large account and needs to increase its working
capital by $100,000. The controller of the company has identified a source of funds which is given
below:
Pay a factor to buy the company's receivables, which average $125,000 per month and have an
average collection period of 30 days. The factor will advance up to 80 percent of the face value of
receivables at 10 percent and charge a fee of 2 percent on all receivables purchaseD. The controller
estimates that the firm would save $24,000 in collection expenses over the year. Assume the fee and
interest are not deductible in advance.
Assume a 360-day year in all of your calculations.
The cost of factoring is:

Accepted Answer

C

Explanation: Choice "c" is correct. https://kxbjsyuhceggsyvxdkof.supabase.co/storage/v1/object/public/file-images/AICPA_CPA-Business/page_193_img_1.jpg

Question 15

Strategic planning activities normally involve which of the following efforts:

Accepted Answer

D

Explanation: Choice "d" is correct. Strategic planning activities are normally acknowledged to include each of three operations including: I. Strategic positioning. Strategic positioning includes the process of identifying mission, identifying overall strategy, identifying factors critical to succeeding given the assumed strategy and identifying internal and external factors that contribute or detract from achieving the strategy. II. Value chain analysis. Value chain analysis includes the process of identifying the functional characteristics of an organization and the manner in which each one of those functions adds value to the firm's customers. III. Balanced scorecard development. Development of a balanced scorecard identifies measurements of value that are both financial and non-financial to be used to monitor and evaluate performance. Choice "a" is incorrect. All three activities are integral to strategic planning. Choice "b" is incorrect. All three activities are integral to strategic planning. Choice "c" is incorrect. All three activities are integral to strategic planning.

Free AICPA CPA-Business Actual Exam Questions