Free CPA-Business Practice Test Questions and Answers (2026) | Cert Empire Practice Questions

Choice "d" is correct. Limited partners have the right to vote on the transfer of interest and

admission of a new partner. Admission of a new partner requires unanimous consent.

Choice "a" is incorrect. A limited partner who acts as a general partner loses her limited liability

status to those she acted as a general partner towards.

Choice "b" is incorrect. Partners can freely transfer their interests in profits and losses to third

parties, but the third party cannot become a limited partner without the unanimous consent of the

other partners.

Choice "c" is incorrect. Limited partners must give 6 months notice of withdrawal in absence of an

agreement to the contrary.

Choice "c" is correct. A rise in the price of a complementary commodity would cause a shift to the

left in any demand curve (representing decrease in demand, at all price levels, for that product).

With respect to complementary goods, the demand for the primary product is directly impacted by

the demand (and hence the price changes) for the complementary goods. For instance, if the price of

gasoline goes up, the demand for cars will decrease, causing the demand curve for cars to shift left.

Choice "a" is incorrect. A rise in the price of a substitute product will make the demand curve shift to

the right.

Choice "b" is incorrect. A rise in average household income would make the demand curve shift to

the right, representing an increase in demand.

Choice "d" is incorrect. A rise in population, or a change in consumers' tastes in favor of the

commodity are also changes that may cause an increase in demand, making the demand curve shift

to the right.

Choice "c" is correct. A key assumption of perfect competition is that the firm is a "price taker," that

is, it cannot fix the price. Accordingly, it is not true that each firm can price its product above the

industry price.

Key assumptions of perfect competition include:

A. Customers are indifferent about which firm they buy from.

B. The level of a firm's output is small relative to the industry's total output.

D. There is freedom of entry into and exit out of the industry.

Choice "d" is correct. When a firm is unable to change suppliers easily, that is a factor that increases

the bargaining power of the suppliers.

Choices "a", "b", and "c" are incorrect because they all are factors that increase the bargaining power

of the customer, which are:

• Customers make up a large volume of a firm's business.

• There is much information available to customers.

• The buyers have low switching costs.

• There are a high number of alternate suppliers.

Choice "a" is correct. Under monopoly, strategic plans ignore market share and focus on profitability

from production levels that will maximize profits.

Choices "b", "c", and "d" are incorrect because they are characteristics of other types of market

structures.

Choice "c" is correct. Hedgehog should only acquire the minimum amount of hedge contracts

needed to offset the effect of known transactions.

Choice "a" is incorrect. Parallel loans represent a swap contract for hedging long-term transaction

exposure and are not specifically designed to mitigate the risk of overhedging.

Choice "b" is incorrect. Acquisition of the maximum number of hedge contracts for known and

projected transactions exposes the organization to greater risk of overhedging since projected

transactions might not materialize.

Choice "d" is incorrect. Cross hedging involves techniques related to currencies that do have hedge

instruments available to mitigate risk and are not specifically designed to avoid overhedging.

Choice "d" is correct. Product demand is more elastic when more substitutes are available.

Choice "a" is incorrect. The longer the time period, the more product demand becomes elastic

because more choices are available.

Choice "b" is incorrect. Product demand is more elastic when more substitutes are available, not

fewer substitutes.

Choice "c" is incorrect. Product demand is more inelastic when few substitutes are available.

Choice "a" is correct. Expansionary monetary policy results when the Fed increases the money

supply. Expansionary monetary policy affects the economy through the following chain of events: (1)

an increase in the money supply causes interest rates to fall, (2) falling interest rates stimulate the

desired levels of firm investment and household consumption, (3) increases in desired investment

and consumption cause an increase in aggregate demand, and (4) aggregate demand shifts to the

right causing real GDP and the price level to rise.

Choice "b" is incorrect. An increase in the money supply causes investment to increase, not decrease.

Choice "c" is incorrect. An increase in the money supply causes interest rates to decrease, not

increase, investment to increase, not decrease and aggregate demand to increase, not decrease.

Choice "d" is incorrect per above Explanation: .

Choice "c" is correct. Although commercial paper has a secondary market available, it is generally not

an active secondary market. Commercial paper is usually sold to the money markets by highly

creditworthy companies.

Choice "a" is incorrect. The maturity dates are generally less than 270 days.

Choice "b" is incorrect. Commercial paper can be sold to the money markets through a variety of

intermediaries including brokers, dealers, investment brokers, etC. It can also be sold direct from one

company to another.

Choice "d" is incorrect. The interest rate on commercial paper is below the prime rate, but generally

above the Treasury bill rate.

Choice "d" is correct. The internal rate of return (IRR) method is less reliable than the net present

value (NPV) technique when there are several alternating periods of net cash inflows and net cash

outflows or the amounts of cash flows differ significantly. The IRR is strictly a percentage measure of

return, while the NPV is an absolute measure. Due to this difference, the timing or amount of cash

flows under IRR can be misleading when compared to the NPV method.

Example: If an investment of $50 earns $100. Then, 100/50 = 200% return

If an investment of $50,000 earns $25,000 then, 25,000/50,000 = 50% return

IRR suggests it is best to invest $50 to earn $100 and a 200% return while the NPV method will

indicate a larger NPV for the $50,000 investment.

Choices "a", "b", and "c" are incorrect. These conditions do not make the IRR method less reliable

than the NPV method.

Choice "b" is correct. Internal costs analysis includes analyzing the internal value-creating ability of a

firm, so the sources of profit and costs of the internal activities of the firm must be analyzed.

Choices "a", "c", and "d" are incorrect, per the above Explanation: .

Choice "a" is correct. Setting the overall goals of the firm is usually the starting point in strategic

planning.

Choice "b" is incorrect. The organizational structure will be partially determined by the goals of the

firm.

Choice "c" is incorrect. Recent annual budgets may be reviewed as an aid in planning, but they are

not the first consideration in strategic planning. In fact, they often are ignored.

Choice "d" is incorrect. Being an industry leader may be or become a goal of the firm, but that would

be determined during the strategic planning process.

Choice "d" is correct. Real GDP per capita is real GDP divided by population. Real GDP per capita is

typically used to compare standards of living across countries or across time. By dividing real GDP by

population, this measure adjusts for differences in the size of countries and for differences in

population over time.

Choice "a" is incorrect. Government spending is not a measure of the standard of living of a country.

Choice "b" is incorrect. Countries with larger populations tend to have higher levels of real GDP. This

however does not mean they have a higher standard of living. To adjust for differences in population,

real GDP per capita is typically used to compare standards of living, not real GDP.

Choice "c" is incorrect. Real consumption expenditures are only a part of real GDP and thus do not

measure all economic activity. Furthermore, real consumption expenditures do not adjust for

differences in population. It is therefore not used as a measure of the standard of living.

Choice "c" is correct. The general (or aggregate) demand for labor will remain unchanged; however,

the quantity demanded will decrease.

Choice "a" is incorrect, per Explanation: for choice "c" above.

Choices "b" and "d" are incorrect. The general (or aggregate) supply of labor will remain unchanged;

however, the quantity supplied will increase.

Choice "a" is correct. In the cross-functional teams stage of supply chain management, the firm's

management will turn its attention to consolidation of the various departments that make up

operations in order to solve the firm's problems, and the focus will be on customer service.

Choice "b" is incorrect. In the integrated enterprise stage of supply chain management, the firm's

management will move away from simple consolidation of its operations to an internally-integrated

supply chain, which all work together towards the main business issue of the cost of customer

service.

Choice "c" is incorrect. In the extended supply chain stage of supply chain management, integration

moves external to the firm to involve those outside the firm who are able to work as a unified team

in an attempt to obtain slow, profitable growth.

Choice "d" is incorrect. In the supply chain communities stage of supply chain management, the

extended supply chain forms a single competitive entity with a synchronized supply chain and a

complex system of networks.

Choice "b" is correct. An increase in government spending causes an increase in aggregate demand

(i.e., causes the aggregate demand curve to shift right). As a result, an increase in government

spending causes real GDP to rise and unemployment to fall.

Choice "a" is incorrect. Real GDP will rise, not fall.

Choice "c" is incorrect. Unemployment will fall, not rise.

Choice "d" is incorrect. Real GDP will rise, not fall.

Choice "a" is correct. The expenditure approach to computing GDP includes:

Consumption

Net exports

Government expenditures

Capital investment

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

Choice "b" is correct. Analysis of the core competencies of a firm help it to determine why it is able

to create, attain, and sustain new types of competitive advantage and profits and reveal what it is

within the firm that enables it to obtain competitive advantage.

Choice "a" is incorrect. Industry structure analysis assists in determining what it is that makes a firm

more profitable compared to another firm, and it looks at five forces that influence profitability of an

industry or market and, thus, the competitive environment.

Choice "c" is incorrect. Segmentation analysis is a possibility when a firm is vertically integrated and

when the industry structure and core competencies vary among activities in the value chain.

Choice "d" is incorrect, as choice "b" is the answer to the question.

Choice "c" is correct. According to Michael Porter, the two major categories of business activities are

primary activities and support activities.

Choices "a", "b", and "d" are incorrect, per the above statement.

Choice "d" is correct. Complementary goods are ones whose demand fluctuates together. If Good A

and Good B are complements, then if the demand for Good A increases, the demand for Good B will

also increase, tennis rackets and tennis balls are complements.

Choice "a" is incorrect. For substitutive goods, as the price of one of the goods increases, the other

good experiences an increase in demand as it is substituted for the first good. An example of

substitute goods is apple and orange juice.

Choice "b" is incorrect. Independent goods have demand functions that are not interrelated. An

example would be bread and vacuum cleaners.

Choice "c" is incorrect. Inferior goods experience a decrease in demand when income levels rise. An

example is hamburger, which experiences decrease in demand as incomes rise and buyers switch to

higher priced meats.