AICPA CPA-Business Exam - Topic 2 Question 48 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 48
Topic #: 2

[All CPA-Business Questions]

As a company becomes more conservative in its working capital policy, it would tend to have a (n):

ADecrease in its acid-test ratio.

BIncrease in the ratio of current assets to units of output.

CIncrease in funds invested in common stock and a decrease in funds invested in marketable securities.

DDecrease in its level of permanent working capital.

Show Suggested Answer

Suggested Answer: B

Choice 'b' is correct. As a company becomes more conservative in its working capital policy, it would tend to have an increase in the ratio of current assets to units of output.

Choice 'a' is incorrect. Acid-test ratio would tend to increase with conservatism.

Choice 'c' is incorrect. Marketable securities investments would tend to increase while common stock investments would tend to decrease.

Choice 'd' is incorrect. Permanent working capital would tend to increase.

by Colette at May 07, 2022, 05:17 PM

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Lavonne

4 months ago

Totally agree with C! It's all about stability.

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Denny

4 months ago

A conservative policy usually means more cash reserves.

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Luz

4 months ago

Wait, how does being conservative lead to more common stock? Sounds off.

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Tambra

4 months ago

I think D could be a possibility too.

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Dana

5 months ago

Definitely going with option C. Makes sense!

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Novella

5 months ago

I'm a bit confused here. The question mentions a "rolemod" command, but none of the options seem to be related to that. I'll need to think this through more carefully.

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