AICPA Exam CPA-Business Topic 2 Question 93 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 93
Topic #: 2

Unless there is an agreement to the contrary, the voting power of members in a limited liability company is determined by:

AEach member's salary.

BEach member's share of profits.

CWhen the member was admitted to the company.

DEach member's capital contribution.

Show Suggested Answer

Suggested Answer: A

Choice 'a' is correct. 7.0 percent cost of funds from retained earnings.

The cost of retained earnings is equal to the rate of return required by the firm's common shareholders (or, in effect, the return 'lost' by them when the firm chooses to fund with retained earnings). While oftentimes this rate is somewhat subjective, we are given the facts to exactly answer the question in this case. The stock is currently selling for $100/share, and the dividend is given at $7/share.

$7 / $100 = 7%

Choices 'b', 'c', and 'd' are incorrect, per the above Explanation:/calculation.

by Elinore at Jul 13, 2024, 02:02 PM

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25%

10 days ago

D) Each member's capital contribution seems like the most logical option. It's a common practice in LLCs.

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