Cisco
CompTIA
ISC
EC-Council
EXIN
Fortinet
ITIL
Juniper
Microsoft
VMware
Avaya
SAP
Google
NVIDIA
Salesforce
Amazon
Palo Alto Networks
ISC2
Splunk
ServiceNow
All Vendors
  2. Home
  3. Exams
  4. IIA
  5. CIA

IIA CIA Exam
Certified Internal Auditor Exam (Page 7 )

Updated On: 12-Jan-2026
Page 7 of 342
PDF with 1702 Questions

An entity plans to tighten its credit policy_ The new policy will decrease the average number of days in collection from 75 to 50 days and will reduce the ratio of credit sales to total revenue from 70% to 60%. The entity estimates that projected sales will be 5% less if the proposed new credit policy is implemented. If projected sales for the coming year are US $50 million, calculate the dollar impact on accounts receivable of this proposed change in credit policy. Assume a 360-day year.

  1. US $3, 817, 445 decrease.
  2. US $6, 500, 000 decrease.
  3. US $3, 333, 334 decrease.
  4. US $18, 749, 778 increase.

Answer(s): C

Explanation:

If sales are US $50 million, 70% of which are on credit, total credit sales will be US $35 million. The receivables turnover equals 4.8 times per year 360 days - 75-day collection period). Receivables turnover equals net credit sales divided by average
receivables. Accordingly, average receivables equal US $7, 291.667 $35, 000, 000 - 4.8). Under the new policy, sales will be US $47.5 million 95% x $50, 000, 000), and credit sales will be US $28.5 million 60% x $47, 500, 000). The collection period will be reduced to 50 days, resulting in a turnover of 7.2 times per year 360 - 50). The average receivables balance will therefore be US $3, 958, 333 ($28, 500, 000 - 7.2), a reduction of US $3, 333, 334 $7, 291.667 - $3, 958, 333).



Which of the following represents an entity's average gross receivables balance?

I). Days' sales in receivables x accounts receivable turnover.
II). Average daily sales x average collection period.
III). Net sales/average gross receivables.

  1. I only.
  2. I and II only.
  3. II only.
  4. II and III only.

Answer(s): C

Explanation:

An entity's average gross receivables balance can be calculated by multiplying average daily sales by the average collection period days' sales outstanding). Alternatively, annual credit sales can be divided by the accounts-receivable turnover net credit sales/average accounts receivable) to obtain the average balance in receivables.



The following account balances represent the December 31 balance sheet of an entity

The quick ratio for this year is

  1. 1.42
  2. 1.08
  3. 0.97
  4. 0.82

Answer(s): C

Explanation:

The acid test quick) ratio equals quick assets cash, financial assets held for trading, and accounts receivable) divided by current liabilities. Quick assets total US $206, 500 $27, 500 cash + $64, 000 financial assets held for trading + $115, 000 net accounts receivable). Given current liabilities of US $213, 500 $67, 000 accounts payable + $54, 000 current notes payable + $70, 000 income taxes payable + $22, 500 other current liabilities), the quick ratio is 0.967 US $206, 500 + $213, 500).



An entity's receivables collection period is equal to the

  1. Inventory conversion period.
  2. Cash conversion cycle.
  3. Day's sales outstanding.
  4. Inventory divided by average daily sales.

Answer(s): C

Explanation:

The day's sales outstanding days of receivables) may be stated as the accounts receivable balance divided by average credit sales per day or as days in the year divided by the receivables turnover. It is the average time required to convert the entity's receivables into
cash. Thus, it is also called the receivables collection period.



The times-interest-earned ratio is primarily an indication of

  1. Solvency.
  2. Liquidity.
  3. Asset management.
  4. Profitability.

Answer(s): A

Explanation:

The times-interest-earned ratio equals profit or loss before taxes and interest divided by interest. It measures the extent to which operating profit can decline before the entity is unable to meet its annual interest cost Thus is a measure of debt-paying capacity solvency).



Viewing page 7 of 342
Viewing questions 31 - 35 out of 1702 questions



Post your Comments and Discuss IIA CIA exam prep with other Community members:

Join the CIA Discussion