AICPA Business Environment and Concepts 2

Question 1

A company's current ratio is 2.5 and its quick ratio is 1.1. Which conclusion is most supported?

Accepted Answer

The company has significant inventory relative to current assets

Answer

A large gap between current ratio and quick ratio indicates substantial inventory in current assets, since quick ratio excludes inventory.

Question 2

Under COSO's Enterprise Risk Management framework, which component involves identifying potential events that could affect the entity?

Accepted Answer

Event identification

Answer

Event identification is the COSO ERM component focused on identifying internal and external events that may affect the entity's objectives.

Question 3

Which type of organizational structure groups employees by function such as marketing, finance, and operations?

Accepted Answer

Functional structure

Answer

A functional structure organizes employees into departments based on their specialized roles or functions within the organization.

Question 4

In a make-or-buy decision, which cost is most relevant to the analysis?

Accepted Answer

Incremental variable costs of manufacturing

Answer

Incremental variable costs are relevant because they change depending on whether the product is made internally or purchased externally.

Question 5

A firm has operating leverage of 4. If sales increase by 10%, operating income will increase by approximately:

Accepted Answer

40%

Answer

Operating leverage multiplies the percentage change in sales by the degree of operating leverage: 10% × 4 = 40%.

(AICPA) American Institute of Certified Public Accountants Practice Test