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AICPA Exam CPA-Business Topic 2 Question 103 Discussion

Actual exam question for AICPA's CPA-Business exam
Question #: 103
Topic #: 2
[All CPA-Business Questions]

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:

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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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Renato
4 days ago
B is the correct answer. The question practically spells it out for us.
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Carisa
5 days ago
Haha, this is a no-brainer! Of course, it's B. The answer is as clear as the 'discounts taken' part of the question.
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Lorean
7 days ago
I'm going with B as well. The information given points to a decrease in the average collection period.
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Leota
14 days ago
Definitely B. The reduction in accounts receivable indicates the company is getting paid faster, so the average collection period has gone down.
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Kathryn
15 days ago
I think the answer is B. The change in credit policy reduced the investment in accounts receivable, which means the average collection period has decreased.
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Dan
6 days ago
A: I think the answer is A. The increase in sales and reduction in doubtful accounts would lead to an increase in net profit.
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Tawny
30 days ago
But could it also be A) Net profit has increased, since sales have increased as well?
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Carole
1 months ago
I agree with Maynard, because with a reduction in accounts receivable, the average collection period would naturally decrease.
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Maynard
1 months ago
I think the answer is B) The average collection period has decreased.
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