AICPA Exam CPA-Business Topic 3 Question 18 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 18
Topic #: 3

Which one of the following statements is most correct if a seller extends credit to a purchaser for a period of time longer than the purchaser's operating cycle? The seller:

AWill have a lower level of accounts receivable than those companies whose credit period is shorter than the purchaser's operating cycle.

BIs, in effect, financing more than just the purchaser's inventory needs.

CIs, in effect, financing the purchaser's long-term assets.

DHas no need for a stated discount rate or credit period.

Show Suggested Answer

Suggested Answer: B

Choice 'b' is correct. If a seller extends credit to a purchaser for a period of time longer than the purchaser's operating cycle, the seller is, in effect, financing more than just the purchaser's inventory needs.

Choice 'a' is incorrect. Accounts receivable would be higher than those companies whose credit period is shorter than the purchaser's operating cycle.

Choice 'c' is incorrect. Seller is financing the purchaser, but not necessarily long-term assets.

Choice 'd' is incorrect. It is appropriate for the seller to have stated policies for discount rate and credit periods.

by Jennie at May 06, 2022, 07:59 PM

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