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Practice Test 7 - CPA Bar

20 questions. Answer them in any order, then submit to see your score and every explanation.

  1. A private pharmaceutical distributor is worried about meeting near-term obligations without relying on inventory sales. Selected year-end data (in millions): Cash 6, Accounts receivable 24, Inventory 50, Total current assets 80; Current liabilities 60. Quick ratio is (6+24)/60=0.50(6+24)/60 = 0.50; industry benchmark is 1.10. Based on the financial data, what does the quick ratio indicate about the company's liquidity?
  2. A retail chain allocates regional distribution center overhead to stores. The distribution center's workload is driven primarily by the number of deliveries made to each store rather than the dollar value of goods. Based on the scenario, which allocation basis is most appropriate?
  3. A finance director finds a dashboard with 35 real-time KPIs difficult to use because it is hard to identify which metrics require immediate attention. Which design improvement is most appropriate?
  4. A nonprofit organization is preparing a grant report and must classify costs as direct program costs versus indirect (support) costs. Program counselors are paid hourly and work exclusively with program participants, while the accounting department supports all programs. What is the correct classification of the counselors' wages for the grant report?
  5. A company's revenue per salesperson improved from $1,200,000 to $1,600,000 over two years. During the same period, the sales force was reduced by 25%. Which additional analysis is most important before concluding productivity improved?
  6. A manufacturing company, SilverLine Batteries, uses standard costing and reports monthly variances. In February, actual operating income was $520,000 versus budgeted $560,000. The variance summary shows: materials price variance $28,000 unfavorable; materials quantity variance $6,000 unfavorable; labor rate variance $4,000 favorable; labor efficiency variance $9,000 unfavorable; fixed overhead budget variance $3,000 unfavorable. Management wants to focus on the single variance with the greatest negative impact on profitability. Which variance indicates the greatest impact on profitability?
  7. A retail company has a P/E ratio of 28x while the industry average is 16x. Which of the following most appropriately interprets the premium valuation?
  8. A project requires an initial investment of $240,000 and generates cash flows of $60,000 (Year 1), $90,000 (Year 2), $80,000 (Year 3), and $70,000 (Year 4). What is the payback period?
  9. In the COSO ERM framework, which risk response strategy involves transferring risk exposure to another party through mechanisms such as insurance or a joint venture arrangement?
  10. A public manufacturing company is experiencing delayed customer collections and tighter supplier terms. Selected year-end data (in millions): Balance sheet excerpt—Cash 18, Accounts receivable 52, Inventory 80, Other current assets 10, Total current assets 160; Accounts payable 70, Accrued expenses 20, Short-term notes payable 30, Total current liabilities 120. Income statement excerpt—Net sales 520, Cost of goods sold 360, Operating income 48, Interest expense 12, Net income 24. Management calculated a current ratio of 160/120 = 1.33 and notes the industry benchmark is 1.80. Based on the financial data, what does the current ratio indicate about the company's liquidity?
  11. Which statement best describes the relationship between gross margin and operating margin?
  12. A company needs to analyze five years of sales transaction data, customer demographics, and product categories for ad hoc reporting and trend analysis. Which data storage solution is most appropriate?
  13. A company has a capital budget of $1,000,000 and three independent projects: Project A (investment $400,000, NPV $120,000, PI 1.30), Project B (investment $600,000, NPV $180,000, PI 1.30), Project C (investment $500,000, NPV $100,000, PI 1.20). Under capital rationing, which combination maximizes total NPV within the budget?
  14. Under ASC 280, which of the following is required as entity-wide information regardless of how operating segments are organized?
  15. Riverdale Co. uses process costing (weighted-average method). During the period, 18,000 units were completed and transferred out. Ending WIP consists of 4,000 units that are 50% complete for conversion costs. What are the equivalent units of production for conversion costs?
  16. Which of the following formulas correctly calculates the direct materials price variance?
  17. Lakeview Company reports sales of $500,000, variable costs of $300,000, and fixed costs of $120,000. What is the contribution margin ratio?
  18. Management uses a risk heat map to visually represent the results of its risk assessment. Where on the map would a risk be placed if it is deemed to have a very low probability of occurring but would result in a moderate financial loss if it did?
  19. A company's GAAP report shows operating income of $2,100,000 while the management (non-GAAP) report for the same period shows $3,400,000. Which analytical consideration is most important?
  20. A private automotive parts supplier is concerned about meeting payroll and vendor payments without relying on inventory sales. Selected year-end data (in millions): Cash 4, Accounts receivable 16, Inventory 40, Other current assets 5; Current liabilities 35. Quick ratio is (4+16)/35=0.57(4+16)/35 = 0.57; industry benchmark is 0.80. Based on the financial data, what does the quick ratio indicate about the company's liquidity?

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