CPA CPA Business Environment & Concepts 1

Question 1

Which economic concept describes the additional cost of producing one more unit of a good or service?

Accepted Answer

Marginal cost

Answer

Marginal cost is the incremental cost incurred when producing one additional unit of output.

Question 2

Under the COSO framework, which component addresses an entity's overall attitude toward risk?

Accepted Answer

Risk appetite

Answer

Risk appetite is the amount of risk an entity is willing to accept in pursuit of its strategic objectives, as defined within the COSO ERM framework.

Question 3

Which form of business organization provides limited liability to all owners while allowing pass-through taxation?

Accepted Answer

S Corporation

Answer

An S Corporation provides limited liability protection to shareholders while passing income and losses directly to shareholders' personal tax returns.

Question 4

In a perfectly competitive market, a firm's demand curve is best described as:

Accepted Answer

Perfectly elastic (horizontal)

Answer

In perfect competition, individual firms are price takers, so they face a perfectly elastic (horizontal) demand curve at the market price.

Question 5

Which concept states that a business is assumed to continue operating indefinitely unless there is evidence to the contrary?

Accepted Answer

Going concern

Answer

The going concern assumption holds that a business will continue to operate for the foreseeable future, justifying the use of historical cost accounting.

(CPA) Certified Practicing Accountant Practice Test

(CPA) Certified Practicing Accountant Practice Test

CPA CPA Business Environment & Concepts 1