Discuss AICPA CPA-Business Exam Topic 1 Question 56

Return on assets:

AIs a measure of profitability and indicates how much is left of each sales dollar to cover operating expenses and profit.

BIs a profitability measure and can be used to evaluate the efficiency of asset usage and management, and the effectiveness of business strategies to create profits.

CMeasures the amount of operating income earned above the imputed cost of capital for the operating unit. If the measure is positive, returns exceed the cost of financing the operating unit.

DMeasures asset activity and the ability of the firm to generate sales through the use of assets.
Generally, the more sales dollars generated per dollar of assets used, the better the net income of an entity.

Suggested Answer: B

Choice 'b' is correct. Return on assets is a profitability measure and can be used to evaluate the efficiency of asset usage and management, and the effectiveness of business strategies to create profits.

Choice 'a' is incorrect. This option defines gross profit margin.

Choice 'c' is incorrect. This option defines residual income.

Choice 'd' is incorrect. This option defines total asset turnover.

Get Premium CPA-Business Questions as Interactive Web-Based Practice Test or PDF Real Exam Format Detailed Explanations Instant Access Get Your Practice Test

12 comments · newest first

Penney 11 months ago

I thought A was more about sales than just profit.

Rebbeca 11 months ago

Wait, is D really the best indicator of success?

Shalon 12 months ago

C seems a bit complex for a basic measure.

Graciela 12 months ago

Totally agree, B really highlights efficiency!

Vicki 12 months ago

A is all about profitability, right?

Lou 1 year ago

I recall that return on assets relates to sales generation, so option D might be relevant, but I'm not entirely confident.

Antonio 1 year ago

I’m a bit confused about option C; I thought it was more about profitability rather than just the cost of capital.

Mira 1 year ago

I think option B sounds familiar because we discussed how it evaluates both asset usage and business strategies in class.

Larae 1 year ago

I remember studying that return on assets is about how efficiently a company uses its assets, but I'm not sure if that's the main focus of the question.

Belen 1 year ago

Hmm, I'm a bit unsure about this one. The phrase "automatically consent" makes me think it's some kind of adhesion contract, but I want to make sure I understand the differences between the options before answering.

Nidia 1 year ago

Validation testing phases... I'm a little fuzzy on the details. I'll have to review my study materials and try to eliminate the options that don't fit.

Emmanuel 1 year ago

Participants' time away from their jobs definitely seems expensive, but I'm uncertain if that plays a big role in how we regard training costs overall.

AICPA CPA-Business Exam - Topic 1 Question 56 Discussion