AICPA CPA-Business Exam Dumps

Choice 'b' is correct. Default risk is the risk that the security will not be repaid because the issuing entity is insolvent or illiquid. U.S. Treasury securities are issued by the Treasury Department, which has virtually no risk of being insolvent or illiquid.

Choice 'a' is incorrect. Securities issued by certain federal government agencies carry slightly more default risk than U.S. treasuries because these agencies are (usually) not as large or liquid as the U.S. Treasury.

Choice 'c' is incorrect. Repurchase agreements are sales by dealers in government securities who agree to repurchase these securities at a specific time and price. The risk of default is high because it is based upon the ability of the dealer to repurchase the securities.

Choice 'd' is incorrect. Bankers' acceptances are drafts drawn on a bank, which guarantees payment at maturity. The default risk is higher because the execution of the acceptance is based upon the solvency of the bank.

Choice 'c' is correct. This question is a compound interest question because the interest is to be determined at the end of the second year. The calculation is as follows and uses different symbols than the SI = PIN formula in the text to show candidates the PRT formula as well (the CPA exam often uses different terminology):

Interest = PRT (for the first year)

Interest = $1,000 x .08 x 1 = $800 and adding the $800 to the beginning principal

Interest = PRT (for the second year)

Interest = $1,800 x .08 x 1 = $864

It is obvious from the answer that the interest earned in year 2 is interest earned on the original principal ($10,000 x .08 = $800) plus interest on the year 1 interest ($800 x .08 = $64).

Choice 'a' is incorrect. This answer is interest only on the original principal, and not on the year 1 interest.

Choice 'b' is incorrect. This answer has a decimal point error in calculating the year 2 interest on year 1 interest.

Choice 'd' is incorrect. This answer is apparently made up. It is sometimes difficult to come up with 3 decent wrong answers, especially with simple questions.

Choice 'c' is correct. Cumulative preferred dividends are dividends that must be paid before any dividend can be paid to holders of non-preferred shares. The right to the dividend accumulates if it is not paid in a particular year.

Choice 'a' is incorrect. There is no right to convert preferred shares into common stock unless that right is specifically granted.

Choice 'b' is incorrect. Preferred stock need not have voting rights.

Choice 'd' is incorrect. Preferred dividends are not guaranteed. They must be paid before any common shareholder can be paid a dividend, but no dividend might ever be paid.

Choice 'a' is correct. The payback period is the time period required for cash inflows to recover the initial investment. The emphasis of the technique is on liquidity (i.e., cash flow).

Choices 'b', 'c', and 'd' are incorrect, per the above Explanation:.

Choice 'c' is correct. Absent an agreement to the contrary, if a member of an LLC dies, the LLC is dissolved unless the other members consent to continue.

Choice 'a' is incorrect, because the LLC does not have to dissolve upon the death of a member.

Choice 'b' is incorrect, because the LLC does not cease to exist immediately.

Choice 'd' is incorrect, because the LLC does not continue unless the members consent to continue.