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The CBA exam has 150 questions and runs 3 hours.
These 10 free CBA questions are organized by exam domain, so you can see how each part of the Credit Business Associate blueprint is tested. Reveal the answer and explanation under each question.
After all write-offs have been posted, Allowance for Credit Losses has an unadjusted $1,200 debit balance. The approved year-end estimate uses these receivable balances and expected-loss rates: Not yet due: $180,000 at 1%. 1-60 days past due: $40,000 at 5%. More than 60 days past due: $22,000 at 35%. Which adjusting entry establishes the required ending allowance?
Correct answer: D - Debit Bad Debt Expense $12,700; credit Allowance for Credit Losses $12,700.
Purchase costs rose throughout the year at a distributor that uses LIFO. Inventory quantities remained positive and stable, with no liquidation of older LIFO layers. To compare this distributor with a FIFO competitor, an analyst considers what the distributor’s own statements would have shown under FIFO, with the same purchases and sales and no inventory write-downs. Relative to LIFO, FIFO would report:
Correct answer: C - Lower cost of goods sold and higher ending inventory.
At year-end, an accrual-basis company has not recorded December administrative salaries that employees have earned but will not receive until January. No related cash payment has occurred. Before the omission is corrected, how are the financial statements misstated? Ignore income taxes.
Correct answer: A - Liabilities are understated, and net income is overstated.
“Our sales and profits are up, so we can comfortably support a higher credit limit,” says a customer’s finance director. The latest statements show sales up 8%, net income up 12%, operating cash flow turning negative, and trade receivables up 38%. The aging report also shows a growing share more than 60 days past due; payment terms and seasonality have not changed. What most directly challenges the director’s conclusion?
Correct answer: B - Reported profits are not being converted into cash as receivable collections deteriorate.
An applicant satisfies every requirement for net-30 terms except that the analyst must confirm a quick ratio of at least 1.10. The supplier’s policy counts unrestricted cash, readily marketable short-term investments, and net current trade receivables as quick assets. The applicant reports: Unrestricted cash: $40,000. Readily marketable, unrestricted short-term investments: $20,000. Gross current trade receivables: $150,000. Allowance for credit losses: $15,000. Inventory: $80,000. Prepaid expenses: $25,000. Current liabilities: $150,000. What ratio and credit decision do these figures support?
Correct answer: B - 1.30; approve net-30 terms because the minimum is met.
Management blames rising administrative overhead for a wholesaler’s decline in operating margin. Its common-size income statements, expressed as percentages of net sales, show: Cost of goods sold: 63% last year; 70% this year. Selling and administrative expenses: 24% last year; 24% this year. All other operating expense percentages were unchanged. Which issue deserves investigation first?
Correct answer: C - Whether selling prices, product mix, or purchase costs are squeezing the gross margin.
An established customer’s order is on credit hold because an invoice appears overdue. The purchase order, shipping record, and billing log confirm that the invoice duplicates a shipment already invoiced and paid. All genuine invoices are current, and removing the duplicate would put the proposed order within the approved credit limit. The credit manager can authorize billing corrections and release qualifying orders. Choose the resolution that preserves the sale within the existing credit authorization.
Correct answer: A - Reverse the duplicate invoice through an authorized credit memo and release the order.
Minutes after treasury wires a customer’s overpayment refund, the credit manager reaches the customer through a previously verified telephone number. The customer confirms that the emailed instructions changing the refund bank account were fraudulent. With the transfer already sent, which action offers the best immediate chance of recovering the money?
Correct answer: D - Ask the sending bank immediately to initiate a recall and contact the receiving bank.
Two lenders hold security interests in the same distributor’s equipment, which the distributor owns throughout. Bank North files an authorized, properly completed financing statement on March 4; its security interest attaches when it lends on April 2. Bank South’s security interest attaches and is perfected by filing on March 19. Both filings remain effective, and neither lender has purchase-money or other special priority. Under UCC Article 9, priority between these lenders as of April 3 belongs to:
Correct answer: D - Bank North, based on its earlier, continuously effective financing-statement filing.
A buyer receives terms of 2/10, net 30. An available bank line charges 12% annual simple interest, with no fees or borrowing restrictions. A loan would cover the discounted invoice amount from day 10 through day 30. The treasurer wants the lower financing cost. Using a 365-day year and simple annualization, what is the approximate annualized cost of forgoing the discount, and which payment choice should be made?
Correct answer: A - 37.2%; borrow for 20 days and take the discount.
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