WGU C213 ACCOUNTING FOR
DECISION MAKERS ADVANCED
PRACTICE EXAM
1. A company mistakenly included a shipment of goods in its ending inventory that was
actually sold FOB shipping point. What is the impact on the financial statements for the
current period?
A. Net income is understated and Assets are understated.
B. Net income is unaffected but Assets are overstated.
C. Net income is overstated and Liabilities are understated.
D. Net income is overstated and Assets are overstated.
Answer: D
Conceptual Explanation: If ending inventory is overstated, the Cost of Goods Sold (COGS)
is understated (Beginning Inventory + Purchases - Ending Inventory = COGS). A lower
COGS leads to a higher (overstated) net income and higher (overstated) assets.
,2. Under the indirect method of preparing the Statement of Cash Flows, which of the
following is an adjustment to convert Net Income to Cash Provided by Operating Activities?
A. Adding a decrease in inventory.
B. Subtracting an increase in accounts payable.
C. Subtracting a loss on the sale of equipment.
D. Adding an increase in accounts receivable.
Answer: A
Conceptual Explanation: A decrease in inventory means more inventory was sold than
purchased, which provides cash. Increases in assets (like AR) are subtracted, and increases
in liabilities (like AP) are added.
3. If a company changes its inventory method from LIFO to FIFO during a period of rising
prices, what is the most likely effect on the financial ratios?
A. The Current Ratio will increase.
B. The Inventory Turnover ratio will increase.
C. The Debt-to-Equity ratio will increase.
D. Net Profit Margin will decrease.
Answer: A
, Conceptual Explanation: In a period of rising prices, FIFO results in a higher ending
inventory value compared to LIFO. Since inventory is a current asset, the Current Ratio
(Current Assets / Current Liabilities) will increase.
4. Which component of the Fraud Triangle refers to the internal dialogue that allows a person
to justify their dishonest actions?
A. Opportunity
B. Rationalization
C. Pressure
D. Incentive
Answer: B
Conceptual Explanation: Rationalization is the stage where the individual justifies the
fraud to themselves to maintain their self-image as an honest person.
5. A company has a contribution margin ratio of 40%. If fixed costs are $120,000, what is the
break-even point in sales dollars?
A. $80,000
B. $200,000
C. $480,000
D. $300,000
Answer: D
DECISION MAKERS ADVANCED
PRACTICE EXAM
1. A company mistakenly included a shipment of goods in its ending inventory that was
actually sold FOB shipping point. What is the impact on the financial statements for the
current period?
A. Net income is understated and Assets are understated.
B. Net income is unaffected but Assets are overstated.
C. Net income is overstated and Liabilities are understated.
D. Net income is overstated and Assets are overstated.
Answer: D
Conceptual Explanation: If ending inventory is overstated, the Cost of Goods Sold (COGS)
is understated (Beginning Inventory + Purchases - Ending Inventory = COGS). A lower
COGS leads to a higher (overstated) net income and higher (overstated) assets.
,2. Under the indirect method of preparing the Statement of Cash Flows, which of the
following is an adjustment to convert Net Income to Cash Provided by Operating Activities?
A. Adding a decrease in inventory.
B. Subtracting an increase in accounts payable.
C. Subtracting a loss on the sale of equipment.
D. Adding an increase in accounts receivable.
Answer: A
Conceptual Explanation: A decrease in inventory means more inventory was sold than
purchased, which provides cash. Increases in assets (like AR) are subtracted, and increases
in liabilities (like AP) are added.
3. If a company changes its inventory method from LIFO to FIFO during a period of rising
prices, what is the most likely effect on the financial ratios?
A. The Current Ratio will increase.
B. The Inventory Turnover ratio will increase.
C. The Debt-to-Equity ratio will increase.
D. Net Profit Margin will decrease.
Answer: A
, Conceptual Explanation: In a period of rising prices, FIFO results in a higher ending
inventory value compared to LIFO. Since inventory is a current asset, the Current Ratio
(Current Assets / Current Liabilities) will increase.
4. Which component of the Fraud Triangle refers to the internal dialogue that allows a person
to justify their dishonest actions?
A. Opportunity
B. Rationalization
C. Pressure
D. Incentive
Answer: B
Conceptual Explanation: Rationalization is the stage where the individual justifies the
fraud to themselves to maintain their self-image as an honest person.
5. A company has a contribution margin ratio of 40%. If fixed costs are $120,000, what is the
break-even point in sales dollars?
A. $80,000
B. $200,000
C. $480,000
D. $300,000
Answer: D
