AICPA Exam CPA-Business Topic 1 Question 56 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 56
Topic #: 1

Return on assets:

AIs a measure of profitability and indicates how much is left of each sales dollar to cover operating expenses and profit.

BIs a profitability measure and can be used to evaluate the efficiency of asset usage and management, and the effectiveness of business strategies to create profits.

CMeasures the amount of operating income earned above the imputed cost of capital for the operating unit. If the measure is positive, returns exceed the cost of financing the operating unit.

DMeasures asset activity and the ability of the firm to generate sales through the use of assets.
Generally, the more sales dollars generated per dollar of assets used, the better the net income of an entity.

Show Suggested Answer

Suggested Answer: B

Choice 'b' is correct. Return on assets is a profitability measure and can be used to evaluate the efficiency of asset usage and management, and the effectiveness of business strategies to create profits.

Choice 'a' is incorrect. This option defines gross profit margin.

Choice 'c' is incorrect. This option defines residual income.

Choice 'd' is incorrect. This option defines total asset turnover.

by Youlanda at Jul 31, 2022, 11:00 AM

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