WGU D196 Objective Assessment Principles of
Financial & Managerial Accounting| Qs & As|
Grade A|
1. The accounting equation is expressed as:
• A) Assets = Liabilities + Owner’s Equity
• B) Liabilities = Assets + Owner’s Equity
• C) Owner’s Equity = Assets + Liabilities
• D) Assets = Liabilities – Owner’s Equity
Rationale: A is correct. This is the fundamental equation of accounting. It must
always remain in balance. Assets are the resources owned, financed either by
creditors (liabilities) or owners (equity).
2. Revenue should be recognized in the accounting records when:
• A) Cash is received from the customer
• B) The service is performed or the product is delivered
• C) An invoice is sent to the customer
• D) The customer order is received
Rationale: B is correct. This follows the revenue recognition principle (accrual
accounting). Revenue is earned when the performance obligation is satisfied,
regardless of when cash is received.
3. Which of the following is a product cost for a manufacturer?
• A) Sales commission expense
• B) Salary of the factory supervisor
, • C) Advertising expense
• D) CEO’s salary
Rationale: B is correct. Product costs are those directly tied to producing
inventory (direct materials, direct labor, manufacturing overhead). The factory
supervisor’s salary is part of manufacturing overhead. The other options are period
costs (selling or administrative expenses).
4. A company has a contribution margin ratio of 40%. If fixed costs are
$50,000, what is the break-even point in sales dollars?
• A) $125,000
• B) $20,000
• C) $50,000
• D) $200,000
Rationale: A is correct. Break-even sales dollars = Fixed Costs / Contribution
Margin Ratio.
$50,.40 = $125,000.
5. Which financial statement reports a company’s financial position at a
specific point in time?
• A) Income Statement
• B) Statement of Cash Flows
• C) Balance Sheet
• D) Statement of Owner’s Equity
Rationale: C is correct. The Balance Sheet (or Statement of Financial Position)
shows Assets, Liabilities, and Equity as of a specific date. The others report
performance or changes over a period of time.
,6. The cost of goods sold for a retailer would not include:
• A) The purchase price of the inventory sold
• B) Shipping costs to receive the inventory from the supplier
• C) Sales staff wages
• D) Import duties on the purchased inventory
Rationale: C is correct. Cost of Goods Sold (COGS) includes all costs to acquire
and prepare inventory for sale. Sales staff wages are a selling expense (a period
cost), not a product cost. Shipping-in and duties are part of inventory cost.
7. Which is an example of an internal user of financial information?
• A) Bank loan officer
• B) Company manager
• C) Potential investor
• D) Tax authority
Rationale: B is correct. Internal users are individuals inside the company who use
information for planning, controlling, and decision-making (e.g., managers). The
others are external users.
8. Depreciation expense on factory equipment is classified as:
• A) A period cost
• B) A direct material cost
• C) A direct labor cost
• D) A manufacturing overhead cost
Rationale: D is correct. Factory equipment is used in the production process. Its
depreciation is an indirect product cost, included in Manufacturing Overhead,
which is later allocated to products.
, 9. If a company's Current Assets are $75,000 and Current Liabilities are
$50,000, the current ratio is:
• A) 0.67
• B) 1.5
• C) 25,000
• D) 1.25
Rationale: B is correct. Current Ratio = Current Assets / Current Liabilities.
$75,000 / $50,000 = 1.5. This measures short-term liquidity.
10. In a job-order costing system, costs are traced to:
• A) Specific production departments
• B) Specific units or batches of product
• C) Time periods (e.g., monthly)
• D) The overall factory
Rationale: B is correct. Job-order costing is used for unique, custom products
(e.g., houses, special orders). Costs are accumulated by specific job or batch.
Process costing (A) is for continuous, homogeneous production.
11. The entry to record the purchase of office supplies on credit includes:
• A) Debit Office Supplies, Credit Accounts Payable
• B) Debit Accounts Payable, Credit Office Supplies
• C) Debit Office Supplies Expense, Credit Cash
• D) Debit Cash, Credit Office Supplies
Rationale: A is correct. Office Supplies is an asset account that increases with a
debit. Accounts Payable is a liability that increases with a credit when a promise to
pay later is made.
Financial & Managerial Accounting| Qs & As|
Grade A|
1. The accounting equation is expressed as:
• A) Assets = Liabilities + Owner’s Equity
• B) Liabilities = Assets + Owner’s Equity
• C) Owner’s Equity = Assets + Liabilities
• D) Assets = Liabilities – Owner’s Equity
Rationale: A is correct. This is the fundamental equation of accounting. It must
always remain in balance. Assets are the resources owned, financed either by
creditors (liabilities) or owners (equity).
2. Revenue should be recognized in the accounting records when:
• A) Cash is received from the customer
• B) The service is performed or the product is delivered
• C) An invoice is sent to the customer
• D) The customer order is received
Rationale: B is correct. This follows the revenue recognition principle (accrual
accounting). Revenue is earned when the performance obligation is satisfied,
regardless of when cash is received.
3. Which of the following is a product cost for a manufacturer?
• A) Sales commission expense
• B) Salary of the factory supervisor
, • C) Advertising expense
• D) CEO’s salary
Rationale: B is correct. Product costs are those directly tied to producing
inventory (direct materials, direct labor, manufacturing overhead). The factory
supervisor’s salary is part of manufacturing overhead. The other options are period
costs (selling or administrative expenses).
4. A company has a contribution margin ratio of 40%. If fixed costs are
$50,000, what is the break-even point in sales dollars?
• A) $125,000
• B) $20,000
• C) $50,000
• D) $200,000
Rationale: A is correct. Break-even sales dollars = Fixed Costs / Contribution
Margin Ratio.
$50,.40 = $125,000.
5. Which financial statement reports a company’s financial position at a
specific point in time?
• A) Income Statement
• B) Statement of Cash Flows
• C) Balance Sheet
• D) Statement of Owner’s Equity
Rationale: C is correct. The Balance Sheet (or Statement of Financial Position)
shows Assets, Liabilities, and Equity as of a specific date. The others report
performance or changes over a period of time.
,6. The cost of goods sold for a retailer would not include:
• A) The purchase price of the inventory sold
• B) Shipping costs to receive the inventory from the supplier
• C) Sales staff wages
• D) Import duties on the purchased inventory
Rationale: C is correct. Cost of Goods Sold (COGS) includes all costs to acquire
and prepare inventory for sale. Sales staff wages are a selling expense (a period
cost), not a product cost. Shipping-in and duties are part of inventory cost.
7. Which is an example of an internal user of financial information?
• A) Bank loan officer
• B) Company manager
• C) Potential investor
• D) Tax authority
Rationale: B is correct. Internal users are individuals inside the company who use
information for planning, controlling, and decision-making (e.g., managers). The
others are external users.
8. Depreciation expense on factory equipment is classified as:
• A) A period cost
• B) A direct material cost
• C) A direct labor cost
• D) A manufacturing overhead cost
Rationale: D is correct. Factory equipment is used in the production process. Its
depreciation is an indirect product cost, included in Manufacturing Overhead,
which is later allocated to products.
, 9. If a company's Current Assets are $75,000 and Current Liabilities are
$50,000, the current ratio is:
• A) 0.67
• B) 1.5
• C) 25,000
• D) 1.25
Rationale: B is correct. Current Ratio = Current Assets / Current Liabilities.
$75,000 / $50,000 = 1.5. This measures short-term liquidity.
10. In a job-order costing system, costs are traced to:
• A) Specific production departments
• B) Specific units or batches of product
• C) Time periods (e.g., monthly)
• D) The overall factory
Rationale: B is correct. Job-order costing is used for unique, custom products
(e.g., houses, special orders). Costs are accumulated by specific job or batch.
Process costing (A) is for continuous, homogeneous production.
11. The entry to record the purchase of office supplies on credit includes:
• A) Debit Office Supplies, Credit Accounts Payable
• B) Debit Accounts Payable, Credit Office Supplies
• C) Debit Office Supplies Expense, Credit Cash
• D) Debit Cash, Credit Office Supplies
Rationale: A is correct. Office Supplies is an asset account that increases with a
debit. Accounts Payable is a liability that increases with a credit when a promise to
pay later is made.
