WGU D102 Financial Accounting Advanced Exam Preparation and Study Companion: Comprehensive Review Modules, Complete Test Bank, Updated Practice Tests, and Final Readiness Assessment

A company reports net sales of $600,000, cost of goods sold of $360,000, operating expenses of $150,000, and income tax expense of $20,000. What is the company’s net income? A. $70,000 B. $90,000 C. $220,000 D. $240,000 Correct Answer: A. $70,000 Rationale: First calculate gross profit: $600,000 - $360,000 = $240,000$ Next, subtract operating expenses: $240,000 - $150,000 = $90,000$ Finally, subtract income tax expense: $90,000 - $20,000 = $70,000$ Therefore, the company’s net income is $70,000. Question 2 Which account represents an ownership claim in a corporation rather than an asset or liability? A. Accounts Receivable B. Notes Payable C. Common Stock D. Cash Correct Answer: C. Common Stock Rationale: Common Stock represents the amount invested by shareholders and is therefore part of stockholders’ equity. Cash and Accounts Receivable are assets, while Notes Payable represents an obligation to creditors and is classified as a liability. Question 3 Which financial statement reports a company’s assets, liabilities, and stockholders’ equity at a specific date? A. Income Statement B. Statement of Cash Flows C. Balance Sheet D. Statement of Retained Earnings Correct Answer: C. Balance Sheet Rationale: The Balance Sheet reports a company’s financial position at a specific point in time. It presents assets, liabilities, and stockholders’ equity. The income statement measures performance over a period, while the statement of cash flows reports changes in cash. Question 4 A retailer has net sales of $850,000 and cost of goods sold of $510,000. What is the retailer’s gross profit? A. $340,000 B. $510,000 C. $850,000 D. $1,360,000 Correct Answer: A. $340,000 Rationale: Gross profit is calculated by subtracting cost of goods sold from net sales: $850,000 - $510,000 = $340,000$ Therefore, the retailer’s gross profit is $340,000. Question 5 Which transaction is classified as a financing activity on the statement of cash flows? A. Collecting cash from customers B. Selling land for cash C. Issuing common stock for cash D. Paying employees’ wages Correct Answer: C. Issuing common stock for cash Rationale: Financing activities involve obtaining funds from owners or creditors or returning funds to them. Issuing common stock for cash is therefore a financing cash inflow. Customer collections and wage payments are operating activities, while selling land is an investing activity. Question 6 A company has total assets of $150,000 and stockholders’ equity of $60,000. What amount represents the company’s total liabilities? A. $60,000 B. $90,000 C. $150,000 D. $210,000 Correct Answer: B. $90,000 Rationale: The accounting equation is: Assets = Liabilities + Stockholders’ Equity Therefore: Liabilities = Assets − Stockholders’ Equity $150,000 - $60,000 = $90,000$ Thus, total liabilities are $90,000. Question 7 Which subtotal is typically presented on a multiple-step income statement but not on a single-step income statement? A. Total Assets B. Gross Profit C. Ending Cash D. Retained Earnings Correct Answer: B. Gross Profit Rationale: A multiple-step income statement separately calculates gross profit, which equals net sales minus cost of goods sold. A single-step income statement combines revenues and gains and subtracts total expenses and losses without separately reporting gross profit. Question 8 Which group consists entirely of accounts that are used to determine net income? A. Sales, Cost of Goods Sold, and Income Tax Expense B. Cash, Inventory, and Accounts Receivable C. Accounts Payable, Retained Earnings, and Sales D. Inventory, Cost of Goods Sold, and Common Stock Correct Answer: A. Sales, Cost of Goods Sold, and Income Tax Expense Rationale: Net income is calculated using revenues and expenses. Sales is a revenue account, while Cost of Goods Sold and Income Tax Expense are expenses. Cash, inventory, and Accounts Receivable are assets, while Accounts Payable is a liability and Common Stock and Retained Earnings are equity accounts. Question 9 A company reports $420,000 in assets and $275,000 in liabilities. What is the company’s stockholders’ equity? A. $145,000 B. $275,000 C. $420,000 D. $695,000 Correct Answer: A. $145,000 Rationale: Using the accounting equation: Assets = Liabilities + Equity Therefore: Equity = Assets − Liabilities $420,000 - $275,000 = $145,000$ The company’s stockholders’ equity is $145,000. Question 10 Which pair of transactions affects net cash flow from financing activities? A. Paying dividends and receiving cash from issuing shares B. Collecting customer payments and paying rent C. Selling land and purchasing a building D. Paying employee wages and purchasing inventory Correct Answer: A. Paying dividends and receiving cash from issuing shares Rationale: Issuing shares produces a financing cash inflow, while paying dividends is a financing cash outflow. Customer collections, rent, wages, and inventory purchases are operating activities. Buying or selling long-term assets is classified as investing activity. Question 11 A company begins the year with $40,000 in cash. During the year, operating activities provide $28,000, investing activities use $16,000, and financing activities use $7,000. What is the company’s ending cash balance? A. $5,000 B. $33,000 C. $45,000 D. $91,000 Correct Answer: C. $45,000 Rationale: Ending cash is calculated as: $40,000 + $28,000 - $16,000 - $7,000 = $45,000$ Therefore, the ending cash balance is $45,000. Question 12 Which information is needed to reconcile a company’s beginning cash balance with its ending cash balance? A. Beginning cash and net income only B. Beginning cash and total revenue C. Beginning cash plus operating, investing, and financing cash flows D. Net income, Accounts Receivable, and Retained Earnings Correct Answer: C. Beginning cash plus operating, investing, and financing cash flows Rationale: The statement of cash flows explains how cash changes during an accounting period. Beginning cash is combined with the net cash flows from operating, investing, and financing activities to determine ending cash. Question 13 A company earns $12,000 by providing services on account. Which journal entry correctly records the transaction? A. Debit Cash $12,000; Credit Service Revenue $12,000 B. Debit Accounts Receivable $12,000; Credit Service Revenue $12,000 C. Debit Service Revenue $12,000; Credit Accounts Receivable $12,000 D. Debit Service Expense $12,000; Credit Accounts Payable $12,000 Correct Answer: B. Debit Accounts Receivable $12,000; Credit Service Revenue $12,000 Rationale: Because the services were provided on account, the customer owes the company money. Accounts Receivable increases and is debited. Service Revenue increases equity and is credited. Cash is not affected until the customer pays.