AICPA CPA-Business Exam - Topic 3 Question 94 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 94
Topic #: 3

CyberAge outlet, a relatively new store, is a cafe that offers customers the opportunity to browse the Internet or play computer games at their tables while they drink coffee. The customer pays a fee based on the amount of time spent signed on to the computer. The store also sells books, tee shirts, and computer accessories. CyberAge has been paying all of its bills on the last day of the payment period, thus forfeiting all supplier discounts. Shown below are data on CyberAge's two major vendors, including average monthly purchases and credit terms.

Should CyberAge use trade credit and continue paying at the end of the credit period?

ANo, if the cost of alternative short-term financing is more.

BYes, if the firm's weighted average cost of capital is equal to its weighted average trade credit.

CNo, if the cost of alternative long-term financing is more.

DYes, if the cost of alternative short-term financing is more.

Show Suggested Answer

Suggested Answer: D

Choice 'd' is correct. Yes, CyberAge should use trade credit and continue paying at the end of the credit period, if the cost of alternative short-term financing is more.

Choices 'a', 'b', and 'c' are incorrect, per the above Explanation:.

by Ammie at Aug 04, 2024, 07:46 PM

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William

3 months ago

Not sure if trade credit is the best move for a new store like this.

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Zana

3 months ago

No way, if short-term financing is cheaper, they should switch!

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Adela

3 months ago

Wait, are they really paying all their bills late? That's surprising!

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Lashonda

4 months ago

I agree, paying late means missing out on discounts!

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Hayley

4 months ago

They should definitely look into trade credit to save on costs.

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Keneth

4 months ago

I think option D makes sense because if short-term financing costs more, they should definitely keep using trade credit.

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Arlette

4 months ago

I feel like paying bills at the end of the period is costing them discounts, which might make option A more appealing, but I can't recall the exact numbers.

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Gail

4 months ago

I remember a similar question about trade credit and financing costs. It seems like they should evaluate their weighted average cost of capital too.

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Linsey

5 months ago

I'm not entirely sure, but I think if the cost of alternative short-term financing is higher, they should stick with trade credit.

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Jame

5 months ago

This seems straightforward - if the alternative financing is more expensive, then CyberAge should use the trade credit. I'll double-check the vendor terms and do a quick calculation to confirm.

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Royal

5 months ago

I'm a bit confused by the wording of the answer choices. I'll need to re-read the question carefully and make sure I understand the tradeoffs before selecting an answer.

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Jolene

5 months ago

Okay, let me think this through. CyberAge is forfeiting supplier discounts by paying late, so that's a clear downside to their current approach. I'll need to crunch the numbers to see if the alternative financing costs are higher or lower.

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Jannette

5 months ago

Hmm, this seems like a tricky one. I'll need to weigh the costs and benefits of using trade credit versus other financing options. The vendor details will be key to making the right decision here.

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Annamaria

5 months ago

This question is asking about the trade credit policy of CyberAge, a cafe that offers internet and computer services. I think I need to carefully analyze the vendor information and consider the costs of alternative financing options.

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Oretha

5 months ago

This looks like a straightforward question on testing techniques. I think Regression Testing is the best answer since it involves re-running previously successful tests to ensure no regressions have occurred.

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Monte

5 months ago

This seems like a pretty straightforward question about financial instruments. I'll start by thinking through the options and eliminating any that don't seem to fit the criteria of "short-term credit for small firms".

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Estrella

2 years ago

That makes sense. It's important for businesses to consider the cost of financing options before making a decision.

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Keva

2 years ago

Option D makes the most sense to me. If the alternative short-term financing is more expensive, then trade credit is the way to go. Simple as that.

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Yong

1 year ago

Definitely, if it's more expensive to use alternative short-term financing, then sticking with trade credit is the better option. Option D all the way.

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