WGU D774 Pre-Assessment (2026) | Complete 300-
Question Exam Guide
Question 1:
A company purchases equipment for $50,000 cash. How does this transaction affect the
accounting equation?
A) Assets increase and liabilities increase
B) Assets decrease and liabilities decrease
C) One asset increases and another asset decreases
D) Assets increase and equity increases
Answer: C) One asset increases and another asset decreases
Rationale: The accounting equation (Assets = Liabilities + Equity) must remain balanced.
Purchasing equipment for cash increases the equipment account (asset) while decreasing
the cash account (asset). Total assets remain unchanged, and liabilities and equity are
unaffected .
Question 2:
Which accounting concept requires that expenses be recorded in the same period as the
revenues they helped generate?
A) Revenue recognition principle
B) Matching principle
C) Conservatism principle
D) Materiality principle
Answer: B) Matching principle
Rationale: The matching principle requires that expenses be recognized in the same period
as the revenues they help generate, ensuring that net income accurately reflects
performance for that period .
,Question 3:
A company signs a contract to provide services next month and receives a $5,000
advance payment today. Under accrual accounting, how should this transaction be
recorded?
A) Record $5,000 as revenue today
B) Record $5,000 as unearned revenue (liability) today
C) Record $5,000 as accounts receivable today
D) Record $5,000 as a loan
Answer: B) Record $5,000 as unearned revenue (liability) today
Rationale: Under accrual accounting, revenue is recognized when earned, not when cash is
received. The advance payment creates a liability (unearned revenue) because the
company has an obligation to provide services in the future .
Question 4:
Which financial statement answers the question: "How much profit did the company
generate during the period?"
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Statement of Retained Earnings
Answer: B) Income Statement
Rationale: The income statement reports revenues, expenses, and net income (or net loss)
for a specific period, summarizing the company's profitability .
Question 5:
What is the effect on total assets when a company pays $1,000 of accounts payable?
A) Total assets increase by $1,000
B) Total assets decrease by $1,000
,C) Total assets remain unchanged
D) Total assets increase by $2,000
Answer: B) Total assets decrease by $1,000
Rationale: Paying accounts payable reduces cash (an asset) by $1,000 and reduces
accounts payable (a liability) by $1,000. Total assets decrease by $1,000, and total
liabilities also decrease, maintaining the accounting equation balance .
Question 6:
What is the primary purpose of the Securities and Exchange Commission (SEC)?
A) To establish Generally Accepted Accounting Principles (GAAP)
B) To protect investors and maintain fair, orderly, and efficient securities markets
C) To audit all public companies' financial statements
D) To prepare tax regulations for corporations
Answer: B) To protect investors and maintain fair, orderly, and efficient securities
markets
Rationale: The SEC's primary mission is to protect investors, maintain fair and efficient
markets, and facilitate capital formation. It enforces compliance with financial reporting
requirements but does not establish GAAP (FASB does) .
Question 7:
Which of the following is considered an intangible asset?
A) Inventory
B) Accounts receivable
C) Patent
D) Equipment
Answer: C) Patent
, Rationale: Intangible assets lack physical substance and include patents, trademarks,
copyrights, and goodwill. Inventory, accounts receivable, and equipment are tangible
assets .
Question 8:
A company has current assets of $100,000 and current liabilities of $60,000. What is the
company's working capital?
A) $160,000
B) $40,000
C) $60,000
D) $100,000
Answer: B) $40,000
Rationale: Working capital = Current Assets - Current Liabilities = $100,000 - $60,000 =
$40,000. This measures the company's short-term financial health and ability to cover its
obligations .
Question 9:
What is the current ratio if a company has current assets of $120,000 and current
liabilities of $80,000?
A) 0.67
B) 1.50
C) 2.00
D) 0.50
Answer: B) 1.50
Rationale: Current Ratio = Current Assets ÷ Current Liabilities = $120,000 ÷ $80,000 =
1.5. This ratio measures a company's ability to pay short-term obligations .
Question Exam Guide
Question 1:
A company purchases equipment for $50,000 cash. How does this transaction affect the
accounting equation?
A) Assets increase and liabilities increase
B) Assets decrease and liabilities decrease
C) One asset increases and another asset decreases
D) Assets increase and equity increases
Answer: C) One asset increases and another asset decreases
Rationale: The accounting equation (Assets = Liabilities + Equity) must remain balanced.
Purchasing equipment for cash increases the equipment account (asset) while decreasing
the cash account (asset). Total assets remain unchanged, and liabilities and equity are
unaffected .
Question 2:
Which accounting concept requires that expenses be recorded in the same period as the
revenues they helped generate?
A) Revenue recognition principle
B) Matching principle
C) Conservatism principle
D) Materiality principle
Answer: B) Matching principle
Rationale: The matching principle requires that expenses be recognized in the same period
as the revenues they help generate, ensuring that net income accurately reflects
performance for that period .
,Question 3:
A company signs a contract to provide services next month and receives a $5,000
advance payment today. Under accrual accounting, how should this transaction be
recorded?
A) Record $5,000 as revenue today
B) Record $5,000 as unearned revenue (liability) today
C) Record $5,000 as accounts receivable today
D) Record $5,000 as a loan
Answer: B) Record $5,000 as unearned revenue (liability) today
Rationale: Under accrual accounting, revenue is recognized when earned, not when cash is
received. The advance payment creates a liability (unearned revenue) because the
company has an obligation to provide services in the future .
Question 4:
Which financial statement answers the question: "How much profit did the company
generate during the period?"
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Statement of Retained Earnings
Answer: B) Income Statement
Rationale: The income statement reports revenues, expenses, and net income (or net loss)
for a specific period, summarizing the company's profitability .
Question 5:
What is the effect on total assets when a company pays $1,000 of accounts payable?
A) Total assets increase by $1,000
B) Total assets decrease by $1,000
,C) Total assets remain unchanged
D) Total assets increase by $2,000
Answer: B) Total assets decrease by $1,000
Rationale: Paying accounts payable reduces cash (an asset) by $1,000 and reduces
accounts payable (a liability) by $1,000. Total assets decrease by $1,000, and total
liabilities also decrease, maintaining the accounting equation balance .
Question 6:
What is the primary purpose of the Securities and Exchange Commission (SEC)?
A) To establish Generally Accepted Accounting Principles (GAAP)
B) To protect investors and maintain fair, orderly, and efficient securities markets
C) To audit all public companies' financial statements
D) To prepare tax regulations for corporations
Answer: B) To protect investors and maintain fair, orderly, and efficient securities
markets
Rationale: The SEC's primary mission is to protect investors, maintain fair and efficient
markets, and facilitate capital formation. It enforces compliance with financial reporting
requirements but does not establish GAAP (FASB does) .
Question 7:
Which of the following is considered an intangible asset?
A) Inventory
B) Accounts receivable
C) Patent
D) Equipment
Answer: C) Patent
, Rationale: Intangible assets lack physical substance and include patents, trademarks,
copyrights, and goodwill. Inventory, accounts receivable, and equipment are tangible
assets .
Question 8:
A company has current assets of $100,000 and current liabilities of $60,000. What is the
company's working capital?
A) $160,000
B) $40,000
C) $60,000
D) $100,000
Answer: B) $40,000
Rationale: Working capital = Current Assets - Current Liabilities = $100,000 - $60,000 =
$40,000. This measures the company's short-term financial health and ability to cover its
obligations .
Question 9:
What is the current ratio if a company has current assets of $120,000 and current
liabilities of $80,000?
A) 0.67
B) 1.50
C) 2.00
D) 0.50
Answer: B) 1.50
Rationale: Current Ratio = Current Assets ÷ Current Liabilities = $120,000 ÷ $80,000 =
1.5. This ratio measures a company's ability to pay short-term obligations .
