AICPA CPA-Business Exam - 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:

ANot an important source of financing for small firms.

BA source of long-term financing to the seller.

CSubject to risk of buyer default.

DUsually an inexpensive source of external financing.

Show Suggested Answer

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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Emmett

4 months ago

Long-term financing? Sounds off to me.

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Jaclyn

5 months ago

Not important for small firms? That's not true!

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Ciara

5 months ago

Wait, is trade credit really that cheap?

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Eden

5 months ago

Totally agree, it's a common issue!

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Ligia

5 months ago

Trade credit can be risky if buyers default.

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Theron

6 months ago

I’m a bit confused about the long-term financing aspect; I thought trade credit was more short-term.

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Tiffiny

6 months ago

I feel like we had a practice question about trade credit being an inexpensive source of financing, but I can't recall the details.

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Curtis

6 months ago

I remember discussing how trade credit can be risky for sellers if buyers default, so I might lean towards option C.

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Rickie

6 months ago

I think trade credit is actually a pretty important source of financing for small firms, but I'm not sure if that's what the question is asking.

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Denae

6 months ago

I remember learning that trade credit is actually a pretty inexpensive way for businesses to finance their operations, at least compared to other options like bank loans. So I'm leaning towards D as the correct answer.

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Grover

6 months ago

Okay, let me see. Trade credit is when a supplier allows a business to delay payment for goods or services, right? I think the key here is that it's a source of short-term financing, not long-term. So I'm going to go with C.

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Carla

6 months ago

Hmm, I'm a bit unsure about this. I know trade credit is an important source of financing for small firms, but I can't remember if it's considered long-term or short-term. I'll have to think this through carefully.

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Arlene

6 months ago

I'm pretty confident about this one. Trade credit is definitely subject to the risk of buyer default, so I think the correct answer is C.

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Clorinda

6 months ago

This seems like a straightforward question, but I want to make sure I'm not missing anything. I'm pretty confident that the correct answers are B and D - Images and Links, and Rich Text. Those seem like the most logical elements to use for providing guidance to sales reps.

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Evan

6 months ago

Hmm, I'm a bit confused by the wording of the question. Is it asking why deployment takes longer in a monolith, or why it takes longer in microservices? I'll need to think this through carefully.

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Aileen

6 months ago

Okay, let's see. The manager is focused on setting goals, providing coaching and feedback, and rewarding employees. That sounds a lot like reinforcement theory, so I'm guessing that's not the one they're looking for.

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Marshall

6 months ago

I'm not entirely sure, but I think corruption in payment and kickbacks are also problematic, right?

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Kanisha

6 months ago

Hmm, not sure about the exact syntax for the pod names. I'll need to double-check the formatting.

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Tamera

6 months ago

Lean Six Sigma, for sure. That's the key methodology for analyzing business processes and finding ways to improve efficiency and cut costs. Seems like the obvious choice here.

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Beatriz

11 months 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

11 months 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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Herman

10 months ago

I think the statement about trade credit being inexpensive is not always true.

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Rusty

10 months ago

Definitely, the risk of buyer default is always there with trade credit.

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Martina

11 months ago

I agree, collecting on overdue trade credit can be a nightmare.

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Margret

12 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

11 months 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

11 months ago

Option D is correct. Trade credit is usually an inexpensive source of external financing.

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Lemuel

1 year 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

1 year 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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