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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Renato

2 months ago

B is the correct answer. The question practically spells it out for us.

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Nana

26 days ago

D) The size of the discount offered has decreased.

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Chu

1 months ago

C) Gross profit has declined.

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Rosendo

1 months ago

B) The average collection period has decreased.

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Jess

2 months ago

A) Net profit has increased.

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Carisa

2 months 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

2 months ago

I'm going with B as well. The information given points to a decrease in the average collection period.

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Aretha

2 months ago

Yes, I agree. The increase in discounts taken and reduction in accounts receivable support that.

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Beata

2 months ago

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

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Leota

3 months 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

3 months 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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Fabiola

2 months ago

D: I agree with B. The reduction in the number of doubtful accounts would also contribute to a decrease in the average collection period.

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Lashandra

2 months ago

C: I think the answer is B as well. The reduction in discounts taken would not necessarily mean a decline in gross profit.

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Dona

2 months ago

B: I disagree. I believe the answer is B. The reduction in investment in accounts receivable would lead to a decrease in the average collection period.

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