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AICPA Exam CPA-Business Topic 2 Question 46 Discussion
Actual exam question for
AICPA's
CPA Business Environment and Concepts exam
Question #: 46
Topic #: 2
[All CPA Business Environment and Concepts Questions]
Topic #: 2
The working capital financing policy that subjects the firm to the greatest risk of being unable to meet the firm's maturing obligations is the policy that finances:
Suggested Answer:
C
Choice 'c' is correct. The working capital financing policy that finances permanent current assets with short-term debt subjects the firm to the greatest risk of being unable to meet the firm's maturing obligations.
Choices 'a' and 'b' are incorrect because the use of long-term debt financing produces the smallest risk of being unable to meet maturing obligations.
Choice 'd' is incorrect because, although financing fluctuating current assets with short-term debt exposes the firm to some risk, it is not the greatest or the smallest.
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