AICPA CPA-Business Exam - Topic 3 Question 55 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 55
Topic #: 3

Limitations of the information provided by total asset turnover include:

AA good measure for trend analysis of a particular company, but variable ways of calculating cost of goods sold limit its usefulness for comparative analysis.

BThe calculation can be affected by varying accounting assumptions, which affect the calculation of net income.

CBecause of differing costs of capital, the measure cannot be effectively used for comparative analysis.

DWhen making the calculation, total assets may need to be refined by the elimination of assets that do not relate to sales as the inclusion of these items could distort the measure.

Show Suggested Answer

Suggested Answer: D

Choice 'd' is correct. When calculating the turnover, total assets may need to be refined by the elimination of assets that do not relate to sales as the inclusion of these items could distort the measure.

Choice 'a' is incorrect. This option pertains to gross profit margin.

Choice 'b' is incorrect. This option pertains to return on the investment in assets.

Choice 'c' is incorrect. This option pertains to residual income.

by Mirta at Jul 27, 2022, 11:44 PM

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Dion

4 months ago

Just a reminder that total asset turnover is all about efficiency in using assets!

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Georgeanna

4 months ago

Wait, D says we need to refine total assets? That sounds complicated!

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Antonette

4 months ago

C seems a bit off to me. Costs of capital shouldn't affect turnover directly.

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Alba

4 months ago

Totally agree with B! Accounting assumptions really mess with net income.

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Aileen

4 months ago

A is spot on! Trend analysis is useful, but those calculations can get tricky.

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Portia

5 months ago

I'm not entirely sure, but I feel like option D makes sense since excluding unrelated assets could give a clearer picture of asset efficiency.

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Ira

5 months ago

I think option B sounds right because accounting assumptions can really skew net income, which affects the turnover ratio.

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Jamal

5 months ago

I remember discussing how total asset turnover can be misleading for comparative analysis due to different ways of calculating COGS.

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Julio

5 months ago

I vaguely recall a practice question about how varying costs of capital impact financial ratios, but I’m not confident it applies here.

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Arthur

5 months ago

Hmm, I'm a bit stumped on this one. All the options sound like they could be involved in cloud services in some way. I'll have to use the process of elimination to try to narrow it down.

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Ernest

5 months ago

The key is recognizing that the question is asking about the risk or danger that still exists even when all safety measures are in place. "Residual risk" seems like the most appropriate phrase to fill in the blank.

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