AICPA Exam CPA-Business Topic 3 Question 55 Discussion

Actual exam question for AICPA's CPA Business Environment and Concepts exam

Question #: 55
Topic #: 3

[All CPA Business Environment and Concepts Questions]

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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