AICPA CPA-Business Exam - Topic 3 Question 57 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 57
Topic #: 3

[All CPA-Business Questions]

Which one of the following would increase the working capital of a firm?

APurchase of a new plant financed by a 20-year mortgage.

BCash collection of accounts receivable.

CPayment of a 20-year mortgage payable with cash.

DRefinancing a short-term note payable with a two-year note payable.

Show Suggested Answer

Suggested Answer: D

Choice 'd' is correct. Refinancing a short-term note payable with a two-year note payable would increase the working capital of a firm.

Choice 'a' is incorrect. The purchase of a new plant (fixed asset) financed by a 20-year mortgage (longterm debt with a one-year current portion) would reduce working capital because current liabilities would be increased.

Choice 'b' is incorrect. The cash collection of accounts receivable has no effect on working capital-cash increases by the amount that A/R decreases.

Choice 'c' is incorrect. The payment of a 20-year mortgage payable (long-term debt) would reduce cash and have no effect on current liabilities, thereby reducing working capital.

by Ozell at Aug 19, 2022, 06:38 AM

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Hailey

4 months ago

C just drains cash, not a good move for working capital.

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Laquanda

4 months ago

Totally agree with B! Cash flow is king!

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Dorothy

4 months ago

Wait, how does D even affect working capital? Seems off to me.

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Miesha

4 months ago

I think A could also help in the long run, but not immediately.

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Danica

4 months ago

B is definitely the right answer! Cash collection boosts working capital.

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Santos

5 months ago

The mortgage payment seems tricky; I feel like it might decrease working capital, but I can't recall the exact details.

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Kathrine

5 months ago

I practiced a similar question where cash inflows were emphasized, so I feel confident that option B is the right choice here.

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Milly

5 months ago

I'm not entirely sure, but I remember something about refinancing notes not really affecting working capital.

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Holley

5 months ago

I think cash collection of accounts receivable would definitely increase working capital since it boosts cash flow.

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Tonette

5 months ago

Hmm, I'm a bit unsure about this one. I'll have to think it through carefully before selecting an answer.

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Chu

5 months ago

I remember something about related parties involving key management, so maybe option C is correct?

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Blondell

5 months ago

I don't think the tester really needs to deeply understand the device's functionality. As long as we can test the key use cases, that should be enough, right?

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Howard

5 months ago

Hmm, I'm not totally sure about this one. I know risks should be transferred if possible, but I'm not familiar with the specific terms "hold-harmless contract clause" and "waiver of subrogation." I'll have to think this through carefully.

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Hoa

5 months ago

Hmm... methods seems logical too. Training is about how you do something, right? Could be a method-related issue.

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Dorthy

5 months ago

I remember studying the 7010 model and its features, but did it specifically mention airflow options?

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