AICPA CPA-Business CPA Exam Practice Test Instant Access

Question 1

A period during which real GDP is rising and unemployment is falling is called a(n):

ARecession.

BPeak.

CExpansion.

DTrough.

Answer : A

Choice 'c' is correct. During an expansion, real GDP is rising and unemployment is falling.

Choice 'a' is incorrect. A recession is when real GDP is falling NOT rising.

Choice 'b' is incorrect. A peak is the highest point of economic activity. It is the point where real GDP is at its highest level in the cycle and unemployment is at its lowest level in the cycle.

Choice 'd' is incorrect. A trough is the lowest level of economic activity. It is the point where real GDP is at its lowest level in the cycle and unemployment is at its highest level in the cycle.

Question 2

All of the following are components of the formula used to calculate gross domestic product, except:

AHousehold income.

BForeign net export spending.

CGovernment spending.

DGross investment.

Answer : A

Choice 'a' is correct. Gross domestic product (GDP) is calculated in two different ways. The first, which is the expenditure approach and can be used to answer this question, is the mnemonic GICE, or government purchases plus private domestic investment plus personal consumption expenditures plus net exports. Household income is the only one of the answers that is not included in this mnemonic.

Choice 'b' is incorrect. Foreign net export spending is included in the mnemonic (E) for GDP; although, it is called simply net exports in the mnemonic and not foreign net export spending.

Choice 'c' is incorrect. Government spending is included in the mnemonic (G) for GDP.

Choice 'd' is incorrect. Gross investment is included in the mnemonic (I) for GDP, although it is called private domestic investment in the mnemonic.

Question 3

A market with many independent firms, low barriers to entry, and product differentiation is best classified as:

AA natural monopoly.

BMonopolistic competition.

CAn oligopoly.

DPure competition.

Answer : B

Choice 'b' is correct. A market with many independent firms, low barriers to entry, and product differentiation is best classified as monopolistic competition. There are few barriers to entry and firms exert some influence over price in such a market. Best examples are brand name consumer products.

Choice 'a' is incorrect. A natural monopoly exists when economic and technical conditions permit only one efficient supplier.

Choice 'c' is incorrect. The presence of only one company indicates a monopoly; the presence of a few companies would indicate an oligopoly.

Choice 'd' is incorrect. Market conditions characterizing pure competition include homogeneous, not differentiated, products.

Factors Affecting Financial Modeling and Decision Making

Question 4

Kemple Cleaning Services is a newly established janitorial firm, and the owner is deciding which type of checking account to open. Kemple is planning to keep a $500 minimum balance in the account for emergencies and plans to write an average of 80 checks per month. The bank charges $10 per month plus a $0.10 per check charge for a standard business checking account with no minimum balance.

Kemple also has the option of a premium business checking account, which requires a $2,500 minimum balance but has no monthly fees or per check charges. If Kemple's cost of funds is 10 percent, which account should Kemple choose?

AStandard account, since the savings is $34 per year.

BPremium account, since the savings is $34 per year.

CStandard account, since the savings is $16 per year.

DPremium account, since the savings is $16 per year.

Answer : D

Choice 'd' is correct. The total cost for a standard account is:

Cost per year for premium is cost of the extra amount ($2,000) that Kemple must maintain in the account.

Total per year premium (10% $2,000) = $200

The premium account will save $16.

Choices 'a', 'b', and 'c' are incorrect, per the above calculation.

Question 5

Acorn Corp. wants to acquire the entire business of Trend Corp. Which of the following methods of business combination will best satisfy Acorn's objectives without requiring the approval of the shareholders of either corporation?

AA merger of Trend into Acorn, whereby Trend shareholders receive cash or Acorn shares.

BA sale of all the assets of Trend, outside the regular course of business, to Acorn, for cash.

CAn acquisition of all the shares of Trend through a compulsory share exchange for Acorn shares.

DA cash tender offer, whereby Acorn acquires at least 90% of Trend's shares, followed by a short-form merger of Trend into Acorn.

Answer : D

Choice 'd' is correct. A parent corporation owning 90% or more of a subsidiary may merge the subsidiary (short form merger) into the parent without the approval of the shareholders of either corporation or the approval of the subsidiary's board.

Choices 'a', 'b', and 'c' all require at least one of the corporations to follow the general procedure for fundamental corporate changes (i.e., board resolution notice, approval by majority shares, and filing).

Question 6

Which of the following is most likely to cause an increase in the amount of frictional unemployment in an economy?

AAn invention that renders an industry obsolete.

BA downturn in aggregate business activity.

CAn increase in the average age of the work force.

DA reduction in the average age of the work force.

Answer : D

Choice 'd' is correct. Younger workers tend to move between jobs more frequently.

Choice 'a' is incorrect. This would lead to structural unemployment.

Choice 'b' is incorrect. This would lead to cyclical unemployment.

Choice 'c' is incorrect. Older workers tend to be voluntarily between jobs less frequently than younger workers.

Question 7

Strategic planning activities normally involve which of the following efforts:

I Strategic Positioning.

II Value Chain Analysis.

III Balance Scorecard Development.

BI and II

CI and III

DI, II, and III

IStrategic 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.

Answer : D

Choice 'd' is correct. Strategic planning activities are normally acknowledged to include each of three operations including:

AICPA CPA-Business CPA Business Environment and Concepts CPA Exam Practice Test