AICPA CPA Business Environment and Concepts - BEC Exam Practice Test
Carlisle Company presently sells 400,000 bottles of perfume each year. Each bottle costs $.84 to produce
and sells for $1.00. Fixed costs are $28,000 per year. The firm has annual interest expense of $6,000,
preferred stock dividends of $2,000 per year, and a 40 percent tax rate. Carlisle uses the following
formulas to determine the company's leverage.
The degree of financial leverage for Carlisle Company is:
and sells for $1.00. Fixed costs are $28,000 per year. The firm has annual interest expense of $6,000,
preferred stock dividends of $2,000 per year, and a 40 percent tax rate. Carlisle uses the following
formulas to determine the company's leverage.
The degree of financial leverage for Carlisle Company is:
Correct Answer: B
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In a competitive market, an increase in the minimum wage will likely have the following effects:
Correct Answer: C
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With respect to price elasticity of demand:
Correct Answer: B
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Which one of the following is not a key assumption of perfect competition?
Correct Answer: C
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Heather, Erika, and Shelby are members in HES LLC. Heather works 40 hours per week and Erika and
Shelby work 20 hours per week. Heather contributed $30,000 to the LLC and Erika and Shelby
contributed $60,000 each. Erika and Shelby have each originated 45% of the LLC's business and Heather
has originated the other 10%.
If HES were a general partnership, who controls management?
Shelby work 20 hours per week. Heather contributed $30,000 to the LLC and Erika and Shelby
contributed $60,000 each. Erika and Shelby have each originated 45% of the LLC's business and Heather
has originated the other 10%.
If HES were a general partnership, who controls management?
Correct Answer: A
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An increase in government spending will tend to cause:
Correct Answer: C
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A company with $4.8 million in credit sales per year plans to relax its credit standards, projecting that this
will increase credit sales by $720,000. The company's average collection period for new customers is
expected to be 75 days; and the payment behavior of the existing customers is not expected to change.
Variable costs are 80 percent of sales. The firm's opportunity cost is 20 percent before taxes. Assuming a
3 60-day year, what is the company's benefit (loss) on the planned change in credit terms?
will increase credit sales by $720,000. The company's average collection period for new customers is
expected to be 75 days; and the payment behavior of the existing customers is not expected to change.
Variable costs are 80 percent of sales. The firm's opportunity cost is 20 percent before taxes. Assuming a
3 60-day year, what is the company's benefit (loss) on the planned change in credit terms?
Correct Answer: B
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CyberAge outlet, a relatively new store, is a cafe that offers customers the opportunity to browse the
Internet or play computer games at their tables while they drink coffee. The customer pays a fee based on
the amount of time spent signed on to the computer. The store also sells books, tee shirts, and computer
accessories. CyberAge has been paying all of its bills on the last day of the payment period, thus forfeiting
all supplier discounts. Shown below are data on CyberAge's two major vendors, including average
monthly purchases and credit terms.
Assuming a 360-day year and that CyberAge continues paying on the last day of the credit period, the
company's weighted annual interest rate for trade credit (ignoring the effects of compounding) for these
two vendors is:
Internet or play computer games at their tables while they drink coffee. The customer pays a fee based on
the amount of time spent signed on to the computer. The store also sells books, tee shirts, and computer
accessories. CyberAge has been paying all of its bills on the last day of the payment period, thus forfeiting
all supplier discounts. Shown below are data on CyberAge's two major vendors, including average
monthly purchases and credit terms.
Assuming a 360-day year and that CyberAge continues paying on the last day of the credit period, the
company's weighted annual interest rate for trade credit (ignoring the effects of compounding) for these
two vendors is:
Correct Answer: B
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A company uses the following formula in determining its optimal level of cash.
Where: b = Fixed cost per transaction i = Interest rate on marketable securities T = Total demand for cash
over a period of time
This formula is a modification of the Economic Order Quantity (EOQ) formula used for inventory
management. Assume that the fixed cost of selling marketable securities is $10 per transaction, and the
interest rate on marketable securities is 6 percent per year. The company estimates that it will make cash
payments of $12,000 over a one-month perioD. What is the average cash balance (rounded to the
nearest dollar)?
Where: b = Fixed cost per transaction i = Interest rate on marketable securities T = Total demand for cash
over a period of time
This formula is a modification of the Economic Order Quantity (EOQ) formula used for inventory
management. Assume that the fixed cost of selling marketable securities is $10 per transaction, and the
interest rate on marketable securities is 6 percent per year. The company estimates that it will make cash
payments of $12,000 over a one-month perioD. What is the average cash balance (rounded to the
nearest dollar)?
Correct Answer: D
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Which of the following statements is correct regarding the division of profits in a general partnership when
the written partnership agreement only provides that losses be divided equally among the partners?
Profits are to be divided:
the written partnership agreement only provides that losses be divided equally among the partners?
Profits are to be divided:
Correct Answer: D
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A parent corporation owned more than 90% of each class of the outstanding stock issued by a subsidiary
corporation and decided to merge that subsidiary into itself. Under the Revised Model Business
Corporation Act, which of the following actions must be taken?
corporation and decided to merge that subsidiary into itself. Under the Revised Model Business
Corporation Act, which of the following actions must be taken?
Correct Answer: C
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The following table contains Emerald Corp.'s quarterly revenues, in thousands, for the past three years.
During that time, there were no major changes to Emerald's selling strategies and total capital investment.
Which of the following statements best describes the likely cause of the fluctuations in Emerald's
revenues and the best response to those fluctuations?
During that time, there were no major changes to Emerald's selling strategies and total capital investment.
Which of the following statements best describes the likely cause of the fluctuations in Emerald's
revenues and the best response to those fluctuations?
Correct Answer: A
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To which of the following rights is a stockholder of a public corporation entitled?
Correct Answer: D
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Which of the following partners of a limited liability partnership (LLP) may avoid personal liability when a
partner commits a negligent act?
partner commits a negligent act?
Correct Answer: C
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A characteristic of the payback method (before taxes) is that it:
Correct Answer: B
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