AICPA CPA-Business Exam - Topic 3 Question 19 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 19
Topic #: 3

A change in credit policy has caused an increase in sales, an increase in discounts taken, a decrease in the amount of bad debts, and a decrease in the investment in accounts receivable. Based upon this information, the company's:

AAverage collection period has decreased.

BPercentage discount offered has decreased.

CAccounts receivable turnover has decreased.

DWorking capital has increased.

Show Suggested Answer

Suggested Answer: A

Choice 'a' is correct. Average collection period has decreased due to a change in credit policy that has caused:

1. Increase in sales,

2. Increase in discounts taken,

3. Decrease in the amount of bad debt; and

4. Decrease in the investment in accounts receivable

Choice 'b' is incorrect. Percentage discount offered has probably increased, as discounts taken has increased.

Choice 'c' is incorrect. Accounts receivable turnover has increased, as sales are up and accounts receivable are down.

Choice 'd' is incorrect. Change in gross profit and working capital is not determinable from these facts.

by Ezekiel at May 03, 2022, 10:31 PM

Limited Time Offer

25%

5 months ago

The comparison operator seems off to me. I think I'll try using the < operator instead.

upvoted 0 times

...