CPA-BUSINESS Practice Questions

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.