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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Idella

3 months ago

Hmm, I wonder if they have a secret underground LLC voting power club. That would be the most interesting business club ever.

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Jarod

2 months ago

D) Each member's capital contribution.

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Lynelle

2 months ago

B) Each member's share of profits.

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Verda

2 months ago

D) Each member's capital contribution.

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Beatriz

2 months ago

A) Each member's salary.

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Lyndia

2 months ago

B) Each member's share of profits.

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Kayleigh

2 months ago

A) Each member's salary.

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Cordie

3 months ago

I bet the folks who wrote this question are real voting power enthusiasts. That's a niche interest if I've ever seen one!

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Sharika

3 months ago

D) makes sense to me. Tying voting power to capital contribution is a fair way to structure an LLC.

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Timothy

1 months ago

I agree, it seems like a logical way to determine voting power.

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Evangelina

1 months ago

D) Each member's capital contribution.

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Willow

1 months ago

B) Each member's share of profits.

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Nilsa

2 months ago

A) Each member's salary.

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Genevieve

3 months ago

I remember learning about this in my business law class. D) is definitely the right choice here.

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Ligia

3 months ago

Yes, that's correct. It's important for members to understand how their capital contribution affects their voting rights.

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Glenn

3 months ago

I agree, D) Each member's capital contribution is the key factor in determining voting power.

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Penney

3 months ago

I'm not sure, but I think it might also depend on when the member was admitted to the company.

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Elouise

3 months ago

I agree with Kyoko, it makes sense that the more capital you contribute, the more voting power you have.

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Fletcher

3 months ago

I was torn between B) and D), but I think D) is the correct answer. Voting power is usually tied to investment, not profits.

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Cathern

2 months ago

Definitely, it's important for members to have a say based on their financial commitment to the company.

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Jerilyn

2 months ago

That makes sense, it wouldn't be fair if voting power was based on profits instead of investment.

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Linwood

2 months ago

I agree, voting power is usually based on how much capital each member has invested.

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Fidelia

2 months ago

I think D) Each member's capital contribution is the correct answer.

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Kyoko

3 months ago

I think the voting power is determined by each member's capital contribution.

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Kiley

3 months ago

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

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