WGU D103 Intermediate Accounting I
FINAL EXAM – PRACTICE QUESTIONS
(2026)
1. Which of the following is a primary qualitative characteristic of useful financial information
according to the FASB Conceptual Framework?
A. Comparability B. Relevance C. Verifiability D. Timeliness
ANSWERB. Relevance
Rationale:
• A. Comparability: Incorrect. Comparability is an enhancing qualitative characteristic, not a
primary one. It helps users identify similarities and differences but is secondary to the
fundamental characteristics.
• B. Relevance: Correct. Relevance is one of the two fundamental (primary) qualitative
characteristics, along with faithful representation. Information is relevant if it can influence
decisions by having predictive value, confirmatory value, or both.
• C. Verifiability: Incorrect. Verifiability is an enhancing qualitative characteristic that assures
users information represents what it purports to represent, but it is not fundamental.
• D. Timeliness: Incorrect. Timeliness is an enhancing characteristic; information must be
available to decision-makers in time to be capable of influencing decisions, but it supports
rather than defines usefulness.
,2. Under the accrual basis of accounting, when should revenue be recognized?
A. When cash is received from the customer B. When the performance obligation is satisfied C. When
the invoice is sent to the customer D. When the product is manufactured
ANSWERB. When the performance obligation is satisfied
Rationale:
• A. When cash is received from the customer: Incorrect. This describes the cash basis of
accounting, not accrual. Accrual accounting recognizes revenue when earned, regardless of
cash flow timing.
• B. When the performance obligation is satisfied: Correct. Under ASC 606 (Revenue from
Contracts with Customers), revenue is recognized when control of goods or services transfers
to the customer, satisfying the performance obligation.
• C. When the invoice is sent to the customer: Incorrect. Invoicing is an administrative event
and does not determine revenue recognition. Revenue may be recognized before or after
invoicing depending on contract terms.
• D. When the product is manufactured: Incorrect. Manufacturing completion does not
necessarily mean control has transferred. Revenue recognition depends on satisfying
performance obligations, not production status.
3. Which financial statement element represents probable future economic benefits obtained or
controlled by an entity as a result of past transactions or events?
A. Liability B. Equity C. Asset D. Revenue
ANSWERC. Asset
Rationale:
• A. Liability: Incorrect. A liability represents probable future sacrifices of economic benefits
arising from present obligations, not benefits obtained.
• B. Equity: Incorrect. Equity is the residual interest in assets after deducting liabilities; it is not a
direct claim to future economic benefits.
• C. Asset: Correct. The FASB defines an asset as a probable future economic benefit obtained or
controlled by an entity resulting from past transactions or events.
• D. Revenue: Incorrect. Revenue represents inflows from ongoing operations that increase
equity, but it is not the resource itself; it is a change in equity from delivering goods/services.
4. A company purchases equipment for $50,000 with a salvage value of $5,000 and a useful life of 5
years. Using straight-line depreciation, what is the annual depreciation expense?
,A. $9,000 B. $10,000 C. $8,500 D. $11,000
ANSWERA. $9,000
Rationale:
• A. $9,000: Correct. Straight-line depreciation = (Cost - Salvage Value) / Useful Life = ($50,000 -
$5,000) / 5 = $45, = $9,000 per year.
• B. $10,000: Incorrect. This would be the result if salvage value were ignored ($50, =
$10,000), but salvage value must be subtracted first.
• C. $8,500: Incorrect. This miscalculates the depreciable base or useful life; no standard
method yields this figure with the given data.
• D. $11,000: Incorrect. This exceeds the depreciable base divided by life and does not align
with any common depreciation method for these inputs.
5. Which inventory costing method typically results in the lowest net income during periods of rising
prices?
A. FIFO B. LIFO C. Weighted Average D. Specific Identification
ANSWERB. LIFO
Rationale:
• A. FIFO: Incorrect. FIFO assigns older, lower costs to cost of goods sold during inflation,
resulting in higher gross profit and net income.
• B. LIFO: Correct. LIFO assigns the most recent, higher costs to cost of goods sold during rising
prices, reducing gross profit and net income, which can lower tax liability.
• C. Weighted Average: Incorrect. This method smooths costs between old and new, producing
net income between FIFO and LIFO results during inflation.
• D. Specific Identification: Incorrect. This method tracks actual costs of specific items; income
depends on which specific units are sold, not systematically lower during inflation.
6. The statement of cash flows classifies cash receipts and payments into which three categories?
A. Operating, Investing, Financing B. Revenue, Expense, Equity C. Current, Noncurrent, Deferred D.
Direct, Indirect, Supplemental
ANSWERA. Operating, Investing, Financing
Rationale:
, • A. Operating, Investing, Financing: Correct. GAAP requires cash flows to be categorized as
operating (core business activities), investing (acquisition/disposal of long-term assets), and
financing (transactions with owners and creditors).
• B. Revenue, Expense, Equity: Incorrect. These are income statement and balance sheet
elements, not cash flow classifications.
• C. Current, Noncurrent, Deferred: Incorrect. These terms relate to balance sheet classification
of assets/liabilities, not cash flow statement categories.
• D. Direct, Indirect, Supplemental: Incorrect. Direct and indirect refer to methods of presenting
operating cash flows, not the three main categories; supplemental is for disclosures.
7. Which of the following is NOT a requirement for recognizing a contingent liability under GAAP?
A. The loss is probable B. The amount can be reasonably estimated C. The event has already occurred
D. The liability is disclosed in the notes regardless of probability
ANSWERD. The liability is disclosed in the notes regardless of probability
Rationale:
• A. The loss is probable: Incorrect. This IS a requirement; a contingent liability is accrued only if
the loss is probable.
• B. The amount can be reasonably estimated: Incorrect. This IS a requirement; both probability
and estimability are needed for accrual.
• C. The event has already occurred: Incorrect. This IS implied; contingencies arise from past
events or conditions.
• D. The liability is disclosed in the notes regardless of probability: Correct. This is NOT a
recognition requirement. Disclosure is required for reasonably possible contingencies, but
recognition (accrual) requires probable and estimable. Remote contingencies generally
require no disclosure.
8. A company uses the allowance method for uncollectible accounts. When a specific account is
written off, what is the effect on net realizable value of accounts receivable?
A. Increases B. Decreases C. No effect D. Depends on the amount written off
ANSWERC. No effect
Rationale:
• A. Increases: Incorrect. Writing off an account reduces both Accounts Receivable and the
Allowance for Doubtful Accounts by the same amount, leaving net realizable value
unchanged.
FINAL EXAM – PRACTICE QUESTIONS
(2026)
1. Which of the following is a primary qualitative characteristic of useful financial information
according to the FASB Conceptual Framework?
A. Comparability B. Relevance C. Verifiability D. Timeliness
ANSWERB. Relevance
Rationale:
• A. Comparability: Incorrect. Comparability is an enhancing qualitative characteristic, not a
primary one. It helps users identify similarities and differences but is secondary to the
fundamental characteristics.
• B. Relevance: Correct. Relevance is one of the two fundamental (primary) qualitative
characteristics, along with faithful representation. Information is relevant if it can influence
decisions by having predictive value, confirmatory value, or both.
• C. Verifiability: Incorrect. Verifiability is an enhancing qualitative characteristic that assures
users information represents what it purports to represent, but it is not fundamental.
• D. Timeliness: Incorrect. Timeliness is an enhancing characteristic; information must be
available to decision-makers in time to be capable of influencing decisions, but it supports
rather than defines usefulness.
,2. Under the accrual basis of accounting, when should revenue be recognized?
A. When cash is received from the customer B. When the performance obligation is satisfied C. When
the invoice is sent to the customer D. When the product is manufactured
ANSWERB. When the performance obligation is satisfied
Rationale:
• A. When cash is received from the customer: Incorrect. This describes the cash basis of
accounting, not accrual. Accrual accounting recognizes revenue when earned, regardless of
cash flow timing.
• B. When the performance obligation is satisfied: Correct. Under ASC 606 (Revenue from
Contracts with Customers), revenue is recognized when control of goods or services transfers
to the customer, satisfying the performance obligation.
• C. When the invoice is sent to the customer: Incorrect. Invoicing is an administrative event
and does not determine revenue recognition. Revenue may be recognized before or after
invoicing depending on contract terms.
• D. When the product is manufactured: Incorrect. Manufacturing completion does not
necessarily mean control has transferred. Revenue recognition depends on satisfying
performance obligations, not production status.
3. Which financial statement element represents probable future economic benefits obtained or
controlled by an entity as a result of past transactions or events?
A. Liability B. Equity C. Asset D. Revenue
ANSWERC. Asset
Rationale:
• A. Liability: Incorrect. A liability represents probable future sacrifices of economic benefits
arising from present obligations, not benefits obtained.
• B. Equity: Incorrect. Equity is the residual interest in assets after deducting liabilities; it is not a
direct claim to future economic benefits.
• C. Asset: Correct. The FASB defines an asset as a probable future economic benefit obtained or
controlled by an entity resulting from past transactions or events.
• D. Revenue: Incorrect. Revenue represents inflows from ongoing operations that increase
equity, but it is not the resource itself; it is a change in equity from delivering goods/services.
4. A company purchases equipment for $50,000 with a salvage value of $5,000 and a useful life of 5
years. Using straight-line depreciation, what is the annual depreciation expense?
,A. $9,000 B. $10,000 C. $8,500 D. $11,000
ANSWERA. $9,000
Rationale:
• A. $9,000: Correct. Straight-line depreciation = (Cost - Salvage Value) / Useful Life = ($50,000 -
$5,000) / 5 = $45, = $9,000 per year.
• B. $10,000: Incorrect. This would be the result if salvage value were ignored ($50, =
$10,000), but salvage value must be subtracted first.
• C. $8,500: Incorrect. This miscalculates the depreciable base or useful life; no standard
method yields this figure with the given data.
• D. $11,000: Incorrect. This exceeds the depreciable base divided by life and does not align
with any common depreciation method for these inputs.
5. Which inventory costing method typically results in the lowest net income during periods of rising
prices?
A. FIFO B. LIFO C. Weighted Average D. Specific Identification
ANSWERB. LIFO
Rationale:
• A. FIFO: Incorrect. FIFO assigns older, lower costs to cost of goods sold during inflation,
resulting in higher gross profit and net income.
• B. LIFO: Correct. LIFO assigns the most recent, higher costs to cost of goods sold during rising
prices, reducing gross profit and net income, which can lower tax liability.
• C. Weighted Average: Incorrect. This method smooths costs between old and new, producing
net income between FIFO and LIFO results during inflation.
• D. Specific Identification: Incorrect. This method tracks actual costs of specific items; income
depends on which specific units are sold, not systematically lower during inflation.
6. The statement of cash flows classifies cash receipts and payments into which three categories?
A. Operating, Investing, Financing B. Revenue, Expense, Equity C. Current, Noncurrent, Deferred D.
Direct, Indirect, Supplemental
ANSWERA. Operating, Investing, Financing
Rationale:
, • A. Operating, Investing, Financing: Correct. GAAP requires cash flows to be categorized as
operating (core business activities), investing (acquisition/disposal of long-term assets), and
financing (transactions with owners and creditors).
• B. Revenue, Expense, Equity: Incorrect. These are income statement and balance sheet
elements, not cash flow classifications.
• C. Current, Noncurrent, Deferred: Incorrect. These terms relate to balance sheet classification
of assets/liabilities, not cash flow statement categories.
• D. Direct, Indirect, Supplemental: Incorrect. Direct and indirect refer to methods of presenting
operating cash flows, not the three main categories; supplemental is for disclosures.
7. Which of the following is NOT a requirement for recognizing a contingent liability under GAAP?
A. The loss is probable B. The amount can be reasonably estimated C. The event has already occurred
D. The liability is disclosed in the notes regardless of probability
ANSWERD. The liability is disclosed in the notes regardless of probability
Rationale:
• A. The loss is probable: Incorrect. This IS a requirement; a contingent liability is accrued only if
the loss is probable.
• B. The amount can be reasonably estimated: Incorrect. This IS a requirement; both probability
and estimability are needed for accrual.
• C. The event has already occurred: Incorrect. This IS implied; contingencies arise from past
events or conditions.
• D. The liability is disclosed in the notes regardless of probability: Correct. This is NOT a
recognition requirement. Disclosure is required for reasonably possible contingencies, but
recognition (accrual) requires probable and estimable. Remote contingencies generally
require no disclosure.
8. A company uses the allowance method for uncollectible accounts. When a specific account is
written off, what is the effect on net realizable value of accounts receivable?
A. Increases B. Decreases C. No effect D. Depends on the amount written off
ANSWERC. No effect
Rationale:
• A. Increases: Incorrect. Writing off an account reduces both Accounts Receivable and the
Allowance for Doubtful Accounts by the same amount, leaving net realizable value
unchanged.
