AICPA Exam CPA-Business Topic 2 Question 103 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 103
Topic #: 2

Average daily cash outflows are $3 million for Evans Inc. A new cash management system can add two days to the disbursement schedule. Assuming Evans earns 10 percent on excess funds, how much should the firm be willing to pay per year for this cash management system?

A$3,000,000

B$1,500,000

C$600,000

D$150,000

Show Suggested Answer

Suggested Answer: B

Choice 'b' is correct. Whenever accounts receivable (AR) are decreasing when sales are increasing (and the decrease in AR is not due to an increase in bad debt write offs), this would indicate that the average collection period for AR has decreased.

Choices 'a', 'c', and 'd' are incorrect. There is insufficient information in the question to draw conclusions about these items.

by Rosalind at Nov 17, 2024, 01:20 AM

Limited Time Offer

25%

Off

Get Premium CPA-Business Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Malcolm

10 days ago

I'm not sure. I think the answer might be A) $3,000,000. Can someone explain the rationale behind choosing C) $600,000?

upvoted 0 times

...

Valene

12 days ago

I'm pretty sure the answer is D) $150,000. I mean, who wouldn't want to save $150,000 per year? That's a steal!

upvoted 0 times

...

Chantay

13 days ago

Wow, this is a tricky one. I'm going to go with B) $1,500,000 since that seems like a reasonable amount for a new cash management system.

upvoted 0 times

...

Stephanie

13 days ago

I agree with Dylan. The firm should be willing to pay $600,000 for the cash management system because it can earn 10 percent on excess funds.

upvoted 0 times

...

Frederica

15 days ago

Hmm, I think the correct answer is C) $600,000. Adding two days to the disbursement schedule would save Evans $3 million x 2 days = $6 million per year, and with a 10% return, that's $600,000 in savings.

upvoted 0 times

...

Dylan

17 days ago

I think the answer is C) $600,000.

upvoted 0 times

...