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CPA BEC Exam Review: Business Concepts & Financial Analysis

Prepare for the CPA exam with this focused review on the Business Environment and Concepts (BEC) section, covering key topics from 2011. This quiz enhances understanding of accounting principles and business concepts, crucial for...

Questions: 28 | Attempts: 21 | Last updated: Aug 4, 2025

Sample Question 1
What is the formula for calculating working capital?

Current assets - fixed liabilities = Working Capital.

Fixed assets + current liabilities = Working Capital.

Current assets + current liabilities = Working Capital.

Current assets - current liabilities = Working Capital

Sample Question 2
What are relevant cash flows?

Relevant cash flows are those not affected by inflation.

Relevant cash flows are those received from investments.

Relevant cash flows are those that we can keep after paying taxes

Relevant cash flows are those that include both operating and non-operating activities.

Sample Question 3
Describe the treatment of an asset sale.

If a new asset acquisition requires the sale of old assets, the subsequent gain or loss has no effect on the capital expenditure decision because the book value of the old asset is a sunk cost (ignore sunk costs). The cash received from the sale of the old asset reduces the new investment's value. If a gain or loss (for tax purposes) exists, there is also a corresponding increase or decrease in income taxes. The amount of income tax paid on a gain on a sale is treated as a reduction of the sales price (which increases the initial expenditure). Conversely, a reduction in tax resulting from a loss on sale is treated as a reduction of the new investment.-Net proceeds on sale of old asset offset cost of new, this initial outflow decreases-When new asset is eventually sold, net proceeds on sale - one time future cash inflow.

The gain or loss from the sale of old assets has a direct impact on the capital expenditure decision

The cash received from the sale of old assets does not impact the value of the new investment

Income taxes are not affected by gains or losses on asset sales

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