CPA Business Environment and Concepts - BEC Exam Practice Test

Question 1

Which of the following statements is correct with respect to a limited partnership?

A. A general partner may not also be a limited partner at the same time.

B. A limited partnership can be formed with limited liability for all partners.

C. A general partner may be a secured creditor of the limited partnership.

D. A limited partner may not be an unsecured creditor of the limited partnership.

Correct Answer: C

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Question 2

The internal rate of return is the:

A. Risk-adjusted rate of return.

B. Rate of interest that equates the present value of cash outflows and the present value of cash inflows.

C. Required rate of return.

D. Weighted average rate of return generated by internal funds.

Correct Answer: B

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Question 3

Which one of the following statements is most correct if a seller extends credit to a purchaser for a period
of time longer than the purchaser's operating cycle? The seller:

A. Has no need for a stated discount rate or credit period.

B. Is, in effect, financing the purchaser's long-term assets.

C. Will have a lower level of accounts receivable than those companies whose credit period is shorter
than the purchaser's operating cycle.

D. Is, in effect, financing more than just the purchaser's inventory needs.

Correct Answer: D

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Question 4

The net present value (NPV) of a project has been calculated to be $215,000. Which one of the following
changes in assumptions would decrease the NPV?

A. Extend the project life and associated cash inflows.

B. Increase the discount rate.

C. Increase the estimated salvage value.

D. Decrease the estimated effective income tax rate.

Correct Answer: B

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Question 5

If a product's demand is elastic and there is a decrease in price, the effect will be:

A. A decrease in total revenue.

B. An increase in total revenue.

C. No change in total revenue.

D. A decrease in total revenue and the demand curve shifts to the left.

Correct Answer: B

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Question 6

A vendor offered Wyatt Co. $25,000 compensation for losses resulting from faulty raw materials.
Alternately, a lawyer offered to represent Wyatt in a lawsuit against the vendor for a $12,000 retainer and
5 0% of any award over $35,000. Possible court awards with their associated probabilities are:

Compared to accepting the vendor's offer, the expected value for Wyatt to litigate the matter to verdict
provides a:

A. $38,000 gain.

B. $18,200 gain.

C. $4,000 loss.

D. $21,000 gain.

Correct Answer: C

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Question 7

An example of a carrying cost is:

A. Quantity discounts lost.

B. Disruption of production schedules.

C. Handling costs.

D. Obsolescence.

Correct Answer: D

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Question 8

The optimal capitalization for an organization usually can be determined by the:

A. Maximum degree of total leverage (DTL).

B. Maximum degree of financial leverage (DFL).

C. Intersection of the marginal cost of capital and the marginal efficiency of investment.

D. Lowest total weighted-average cost of capital (WACC).

Correct Answer: D

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Question 9

As a company becomes more conservative in its working capital policy, it would tend to have a (n):

A. Decrease in its acid-test ratio.

B. Increase in the ratio of current assets to units of output.

C. Decrease in its level of permanent working capital.

D. Increase in funds invested in common stock and a decrease in funds invested in marketable securities.

Correct Answer: B

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Question 10

Eller, Fort, and Owens do business as Venture Associates, a general partnership. Trent Corp. brought a
breach of contract suit against Venture and Eller individually. Trent won the suit and filed a judgment
against both Venture and Eller. Trent will generally be able to collect the judgment from:

A. Eller's personal assets only after partnership assets are exhausted.

B. The personal assets of Eller, Fort, and Owens only.

C. Partnership assets only.

D. Eller's personal assets only.

Correct Answer: A

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Question 11

The kinked demand curve is associated with:

A. The analysis of pure competition.

B. The analysis of oligopoly.

C. The analysis of agricultural markets.

D. The analysis of monopolistic competition.

Correct Answer: B

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Question 12

Which of the following statements is correct concerning liability when a partner in a general partnership
commits a tort while engaged in partnership business?

A. Each partner is jointly and severally liable.

B. The partner committing the tort is the only party liable.

C. Each partner is liable to pay an equal share of any judgment.

D. The partnership is the only party liable.

Correct Answer: A

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Question 13

A recession can be caused by:

A. An increase in aggregate demand.

B. A decrease in aggregate supply.

C. Both "b" and "c".

D. A decrease in aggregate demand.

Correct Answer: C

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Question 14

Managerial performance can be measured in many different ways including return on investment (ROI)
and residual income (RI). A good reason for using RI instead of ROI is that:

A. RI is well understood and often used in the financial press.

B. ROI does not take into consideration both the investment turnover ratio and return-on-sales
percentage.

C. Goal congruence is more likely to be promoted by using RI.

D. RI can be computed without regard to identifying an investment base.

Correct Answer: C

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Question 15

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

A. Marketing effectiveness.

B. Innovation of product lines.

C. Regulations and laws.

D. Competence of management.

Correct Answer: C

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AICPA CPA Business Environment and Concepts - BEC Exam Practice Test

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