,WGU C214 - Financial Management – OA | 142 Questions and correct
detailed Answers + Expert Rationales | 2026/27 Updates | 100% correct
1. Trading on the NYSE is executed without a specialist (i.e. a market maker). True
or False?
• A) True
• B) False
Correct Answer: B) False
Expert Rationale: The NYSE uses designated market makers (DMMs), formerly known
as specialists, to facilitate trading and maintain orderly markets. They provide liquidity
by matching buyers and sellers and can trade for their own accounts to stabilize prices.
2. Stocks and Bonds are two types of financial instruments. True or False?
• A) True
• B) False
Correct Answer: A) True
Expert Rationale: Stocks represent ownership in a corporation, while bonds represent
debt obligations. Both are financial instruments that trade in capital markets, making
this statement correct.
3. When revenue is matched with cost of sales in an Income statement it is called?
• A) Matching principle
• B) Revenue recognition principle
• C) Accrual accounting
, • D) Cash basis accounting
Correct Answer: A) Matching principle
Expert Rationale: The matching principle requires that expenses be recognized in the
same period as the revenues they help generate. This ensures that the income
statement accurately reflects the profitability of operations during a specific period.
4. Basic balance sheet equation is what?
• A) Assets = Liabilities + Equity
• B) Assets = Liabilities – Equity
• C) Equity = Assets + Liabilities
• D) Liabilities = Assets × Equity
Correct Answer: A) Assets = Liabilities + Equity
Expert Rationale: The fundamental accounting equation states that a firm's assets are
financed by either debt (liabilities) or ownership (equity). Rearranged, Equity = Assets –
Liabilities.
5. Why is the balance sheet known as the permanent statement?
• A) Because it reports data for a single day
• B) Because the other statements are reset at the end of the fiscal year
• C) Because it never changes
• D) Because it is audited annually
Correct Answer: B) Because the other statements are reset at the end of the fiscal year
Expert Rationale: The balance sheet is a "permanent" or "snapshot" statement because
its balances carry forward from one period to the next. In contrast, income statement
and cash flow statement accounts are closed to retained earnings at year-end and reset
to zero.
6. How do you calculate the change in retained earnings?
, • A) Net Income + Dividends
• B) Net Income – Dividends
• C) Sales – Expenses
• D) Assets – Liabilities
Correct Answer: B) Net Income – Dividends
Expert Rationale: The change in retained earnings equals net income less dividends
paid. This is the amount of earnings retained in the business to fund future growth.
7. Sales – Cost of Sales – other expenses = ?
• A) Gross Profit
• B) Operating Income or EBIT
• C) Net Income
• D) EBITDA
Correct Answer: B) Operating Income or EBIT
Expert Rationale: Sales minus cost of sales equals gross profit. Subtracting other
operating expenses (SG&A, depreciation, etc.) yields Operating Income, also known as
EBIT (Earnings Before Interest and Taxes).
8. Name four accounts that are part of total assets.
• A) Cash, Accounts Receivable, Inventory, Long-term assets
• B) Bonds, Accounts Payable, Mortgage, Cash
• C) Common Stock, Dividends, Cash, Inventory
• D) Accounts Payable, Cash, Inventory, Equipment
Correct Answer: A) Cash, Accounts Receivable, Inventory, Long-term assets
Expert Rationale: Total assets include current assets (cash, AR, inventory) and long-
term assets (PP&E, intangibles). These are all resources owned by the firm that provide
future economic benefit.
detailed Answers + Expert Rationales | 2026/27 Updates | 100% correct
1. Trading on the NYSE is executed without a specialist (i.e. a market maker). True
or False?
• A) True
• B) False
Correct Answer: B) False
Expert Rationale: The NYSE uses designated market makers (DMMs), formerly known
as specialists, to facilitate trading and maintain orderly markets. They provide liquidity
by matching buyers and sellers and can trade for their own accounts to stabilize prices.
2. Stocks and Bonds are two types of financial instruments. True or False?
• A) True
• B) False
Correct Answer: A) True
Expert Rationale: Stocks represent ownership in a corporation, while bonds represent
debt obligations. Both are financial instruments that trade in capital markets, making
this statement correct.
3. When revenue is matched with cost of sales in an Income statement it is called?
• A) Matching principle
• B) Revenue recognition principle
• C) Accrual accounting
, • D) Cash basis accounting
Correct Answer: A) Matching principle
Expert Rationale: The matching principle requires that expenses be recognized in the
same period as the revenues they help generate. This ensures that the income
statement accurately reflects the profitability of operations during a specific period.
4. Basic balance sheet equation is what?
• A) Assets = Liabilities + Equity
• B) Assets = Liabilities – Equity
• C) Equity = Assets + Liabilities
• D) Liabilities = Assets × Equity
Correct Answer: A) Assets = Liabilities + Equity
Expert Rationale: The fundamental accounting equation states that a firm's assets are
financed by either debt (liabilities) or ownership (equity). Rearranged, Equity = Assets –
Liabilities.
5. Why is the balance sheet known as the permanent statement?
• A) Because it reports data for a single day
• B) Because the other statements are reset at the end of the fiscal year
• C) Because it never changes
• D) Because it is audited annually
Correct Answer: B) Because the other statements are reset at the end of the fiscal year
Expert Rationale: The balance sheet is a "permanent" or "snapshot" statement because
its balances carry forward from one period to the next. In contrast, income statement
and cash flow statement accounts are closed to retained earnings at year-end and reset
to zero.
6. How do you calculate the change in retained earnings?
, • A) Net Income + Dividends
• B) Net Income – Dividends
• C) Sales – Expenses
• D) Assets – Liabilities
Correct Answer: B) Net Income – Dividends
Expert Rationale: The change in retained earnings equals net income less dividends
paid. This is the amount of earnings retained in the business to fund future growth.
7. Sales – Cost of Sales – other expenses = ?
• A) Gross Profit
• B) Operating Income or EBIT
• C) Net Income
• D) EBITDA
Correct Answer: B) Operating Income or EBIT
Expert Rationale: Sales minus cost of sales equals gross profit. Subtracting other
operating expenses (SG&A, depreciation, etc.) yields Operating Income, also known as
EBIT (Earnings Before Interest and Taxes).
8. Name four accounts that are part of total assets.
• A) Cash, Accounts Receivable, Inventory, Long-term assets
• B) Bonds, Accounts Payable, Mortgage, Cash
• C) Common Stock, Dividends, Cash, Inventory
• D) Accounts Payable, Cash, Inventory, Equipment
Correct Answer: A) Cash, Accounts Receivable, Inventory, Long-term assets
Expert Rationale: Total assets include current assets (cash, AR, inventory) and long-
term assets (PP&E, intangibles). These are all resources owned by the firm that provide
future economic benefit.
