CREDIT BUSINESS ASSOCIATE CBA PRACTICE MIDTERM EXAM WITH CORRECT ANSWERS 2026

CREDIT BUSINESS ASSOCIATE CBA PRACTICE MIDTERM EXAM WITH CORRECT ANSWERS 2026 What is the Multiplier for CBA Lightening - -1.4x What is the multiplier for CBA traditional - -depends on payroll portfolio but 1.4 Which program has a down payment on signature? What is the down payment percent? - -Traditional - 20% down payment What is the rev share program for CBA lightening? - -regular revshare (standard PTA terms) What is the revshare for CBA Traditional? - -Partner RevShare (Flat 25% on first year revenue) True or False: CBA lightening can have RUN and WFN clients - -False - RUN only Who picks up balances and runs the payroll for CBA lightening deals? CBA Traditional? - -CBA Lightening = DM, CBA traditional = Implementation team What percent of RC does the SE receive from CBA lightening? traditional? - -100% for both What percent of roll call des the DM receive for CBA Lightning? Traditional? - -CBA Lightning = 70%, Traditional = 40% What info is needed to fill out the initial multi-unit grid - -EE count, frequency, revenue What are 3 probing questions you can ask a PR processor to see if CBA is a good fit? - -a. Example: how does payroll fit into your service offering today? b. What do you like/not like about offering payroll as a service? c. What are the most profitable services you offer? Least profitable? d. What are your goals for the future of your firm? What is the unit threshold for Lightning? - -20-40 units what is the unit threshold for Traditional? - -40+ CBA CBA "We don't plan to make a change..." - -In today's business landscape many firms are weighing their options when it comes to payroll. We can provide a complimentary valuation to ensure that payroll to your clients is profitable and still aligns with your goals for the future "ADP is too expensive..." - -We have an option to keep things COMPLETELY cost neutral for your clients, while giving the access to our payroll services and technology. Let's set up a brief call next week so I can show you how... "Our clients come to us for everything" or "we like to have 'control' of payroll..." - -We understand and hear that from every firm. What if I could tell you that we could keep you completely connected to payroll without actually having to process it? Let me show you how... Elevator Pitch - -My role, especially this time of year is to strategize with firms on their goals for the future and how payroll fits in. With year-end around the corner, many firms are deciding whether they want Net trade cycle - -=average collection period+days inventory held-days payable outstanding. Also known as the cash conversion cycle, measures the number of days that it takes to collect cash, sell inventory and purchases on credit, liquidity ratio, helps the analyst understand why cash flow generation has improved (or not) Average collection period - -= net accounts receivable/ average daily sales -liquidity ratio, represents the average # of days required to convert receivables into cash-the lower the better Average daily sales - -= sales/365 Days inventory held - -=inventory/average daily cost of sales - liquidity measure, average # of days it takes to sell inventory to customers, measures the efficiency of selling inventory, sign of efficient management, the lower the better bc, the less time it takes to sell inventory the less $$ is tied up in inventory, but if too low could mean under stocking and lost orders Average daily cost of sales - -=cost of goods sold /365 Days payable outstanding - -=accounts payable/average daily cost of sales - liquidity ratio, the higher the better, bc the firm can earn a return on the cash being held Five account types - -Expense, revenue, asset, liability and equity Sole proprietorship - -A business that is owned by one person, all assets, profits, losses and debts fall under one owner, largest in #s, no income tax, profits roll into personal, smallest in aggregate, do not have to register as forge in business in various states Partner types - -General, limited or silent CBA CBA Corporation - -Legal entity created by either a state of federal statue authorizing individuals to operate and enterprise Corporation types - -Private closed, private not closed, quasi public Private closed corporations - -35 shareholders Private not closed - -5xx shareholders Quasi public corporations - -Can buy stock on open market, but are government ran, utility government General patnership - -Two or more owners, net income rolls into each partner's personal tax returns, do not have to register I foreign business in various states C-corporation - -Any corporation that is taxed separately from the owners, pays a dividend, most common corporation, must register with each state that business is conducted in, pay federal and state income tax Asset And expense T account - -Increase with debit, decrease with credit Limited partnership - -Two or more owners, at least one general and one limited partner Equity, liability and revenue T accounts - -Increase with credit, decrease with debit When the Fed buys securities - -Bank reserves increase, fewer funds area silane for lending, borrowers/businesses are discouraged from lending, interest rates rise When the Fed sells securities - -Bank reserves decrease, more funds are available for lending, borrowers/businesses are encouraged to borrow, interest rates decline Adjusting journal entries - -Prepaids, unearned revenues, accrued expenses, accrued revenues Prepaid original entry - -Debit prepaid account, credit cash Prepaid adjusting entry - -Debit expense account, credit prepaid account Unearned revenue original entry - -Debit cash, credit unearned revenue Unearned revenue adjusting entry - -Debit unearned revenue account, credit revenue account Unearned revenue account type - -Liability CBA CBA Accrued expense original entry - -Debit expense account ($300), credit payable account ($300) Accrued expense adjusting entry - -Debit expense account ($700), debit payable account ($300), credit cash ($1000) Accrued revenue original entry - -No entry, because you are doing consulting, doing work now, and billing later (in portions) Accrued revenue adjusting entries - -Debit AR ($2500), credit consulting revenue ($2500)-sent billing to customer, and when bill is paid Debit cash ($5000), credit AR ($2500), credit consulting revenue ($2500) LIFO - -Last in first out inventory accounting method, the last unit is sold first, during inflation, overstates cost of goods sold, understates inventory, matches current cost to current sales FIFO - -First in first out, the first unit is sold first, during inflation, understates cost of goods sold, overstates inventory, vales ending inventory at current cost Accrual accounting - -Revenue is recognized when revenue is earned, not when cash is received, expenses are recognized matches to revenue generated Inventory accounting methods - -FIFO, LIFO and average cost Depreciation types - -Straight line & accelerated Depreciation expense - -=(asset cost-salvage value)/ depreciation period Accelerated depreciation year 1 - -asset cost-accumulated depreciation*(2*straight line rate .2)= depreciation expense Accelerated depreciation year 2 - -asset cost-accumulated deprecation*(2*.4)=depreciation expense Accelerated depreciation - -Accumulated depreciation expense higher in earlier years, lower in later years Short term notes payable - -Interest expense=time*interest rate* principle Short term notes payable exmple - -=10,000*.08*(120/365) Direct write off method journal entry - -Debit bad debt expense, credit AR Indirect write off method original entry - -Debit bad debt expense, credit bad debt allowance CBA CBA Indirect write off method adjusting entry - -Debit bad debt allowance, credit AR Bad debt allowance account type - -Contra asset account Common stock - -Basic form of stock, shareholders benefit if the company succeeds, takes more risk compared to preferred stockholders Basic rights of common stock - -Preemptive right, right to vote, right to earn a dividend and right to receive assets in the case of liquidation Preemptive right - -Privilege extended to allow the purchase of stock before the public, used to maintain ownership level in the company Common and preferred stock - -Dividends are not tax deductible, company only obligated to pay dividend after declaration Preferred stockholders - -Have advantages over common stock holders, receives dividends first, receives assets first in the case of a liquidation, receives a fixed dividend, less risk compared to common, does not vote Par value - -An arbitrary amount assigned to a share of stock Cumulative preferred stock - -Provision that stipulates if any dividend have been omitted in the past that they must be paid out to preferred stockholders first Quick acid-test ratio - -Current assets-inventory/current liabilities-liquidity ratio that is more rigorous test of short term solvency bc eliminates inventory which is the least liquid current asset and most likely source of loss-the higher the better Cash flow liquidity ratio - -(Cash+ cash equilivelents+marketable securities+cash flow from operations)/current liabilities -another approach to measure short term solvency, considers cash flows w from operations-the higher the better, liquidity ratio Current ratio - -Current assets/current liabilities-liquidity ratio most commonly used to measure short term solvency, the ability to meet debt requirements as they come due the higher the better Liquidity ratios - -Current, quick acid test, days payable outstanding, days inventory held, average collection periods, cash flow liquidity-measure short term solvency Activity ratios - -Accounts receivable turnover, inventory turnover, accounts payable turnover, fixed asset turnover, total asset turnovers -measures management efficiency CBA CBA Accounts receivable turn over - -Net sales/net account receivable, how many times on average accounts receivable are collected in cash, complements the average collection period, the higher the better, activity ratio Inventory turnover - -Cost of goods sold/ inventory, how many times on average inventory is sold, complements the inventory held ratio, the higher the better, activity ratio Accounts payable turnover - -Cost of goods sold/ accounts payable, how many times on average payables are made to vendors, compliments the accounts payable outstanding ratio, the lower the better, activity ratio Fixed asset turnover - -Net sales/ net PPE - one approach to assess management effectiveness in generating sales from investments in assets, considers only investment in PPE, very important for a capital intensive firm, manufacturing and companies with heavy investments in long lived assets, activity ratio, the higher the better-indicating the smaller investment required to generate sales, if ratio is low either assets are too heavy or sluggish sales Total asset turnover - -Net sales/ total assets - another approach to assess management effectiveness in generating sales from investments in assets, measures efficiency of managing all of the firm's assets, activity ratio, the higher the better indicating the smaller investment required to generate sales, if ratio is low either assets are too heavy or sluggish sales Debt ratio - -Total liabilities/ total assets -measures the extent of firm's financing with debt, considers proportion of all assets that are financed with debt, the higher the greater the degree of risk, leverage ratio Long term debt to total capitalization - -Long term debt/(long term debt+stockholder's equity)-measures the extent of firm's financing with debt, reveals the extent to which long term debt is used for the firm's permanent financing, the higher the greater the degree of risk, leverage ratio Debt to equity - -Total liabilities/ stockholder's equity-measures the extent of firm's financing with debt, measures the riskiness of the firm's capital structure in terms of the relationship between funds supplied by creditors(debt) and investors (owners/ equity), the higher the greater the degree of risk, leverage ratio Times interest earned - -Operating profit/ interest expense, interest and taxes paid found in supplemental disclosures in statement of cash flows, the higher the better, leverage ratio Cash interest coverage - -(cash flow from operations+interest paid+ taxes paid)/ interest paid, interest and taxes paid found in supplemental disclosures in statement of cash CBA CBA flows, the higher the better, leverage ratio, measures how many times interest payments can be covered by cash flow from operations before interest and taxes Fixed charge coverage - -( operating profit+rent expense)/(interest expense+rent expense), rent expense=operating lease payment, broader measure compared to times interest earned ratio bc includes fixed payments associated with leasing, leverage ratio, the higher the better Cash flow adequacy - -Cash flow from operating activity/(capital expenditures +debt repayments+dividends paid), measures a firm's ability to cover capital expenditures , debt maturities, and dividend payments each year, the higher the better, leverage ratio Gross profit margin - -Gross profit/net sales-represents the firm's ability to translate sales dollars into profits at different stages of measurement, measures the ability of a company both to control costs of inventories or manufacturing of products and to pass along price increases through sales to customers, profitability ratio Operating profit margin - -Operating profit/net sales-represents the firm's ability to translate sales dollars into profits at different stages of measurement, measures overall efficiency, incorporates all expenses associated with ordinary business activities, profitability ratio Net profit margin - -Net earnings/net sales-represents the firm's ability to translate sales dollars into profits at different stages of measurement, measures profitability after considering all revenues and expenses includes interest, taxes, and no operating items, profitability ratio Cash flow margin - -Cash flow from operations/net sales-measures the firm's ability to translate sales into cash, the higher the better, ratio Return on total assets or return on investment - -Net earning/ total assets- measures the efficiency of the firm in managing total investment in assets, indicates the amount of profit earned relative to the investment in total assets, the higher the better, profitability ratio Return on equity - -Net earnings/stockholder's equity-measures the efficiency of the firm in managing total investment in generating return to all shareholders, measures the return to common shareholders, the higher the better, profitability ratio Cash return on assets - -Cash flow from operating activities/ total assets, offers comparison to return on investment or return on total assets, measures the firm's cash generating ability of assets, the higher the better, profitability ratio Basic earnings per share - -Net earnings/average shares outstanding, a common denominator to gauge investment returns, market ratio CBA CBA Price to earning ratio - -Market price of common stock/ earnings per share-relates earnings per common share to the market price, function of quality of earnings, future earnings potential and performance history of the firm, generally the higher the better, market ratio Dividend payout ratio - -Dividend per share/earning per share-generally the higher the better, market ratio Dividend yeild - -Dividend per share/market price of common stock, shows relationship between cash dividend and market price, result is a return based upon market price, the higher the better, market ratio Leverage ratios - -Debt ratio, long-term debt to total capitalization, debt to equity, times interest earned, cash interest coverage, fixed charge coverage, cash flow adequacy Profitability ratios - -Gross profit margin, operating profit margin, net profit margin, cash flow margin, return on total assets, return on equity, cash return on assets Market ratios - -Basic earnings per share, price-to-earnings, dividend payout ratio, dividend yield Sherman act - -First antitrust act passed in the United States designed to prevent monopolies and unfair restraints of trade Clayton act - -Designed to amend he Sherman Act and fix its broad language, makes it unlawful to enter into leases and sales on condition that the lessee or purchaser shall not use or deal in commodities of a competitor of the lessor or seller and exclusive dealing arrangement and tying leases and agreements Robinson-Patman Act - -Passed to partially supplement the Clayton Act, unlawful for any person engaged in commerce or in course of such commerce, either directly or indirectly to discriminate price between different purchasers of commodities of like grade and quality when either either or any of the purchasers involved in such discrimination are engaged in interstate commerce and where the commodities are sold for use. Forbids price discrimination where the effect of such price discrimination is to substantially reduce competition or create a monopoly Federal Trade Commission Act - -States that all unlawful methods of competition and unfair or deceptive acts or practices in commerce to be unlawful Antitrust Procedures and Penalties Act - -Increased the penalties of the Sherman Act , changed consent decree and revised the provisions for appellate review of antitrust cases, passed in 1974 The 1976 Antitrust Act - -Grants the federal government new disclosure powers in antitrust litigation, requires companies of a certain size to file pre-merger notices CBA CBA Fair Credit Reporting Act - -Requires consumer reporting agencies to adopt reasonable procedures for meeting the needs of consumer credit personnel, insurance and other information that is fair and equitable to consumers Fair Debt Collection Practices Act - -Created to make fair laws for the benefit of debtors when a creditor attempts to recover debts Truth in Lending Act - -Sellers of credit are mandated by law to disclose certain information when offering credit Equal Credit Opportunity Act - -Promotes the availability of credit to all credit worthy persons regardless of race, color,religion, origin, sex, marital status or age provided the applicant has the capacity to contract Free on Board - -Placement of shipment requires the seller to deliver the goods free of expense and at the seller's risk to the carrier Free Alongside - -At a named port requires the seller to deliver the goods, at his/her own risk, alongside the vessel or at a dock designated by the buyer Cost, insurance and freight - -Price of goods includes the cost of shipping and insurance, seller bears the expense and risk of loading the goods Cost and freight - -Price of goods includes the cost of shipping, seller bears the risk of loading the goods Free on Board destination - -Puts expense and risk of delivering the goods to that destination on the seller Ex-ship - -Expense and risk on seller until goods are unloaded from whatever ship is used No Arrival No Sale - -Places the expense and risk during shipment on the seller, if goods fail to arrive through no fault of the seller, seller has no further liability to the buyer UCC Article 9 - -Include the right to payment arising from the sale, lease, license and other disposition of all types of tangible and intangible property-includes fees, royalties under intellectual property, licenses, lottery winnings, credit card receivables, healthcare insurance receivables General intangibles - -Chattel paper, commercial tort claim, deposit account, letter of credit, proceeds CBA CBA Requirements of a security agreement - -Creditor provided value to debtor, debit has rights in the collateral and power to transfer rights and a valid security agreement that describes the collateral Beginning inventory - -First take COGS + ending inventory value, then take this value less purchases Off balance sheet financing - -When the firm is expected to make payment, but not recorded as a liability on the balance sheets, example- Operating leases, recourse agreements, joint ventures 5 C's of Credit - -Character, capacity, capital, collateral, conditions Character - -Moral qualities and actions of a credit applicant which oblige the applicant to pay debts when they become due Capacity - -Ability to pay when debt is due Capital - -Financial strength of a risk as measured by the equity or net worth of an applicant Cash flow from operating activities - -Current or expected general economic situations as they might affect the applicant Conditions - -Current or expected general economic situations as they might affect the applicant Collateral - -Possessions or equities from which the customer or debtor might be expected to draw upon should character and capacity fail Federal Reserve System - -Central bank of the United States, also known as the Fed, created as an independent agency to provide nation with a safer, more flexible and more stable monte tart and financial system, serves as an administrator, banker, controller, guardian, lender and regulator S-corporation - -Do not pay any federal income tax, business's income and losses are divided amongst the shareholders, during tax season, the owners report the earnings/losses on their personal tax returns, not eligible for a dividend received deduction, not eligible for 10% taxable income deduction, pays disbursement, requirements-no more than 100 shareholders, no more than 1 class of stock, all shareholders agree to s-Corp status, must earn 75% of gross income from its normal business function-if violated for 3 consecutive years, s-Corp status is terminated Limited liability company - -There is a disbursement, subject to pass through taxation, provides limited liability to the owners, all guarantee of c-Corp, all tax benefits of s-Corp, must contain more non-corp characteristics than Corp. Must have associates and an CBA CBA objective to carry on business and to divide the gains therefrom. Must not contain two or more of the following: continuity of life, centralized management, limited liability and free transferability of assets General partner - -Personally liable for company loss in a partnership Limited partner - -May not be personally liable for loss in a partnership, contingent on involvement with management Concept of negotiability - -Written document, signed by the maker or drawer, and containing an unconditional promise to pay a certain sum of money on delivery or at a definite time to the bearer Requirement of a negotiable instrument - -Written document, signed by the maker or the drawerer, unconditional promise to pay, contain a specified sum of monies, on demand, payable to order certain money The maker - -Person or company that executes a note The drawer - -Person or company who makes or executes a draft Acceleration clause - -Allows the oblige to declare the full amount due and payable upon the occurrence of a particular event, such as failure to make payment Kinds of negotiable instruments - -Drafts and notes Check - -Form of a draft/bill of exchange Notes - -Includes certificates of deposit Special types of checks - -Bank drafts, cashier's checks, traveler's checks and certified checks Bank draft - -Also known as a teller's check or treasurer's check, drawn from one bank to another I which funds a deposit in favor of a third party, the payee Cashier's check - -Check drawn by a bank upon itself, payment cannot be stopped Traveler's check - -The bank is both the drawer and the drawer, purchaser signs the checks in presence of issuer when they are purchased Certified checks - -Cannot bounce, UCC provides that certification of a check is acceptance, bank has absolute liability to pay CBA CBA Assignment - -When commercial paper does not meet all of the requirements of negotiability, transfers to another person, transferee only has rights of an assignee and subject to all defenses existing against the assignor Negotiatioon - -Transfer of an instrument in such form that the transferee becomes a holder Endorsements - -When the holder signs the document, indicating intent to transfer ownership to another Types of emdorsements - -Blank, qualified, restrictive or conditional UCC article 2 - -Sales, replaced former uniform sales act UCC article 4 - -Banks deposits and collections UCC article 5 - -Letters of credit UCC article 7 - -Documents of title UCC article 9 - -Secured transactions Free on board point - -Where customer picks up, sellers pay freight charge (prepaid), buyer is rebilled for the freight Security agreement - -Contract that establishes obligations and contractural rights between and debtor and creditor Security interest - -Title that the interest or ownership in the goods that provide the security for payment of the debt Days before product turns into cash - -Inventory turnover+AR turnover Steps in the accounting cycle - -Transactions are analyzed and recorded in a journal, transactions are posted to the general ledger, a trial balance is prepared, adjusting entries are assembled, work sheet is completed, adjusting entries are journalized and posted to the general ledger accounts, financial statements are prepared (income statement, statement of owner's equity, balance sheet snd statement of cash flows, closing entries are journalizedand posted to general ledger accounts, a post closing trial balance is prepared Ending retained earnings - -Beginning retained earnings+ net income -net loss - dividends Proxy statement - -For common stockholders, contains 10k financial and salary information, used to solicit shareholder votes, required by the SEC, contains voting CBA CBA procedures and information, information about company's directors, must own at least 10% (large minority owner), director compensation, executive compensation, any proposal changes in compensation plans, audit committee report, breakdown of audit and non-audit fees paid to the auditing firm Capital asset - -Anything that is keep over 1 year, must be tangible Equity method - -Allows investor proportionate recognition of invetestee's net income, irrespective of the payment or nonpayment of cash dividends, for those invested 20 50%, distorts earnings in the sense that income is recognized even though no cash has been received Effective tax rate - -Income taxes/ earnings before income taxes Cost method - -Investor recognizes investment income only to the extent of any cash dividends received, for those invested over 50 % Earnings per common share - -Net income/common stock outstanding Common shareholders - -Usually entitled to one vote per share, there are multiple classes of common stock, shareholders that are unable to attend meeting may participate in voting matter by proxy which is a legal transfer to another party of a shareholder's right to vote, do not receive a fixed return, voting privileges are proportionate to ownership interest, dividends are declared at the discretion of the board on of directors Dividend declaration date - -Date dividend is booked, expense is recognized Dividend ex-dividend date - -15 days after declaration to participate Dividend holder of record date - -Usually matches the payment date, 30-45 days after declaration Dividend payment date - -Date that dividend is paid Comprehensive income - -Change inequity of a company during a period of transactions, other events, and circumstances relating to non owner sources, items that can compromise: cash flow hedges, forge in currency translations, unrealized gains or losses and additional pension liabilities Cash dividend - -Return profits to the owners, once declared is a legal liability to the shareholders Stock dividend/ split - -Addition pieces of paper, but no additional cash, reduces the stock price, but no change in the total value, preserves cash CBA Capital leases - -Considered a purchase rather than a lease, the obligations affect both the income statement and balance sheet Operating lease - -Common type of commitment that is a form of off balance sheet financing Treasury stock - -Stock that is re-purchased by the company, when this happens earnings per share increases, the repurchase price becomes the new par value Cash flow from operating activities - -Reports cash received and paid in the daily operations of business including cash received from customers and paid to suppliers Cash flow from investing activities - -Reports cash received and paid as a result of the sale and purchase of investments, can be divided into two sections, investments in yourself (purchase of a plant asset or sale of a plant asset) and investments in others ( purchase of equity or debt securities of another company, sale of equity or debt securities held as investments, making of a loan to another company, collection of principle payments on a low made to another company) Cash flow from financing activities - -Reports cash received and paid as a result of the activities to obtain and repay funds used to finance the operations of a company, can be divided into two section, equity financing (issues share of stock, retiring shares of stock, purchasing shares of treasury stock, selling shares of treasury stock, paying cash dividends on stock) and debt financing (borrowing cash and repaying principle on a loan) Cash flow reminders - -Interest paid on debt, interest received in investments and dividends received on investments, all reported in the operating activities section