AICPA CPA-Business Exam - 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

Karrie

4 months ago

I calculated it too, but I got $600,000.

upvoted 0 times

...

Carmen

5 months ago

Wait, can a system really save that much?

upvoted 0 times

...

Nieves

5 months ago

That sounds about right, I agree!

upvoted 0 times

...

Brande

5 months ago

I think the answer is $1,500,000.

upvoted 0 times

...

Antonio

5 months ago

The cash outflow is $3 million daily.

upvoted 0 times

...

Arlean

5 months ago

I feel like the answer might be around $600,000, but I’m not completely confident. I just hope I remember the calculations correctly!

upvoted 0 times

...

Tula

6 months ago

I think we practiced something similar where we had to calculate the annual benefit from a cash management system. If I recall correctly, it was about maximizing the cash on hand.

upvoted 0 times

...

Samira

6 months ago

I’m a bit unsure about the exact formula we used for this type of question. Was it just the cash outflow multiplied by the interest rate and the number of days?

upvoted 0 times

...

Cherelle

6 months ago

I remember we calculated the opportunity cost of delaying cash outflows in class. I think we need to find the interest earned on the cash for those extra days.

upvoted 0 times

...

Maryrose

6 months ago

This seems straightforward enough. I just need to make sure I understand the information provided and apply the right formulas.

upvoted 0 times

...

Junita

6 months ago

I've seen similar problems before, so I think I can handle this. The key is to focus on the time value of money and the interest earned on the excess funds.

upvoted 0 times

...

Nicolette

6 months ago

Hmm, I'm a bit unsure about this one. I'll need to think through the calculations carefully to make sure I don't miss anything.

upvoted 0 times

...

Emmanuel

6 months ago

Okay, this looks like a cash management problem. I'll need to figure out the impact of the two-day change in the disbursement schedule and then calculate the potential savings.

upvoted 0 times

...

Jordan

11 months ago

Ooh, this one's a real cash cow! I'm thinking C) $600,000 is the way to go. That's a pretty sweet deal if you ask me.

upvoted 0 times

Zena

10 months ago

Yeah, it's a smart move to improve cash flow and earn more on excess funds.

upvoted 0 times

...

Billye

10 months ago

I think so too. It would definitely be worth it in the long run.

upvoted 0 times

...

Carole

10 months ago

I agree, C) $600,000 seems like a reasonable investment for the cash management system.

upvoted 0 times

...

Mike

11 months ago

Haha, I bet the guys at Evans are feeling like a million bucks with this new cash management system! I'm gonna go with A) $3,000,000 just to be safe.

upvoted 0 times

Olive

10 months ago

Definitely, it's better to be safe with that amount.

upvoted 0 times

...

Raymon

10 months ago

Yeah, that seems like the safest bet.

upvoted 0 times

...

Ryann

11 months ago

I think A) $3,000,000 sounds like a good choice.

upvoted 0 times

...

Malcolm

12 months 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 months 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

Katlyn

11 months ago

User 2: Yeah, saving $150,000 per year sounds like a good deal.

upvoted 0 times

...

Clarinda

11 months ago

User 1: I think the answer is D) $150,000.

upvoted 0 times

...

Chantay

12 months 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

12 months 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

1 year 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