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Total 530 questions
AICPA CPA Business Environment and Concepts CPA-Business CPA Exam Practice Test
Question 1
When managing cash and short-term investments, a corporate treasurer is primarily concerned with:
Answer : D
Choice 'd' is correct. When managing cash and short-term investments, a corporate treasurer is primarily concerned with liquidity and safety.
Choice 'a' is incorrect. The board of directors and general management would be interested in maximizing rate of return on company operations.
Choices 'b' and 'c' are incorrect. The tax manager would be interested in minimizing taxes, and investing in common stock due to the dividend exclusion for federal income tax purposes.
Question 2
When the supply of and demand for a good both increase:
Answer : C
Choice 'c' is correct. When the supply of and demand for a good both increase, equilibrium quantity increases. However, the impact on price is indeterminate. If demand and supply increase by the same amount, price will remain unchanged (as illustrated above). However, if demand increases by more than supply, price will increase. Conversely, if supply increases by more than demand, price will decrease.
Choices 'a' and 'b' are incorrect, since the impact on price is indeterminate.
Choice 'd' is incorrect, since equilibrium quantity will increase.
Question 3
Which of the following provisions must a for-profit corporation include in its articles of incorporation to obtain a corporate charter?
I Provision for the authorization of voting stock.
II Name of the corporation.
Answer : C
Choice 'c' is correct. Both I and II.
Rule: In order to obtain a corporate charter, a for-profit corporation must include in its articles of incorporation the name of the corporation and a provision for the authorization of voting stock. In addition, the articles of incorporation must include the names of the incorporators and the name and address of the registered agent.
Choices 'a', 'b', and 'd' are incorrect, per the above rule.
Question 4
In order to increase production capacity, Gunning Industries is considering replacing an existing production machine with a new technologically improved machine effective January 1, 1997. The following information is being considered by Gunning Industries.
* The new machine would be purchased for $160,000 in cash. Shipping, installation, and testing would cost an additional $30,000.
* The new machine is expected to increase annual sales by 20,000 units at a sales price of $40 per unit. Incremental operating costs are comprised of $30 per unit in variable costs and total fixed costs of $40,000 per year.
* The investment in the new machine will require an immediate increase in working capital of $35,000.
* Gunning uses straight-line depreciation for financial reporting and tax reporting purposes. The new machine has an estimated useful life of five years and zero salvage value.
* Gunning is subject to a 40 percent corporate income tax rate.
Gunning uses the net present value method to analyze investments and will employ the following factors and rates.
The overall discounted cash flow impact of Gunning Industries' working capital investment for the new production machine would be:
Answer : C
Choice 'c' is correct. $(13,265) overall discounted cash flow impact of working capital investment.
Question 5
Which one of the following is not a characteristic of a negotiable certificate of deposit? Negotiable certificates of deposit:
Answer : D
Choice 'd' is correct. Negotiable CDs generally carry interest rates slightly lower than bankers' acceptances (which are drafts drawn on deposits at a bank) or commercial paper (which is unsecured debt issued by credit worthy customers).
Choice 'a' is incorrect. Negotiable CDs have a formal secondary market.
Choice 'b' is incorrect. Negotiable CDs are a product of the banking industry, which is regulated by the Federal Reserve Board.
Choice 'c' is incorrect. Negotiable CDs are usually sold in denominations of a minimum of $100,000.
Question 6
Which tool would most likely be used to determine the best course of action under conditions of uncertainty?
Answer : B
Choice 'b' is correct. Probability and expected value formulate quantitative models to address the issue of appropriate course of action in an environment of uncertainty. The expected value is a weighted average of all values and variables. The course of action with the highest expected monetary value should be selected.
Choice 'a' is incorrect. Cost-volume profit analysis is a method used to evaluate operating decisions.
Choice 'c' is incorrect. PERT is a technique used in project management that focuses on the time required to complete each step in a project. It allows a project manager to monitor a project's progress and identify potential bottlenecks or delays that will postpone the completion date.
Choice 'd' is incorrect. The scattergraph method is used in statistical analysis toplot relationships between variables to determine a line function that best describes those relationships.
Question 7
Davis, a director of Active Corp., is entitled to:
Answer : C
Choice 'c' is correct. As a director of the corporation Davis may rely on information provided to him/her by a corporate officer. A corporate director is under no obligation to verify information given to him by management (corporate officers).
Choice 'a' is incorrect. A director is not entitled to serve on the board of a competing business. Doing so would be a breach of fiduciary duty.
Choice 'b' is incorrect. A director may not take sole advantage of a business opportunity that would benefit the corporation. Doing so would be a breach of fiduciary duty.
Choice 'd' is incorrect. A director may not unilaterally grant a corporate loan to one of the corporation's shareholders. Directors generally must act through a majority vote at a directors' meeting.
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