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AICPA Exam CPA-Business Topic 1 Question 36 Discussion
Actual exam question for
AICPA's
CPA Business Environment and Concepts exam
Question #: 36
Topic #: 1
[All CPA Business Environment and Concepts Questions]
Topic #: 1
MFC Corporation has 100,000 shares of stock outstanding. Below is part of MFC's Statement of Financial Position for the last fiscal year.
What is the maximum amount MFC can pay in cash dividends per share and maintain a minimum current ratio of 2 to 1? Assume that all accounts other than cash remain unchanged.
Suggested Answer:
B
Choice 'b' is correct. The current ratio is found by dividing current assets by current liabilities. Presently current assets are:
Because current liabilities must be two times current liabilities, the current assets cannot go below $1,800,000. Thus current assets can go down:
On a per share basis this is $250,000 / 100,000 shares or $2.50 per share.
Choices 'a', 'c', and 'd' are incorrect, per the above calculation.
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