AICPA Exam CPA-Business Topic 2 Question 103 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 103
Topic #: 2

A change in credit policy has caused an increase in sales, an increase in discounts taken, a reduction in the investment in accounts receivable, and a reduction in the number of doubtful accounts. Based upon this information, we know that:

ANet profit has increased.

BThe average collection period has decreased.

CGross profit has declined.

DThe size of the discount offered has decreased.

Show Suggested Answer

Suggested Answer: B

Choice 'b' is correct. Whenever accounts receivable (AR) are decreasing when sales are increasing (and the decrease in AR is not due to an increase in bad debt write offs), this would indicate that the average collection period for AR has decreased.

Choices 'a', 'c', and 'd' are incorrect. There is insufficient information in the question to draw conclusions about these items.

by Rosalind at Nov 17, 2024, 01:20 AM

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Carole

19 hours ago

I agree with Maynard, because with a reduction in accounts receivable, the average collection period would naturally decrease.

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Maynard

2 days ago

I think the answer is B) The average collection period has decreased.

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