AICPA Exam CPA-Business Topic 3 Question 19 Discussion

Choice 'a' is correct. Average collection period has decreased due to a change in credit policy that has caused:

1. Increase in sales,

2. Increase in discounts taken,

3. Decrease in the amount of bad debt; and

4. Decrease in the investment in accounts receivable

Choice 'b' is incorrect. Percentage discount offered has probably increased, as discounts taken has increased.

Choice 'c' is incorrect. Accounts receivable turnover has increased, as sales are up and accounts receivable are down.

Choice 'd' is incorrect. Change in gross profit and working capital is not determinable from these facts.