AICPA CPA-Business Exam - Topic 3 Question 32 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 32
Topic #: 3

Corbin Inc. can issue three-month commercial paper with a face value of $1,000,000 for $980,000. Transaction costs would be $1,200. The effective annualized percentage cost of the financing, based on a 360-day year, would be:

A2.16%

B8.48%

C8.65%

D8.00%

Show Suggested Answer

Suggested Answer: C

Choice 'c' is correct. The cost to issue the commercial paper is the $20,000 original issue discount ($1 million - $980,000), plus transaction costs of $1,200 for a total of $21,200. Therefore, it costs $21,200 to borrow $980,000 for 3 months. The 3-month interest cost is 2.16% ($21,200 / $980,000).

The annual interest cost is 8.65%

Choices 'a', 'b', and 'd' are incorrect, per the above calculation.

by Thaddeus at May 07, 2022, 12:13 AM

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Mignon

4 months ago

8.48% seems like a solid guess based on the numbers!

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Colene

4 months ago

Wait, how can the cost be that high? Sounds off.

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Olga

4 months ago

I'm leaning towards option C, seems right.

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Armanda

4 months ago

I think the transaction costs really add up here!

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Winfred

5 months ago

The face value is $1,000,000, and they issue it for $980,000.

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Kiley

5 months ago

This seems like a tricky situation. I'll need to think carefully about the privacy and professional implications before responding.

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Filiberto

5 months ago

Okay, I remember from the course materials that the Implement stage is about actually putting the SIAM model into practice, so I'm guessing the answer is C - managing the day-to-day service delivery.

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Paola

5 months ago

This seems like a straightforward question about the purpose of an audit checklist. I'll carefully read through the options and choose the one that best describes the main function.

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Michel

5 months ago

Key tip: Always look for multi-layered oversight in compliance questions. The cross-checking aspect in A suggests it's likely the right approach.

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