WGU D105 OA2 COMPREHENSIVE
EXAM (UNITS 5–9) QUESTIONS AND
ANSWERS
1. A company purchased a machine for $100,000 with an estimated salvage value of $10,000
and a useful life of 5 years. Using the double-declining balance method, what is the
depreciation expense for the second year?
A. $40,000
B. $20,000
C. $18,000
D. $24,000
Answer: D
Conceptual Explanation: Year 1 depreciation is $100,000 * 40% = $40,000. The book
value at start of Year 2 is $60,000. Year 2 depreciation is $60,000 * 40% = $24,000.
2. Which of the following expenditures should be capitalized rather than expensed?
A. Routine oil changes for a delivery truck
B. Installation of a new engine that extends a truck’s life by 3 years
C. Replacement of a broken window in the warehouse
,D. Annual property insurance premiums
Answer: B
Conceptual Explanation: Costs that improve the asset or extend its useful life are capital
expenditures. Routine maintenance and repairs are revenue expenditures (expenses).
3. When an asset is sold for less than its book value, how is the transaction recorded?
A. Retained earnings is increased
B. A gain is credited
C. Accumulated depreciation is credited
D. A loss is debited
Answer: D
Conceptual Explanation: If the cash received is less than the book value (Cost -
Accumulated Depreciation), a loss is recognized by debiting ‘Loss on Disposal of Asset’.
4. Which intangible asset is NOT subject to periodic amortization?
A. Goodwill
B. Copyrights
C. Patents
D. Franchise agreements with a 10-year term
Answer: A
, Conceptual Explanation: Goodwill is considered to have an indefinite life and is tested for
impairment annually rather than being amortized.
5. On January 1, a company issued $500,000 of 6% bonds at 98. What is the total amount of
interest expense over the life of the 10-year bonds if the straight-line method is used?
A. $300,000
B. $310,000
C. $290,000
D. $301,000
Answer: B
Conceptual Explanation: Cash interest = $500,000 * 6% * 10 = $300,000. Discount =
$500,000 * (1 - 0.98) = $10,000. Total interest = $300,000 + $10,000 = $310,000.
6. When bonds are issued at a premium, the carrying value of the bonds will:
A. Increase over the life of the bonds
B. Equal the face value only at the issuance date
C. Remain constant
D. Decrease over the life of the bonds
Answer: D
Conceptual Explanation: A premium is amortized over the life of the bond, reducing the
carrying value until it equals the face value at maturity.
EXAM (UNITS 5–9) QUESTIONS AND
ANSWERS
1. A company purchased a machine for $100,000 with an estimated salvage value of $10,000
and a useful life of 5 years. Using the double-declining balance method, what is the
depreciation expense for the second year?
A. $40,000
B. $20,000
C. $18,000
D. $24,000
Answer: D
Conceptual Explanation: Year 1 depreciation is $100,000 * 40% = $40,000. The book
value at start of Year 2 is $60,000. Year 2 depreciation is $60,000 * 40% = $24,000.
2. Which of the following expenditures should be capitalized rather than expensed?
A. Routine oil changes for a delivery truck
B. Installation of a new engine that extends a truck’s life by 3 years
C. Replacement of a broken window in the warehouse
,D. Annual property insurance premiums
Answer: B
Conceptual Explanation: Costs that improve the asset or extend its useful life are capital
expenditures. Routine maintenance and repairs are revenue expenditures (expenses).
3. When an asset is sold for less than its book value, how is the transaction recorded?
A. Retained earnings is increased
B. A gain is credited
C. Accumulated depreciation is credited
D. A loss is debited
Answer: D
Conceptual Explanation: If the cash received is less than the book value (Cost -
Accumulated Depreciation), a loss is recognized by debiting ‘Loss on Disposal of Asset’.
4. Which intangible asset is NOT subject to periodic amortization?
A. Goodwill
B. Copyrights
C. Patents
D. Franchise agreements with a 10-year term
Answer: A
, Conceptual Explanation: Goodwill is considered to have an indefinite life and is tested for
impairment annually rather than being amortized.
5. On January 1, a company issued $500,000 of 6% bonds at 98. What is the total amount of
interest expense over the life of the 10-year bonds if the straight-line method is used?
A. $300,000
B. $310,000
C. $290,000
D. $301,000
Answer: B
Conceptual Explanation: Cash interest = $500,000 * 6% * 10 = $300,000. Discount =
$500,000 * (1 - 0.98) = $10,000. Total interest = $300,000 + $10,000 = $310,000.
6. When bonds are issued at a premium, the carrying value of the bonds will:
A. Increase over the life of the bonds
B. Equal the face value only at the issuance date
C. Remain constant
D. Decrease over the life of the bonds
Answer: D
Conceptual Explanation: A premium is amortized over the life of the bond, reducing the
carrying value until it equals the face value at maturity.
