Free CCE Practice Questions

Question 1

"Our operating cash flow has turned positive, so we can support a higher credit limit," says a distributor's finance director. The cash-flow reconciliation shows that the improvement came entirely from a substantial increase in trade payables. Sales and inventory were nearly unchanged, customer collections slowed, and several major suppliers are now being paid beyond agreed terms. What should carry the most weight in the next credit review?

Accepted Answer

Delayed supplier payments are supporting cash flow; catching up on those obligations will consume liquidity.

Answer

Stable inventory confirms that the positive operating cash flow is sustainable.

Answer

The increase in ordinary trade payables belongs in financing rather than operating cash flow.

Answer

Slower customer collections are offset by supplier financing, so the existing payment cycle supports additional unsecured credit.

Question 2

An exporter receives an irrevocable letter of credit from a foreign bank whose credit standing is below the exporter's approved standard. A financially acceptable domestic bank has authenticated and advised the credit but has not added a payment undertaking. The documents can be presented in full compliance, the transaction is lawful, and the domestic bank is willing to add its confirmation for an acceptable fee. How can the exporter retain the sale while addressing the identified bank risk?

Accepted Answer

Obtain the domestic bank's confirmation, adding its payment undertaking for complying documents.

Answer

Rely on the domestic bank's authenticated advice, which makes it responsible for the issuing bank's payment.

Answer

Replace the credit with documents against acceptance through the domestic bank.

Answer

Decline the order unless the buyer agrees to pay the full price before shipment.

Question 3

A pump dealer buys pumps for resale on secured credit. Its bank has a continuously perfected security interest in existing and after-acquired inventory, supported by a financing statement filed before the seller's. The seller's purchase-money security interest attaches when the dealer receives the pumps. The bank receives the required signed purchase-money notification before delivery, but the seller perfects solely by filing eight days afterward. Delaware's UCC governs; no subordination agreement or other priority exception applies. Which creditor has priority in the pumps, and why?

Accepted Answer

The bank, because inventory purchase-money priority required perfection when the dealer received the pumps.

Answer

The seller, because filing within 20 days after delivery preserves purchase-money priority in these goods.

Answer

The seller, because timely notification to the bank preserves priority despite the later perfection date.

Answer

The bank, because an existing blanket inventory lien cannot be displaced by a seller's purchase-money interest.

Question 4

Sales proposes extending terms for a customer segment. The change is expected to add $600,000 in annual sales at a 25% contribution margin, $36,000 in annual credit losses, and $14,000 in annual collection costs. Average receivable investment would increase by $240,000, financed at 10% annually. A $20,000 allocation of existing corporate overhead would also be charged to the segment, but total corporate overhead would not change. Capacity, liquidity, and approved risk limits permit the proposal. Ignore taxes and other effects. Which recommendation follows from the incremental economics?

Accepted Answer

Approve; the change adds $76,000 in annual profit before tax.

Answer

Approve; the change adds $100,000 in annual profit before tax.

Answer

Approve; the change adds $56,000 in annual profit before tax.

Answer

Reject; the increase in receivable investment creates a $140,000 annual loss before tax.

Question 5

Twenty minutes after accounts receivable wires a substantial customer refund, the customer's treasurer calls through a previously verified contact channel. The treasurer confirms that the emailed instruction to use a new bank account was fraudulent. The transfer has already been released. What is the first recovery action?

Accepted Answer

Contact the sending bank immediately to request a recall and assistance recovering the funds.

Answer

Review the approval logs before asking the bank to intervene.

Answer

Submit an Internet Crime Complaint Center report before contacting the sending bank about recovering the transfer.

Answer

Ask the customer to approach the receiving bank directly and arrange a return of the payment.

Question 6

Before the year-end allowance adjustment, a wholesaler has $600,000 in gross trade receivables and an $11,000 credit balance in its allowance for credit losses. Its supported loss estimates are 2% on $500,000 of current accounts, 10% on $80,000 of moderately overdue accounts, and 60% on $20,000 of severely overdue accounts. No further write-offs or recoveries are pending. Which year-end adjustment and net receivable balance are correct?

Accepted Answer

$19,000 additional credit-loss expense; $570,000 in net trade receivables.

Answer

$30,000 additional credit-loss expense; $570,000 in net trade receivables.

Answer

$41,000 additional credit-loss expense; $548,000 in net trade receivables.

Answer

$19,000 additional credit-loss expense; $581,000 in net trade receivables.

Question 7

After a national customer changes its purchasing system, several invoices become overdue. Each rejected invoice lacks the new purchase-order reference; correctly referenced invoices continue to be paid on time. The customer confirms that it received the goods, has no quality dispute, and will process corrected invoices in its next payment run. Current financial information shows no deterioration, and exposure remains within the approved limit. What does this payment pattern support doing next?

Accepted Answer

Correct the invoices, confirm their acceptance, and fix purchase-order capture at order entry.

Answer

Move the entire account to cash in advance until two consecutive months show no overdue invoices.

Answer

Increase telephone collection activity on rejected invoices until the customer pays.

Answer

Replace the original due dates with resubmission dates so the account's aging reflects the customer's new process.

Question 8

For its latest completed financial year, a customer's debt-service coverage ratio is 1.18, calculated as cash available for debt service divided by scheduled principal and cash interest for the same year. Its revolver requires at least 1.25 and prohibits further advances during a covenant breach. Although the commitment exceeds current borrowings, the lender has neither waived the breach nor amended the covenant. How should the credit memorandum describe these results?

Accepted Answer

Annual cash covered scheduled debt service, but the unused commitment cannot presently be drawn.

Answer

Debt-service cash was insufficient, and the unused commitment is unavailable.

Answer

Annual cash covered scheduled debt service, so the unused commitment remains available despite the covenant result.

Answer

Annual cash covered interest only; the covenant result does not establish whether principal was covered.

Question 9

An unsecured supplier sold raw materials in the ordinary course of a manufacturer's business. The manufacturer received them 16 days before filing Chapter 11 and consumed them in production before the filing. The unpaid invoice is entirely for the goods. The supplier made no reclamation demand, and the court's deadline for requesting the relevant claim treatment has not passed. What treatment should the supplier seek for the value of these goods?

Accepted Answer

Administrative-expense treatment; neither consumption of the goods nor the absence of a reclamation demand defeats eligibility.

Answer

General unsecured treatment, because the goods are no longer identifiable in the debtor's possession.

Answer

General unsecured treatment, because making a reclamation demand is a prerequisite to higher priority.

Answer

Administrative-expense treatment, but only if the supplier can show that the debtor was insolvent when the goods were received.

Question 10

A metals distributor reports a higher gross margin despite unchanged selling prices and product mix and rising replacement costs. Its U.S. GAAP financial-statement notes disclose use of last-in, first-out inventory accounting and a sharp reduction in quantities that brought older, lower-cost inventory layers into cost of goods sold. Management expects to replenish those quantities at current prices. What is the most credible explanation for the margin increase?

Accepted Answer

Liquidating older LIFO layers temporarily lowered reported cost of goods sold and increased gross profit.

Answer

A lasting purchasing advantage has lowered the cost of replacing the goods sold during the year.

Answer

The newest, highest-cost purchases remained in inventory rather than entering cost of goods sold.

Answer

Revaluing the remaining inventory upward to current replacement cost created an unrealized gain in gross profit.

Free CCE Practice Questions

Domain 1: Accounting

Question 1

Question 2

Question 3

Domain 2: Finance

Question 4

Question 5

Domain 3: Domestic and International Credit Concepts

Question 6

Question 7

Domain 4: Management

Question 8

Domain 5: Law

Question 9

Question 10

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