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AICPA Exam CPA-Business Topic 3 Question 85 Discussion

Actual exam question for AICPA's CPA-Business exam
Question #: 85
Topic #: 3
[All CPA-Business Questions]

Which one of the following statements about trade credit is correct? Trade credit is:

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Suggested Answer: C

Choice 'c' is correct. A shortcut computation for operating leverage is the ratio of fixed costs to variable costs. If total cost is $100,000 and variable cost is 40% of total costs (or $40,000), then fixed costs must be 60% (or $60,000). Operating leverage is then calculated as follows:

$60,000/$40,000 = 1.5

Choice 'a' is incorrect. .4 is obtained by dividing $100,000 into the variable cost of $40,000.

Choice 'b' is incorrect. .6 is obtained by dividing total costs into fixed costs.

Choice 'd' is incorrect. 2.5 is obtained by dividing total costs by variable costs.


by Johnson at Apr 25, 2024, 03:23 PM

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Beatriz
25 days ago
I'm going with option C. The risk of buyer default is a crucial consideration when it comes to trade credit. It's like playing financial Russian roulette, but without the revolver.
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Leatha
27 days ago
Ha! I bet the person who wrote this question has never tried to collect on overdue trade credit. It's about as 'inexpensive' as a trip to the dentist!
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Rusty
4 days ago
Definitely, the risk of buyer default is always there with trade credit.
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Martina
9 days ago
I agree, collecting on overdue trade credit can be a nightmare.
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Margret
2 months ago
I'm not sure about option D. Trade credit may not always be an inexpensive source of financing, especially for small firms with limited bargaining power.
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Ona
29 days ago
That's true, but it can also be subject to risk of buyer default, so small firms need to be cautious.
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Reita
1 months ago
Option D is correct. Trade credit is usually an inexpensive source of external financing.
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Lemuel
2 months ago
I'm not sure, but I think D) Usually an inexpensive source of external financing could also be correct.
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Timmy
2 months ago
Option C is clearly the correct answer. Trade credit is indeed subject to the risk of buyer default. Small businesses should always be cautious when extending credit to customers.
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Charlette
5 days ago
Always important to consider the potential for default when offering trade credit.
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Daryl
6 days ago
Trade credit can be a helpful financing option, but it does come with risks.
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Lauran
16 days ago
It's important for small businesses to be aware of the risk of buyer default.
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Narcisa
24 days ago
I agree, option C is the right choice.
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Mireya
2 months ago
I agree with Omega, trade credit is definitely subject to risk of buyer default.
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Omega
2 months ago
I think the correct statement is C) Subject to risk of buyer default.
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