WGU C213: ACCOUNTING FOR
DECISION MAKERS - ADVANCED
COMPREHENSIVE EXAM
1. Which accounting principle requires that expenses incurred to generate revenue be
recognized in the same period as the revenue?
A. Revenue Recognition Principle
B. Conservatism Principle
C. Cost Principle
D. Matching Principle
Answer: D
Conceptual Explanation: The Matching Principle dictates that efforts (expenses) must be
matched with accomplishments (revenues) in the period they occur.
2. A company has a Current Ratio of 2.5 and a Quick Ratio of 0.8. What does this discrepancy
most likely suggest?
A. The company has high levels of cash and low debt
B. The company is highly profitable but has low cash flow
,C. The company relies heavily on inventory to meet current obligations
D. The company has significant long-term liabilities
Answer: C
Conceptual Explanation: The Quick Ratio excludes inventory. A large gap between the
Current Ratio and Quick Ratio indicates that a significant portion of current assets is tied
up in inventory.
3. Under the indirect method of preparing the Statement of Cash Flows, how is a decrease in
Accounts Receivable treated?
A. Subtracted from Net Income in Financing Activities
B. Subtracted from Net Income in Operating Activities
C. Added to Net Income in Investing Activities
D. Added to Net Income in Operating Activities
Answer: D
Conceptual Explanation: A decrease in Accounts Receivable means the company collected
more cash than the sales recorded on the income statement, thus it is added back to net
income.
4. Which of the following would be considered a product cost in a manufacturing
environment?
A. Sales commissions for the marketing team
, B. Depreciation on the administrative office building
C. Advertising costs for a new product launch
D. Wages for the factory assembly line workers
Answer: D
Conceptual Explanation: Product costs include direct materials, direct labor (assembly
line wages), and manufacturing overhead. Admin and selling costs are period costs.
5. Company X uses the LIFO method for inventory. In a period of rising prices, what is the
effect compared to FIFO?
A. Higher Net Income and Higher Ending Inventory
B. Lower Net Income and Higher Ending Inventory
C. Lower Net Income and Lower Ending Inventory
D. Higher Net Income and Lower Ending Inventory
Answer: C
Conceptual Explanation: In rising prices, LIFO assigns the most recent (higher) costs to
COGS, resulting in lower Net Income and lower value for remaining inventory.
6. If a company’s Contribution Margin Ratio is 40% and it wants to increase its profit by
$20,000, how much must sales increase?
A. $8,000
B. $33,333
DECISION MAKERS - ADVANCED
COMPREHENSIVE EXAM
1. Which accounting principle requires that expenses incurred to generate revenue be
recognized in the same period as the revenue?
A. Revenue Recognition Principle
B. Conservatism Principle
C. Cost Principle
D. Matching Principle
Answer: D
Conceptual Explanation: The Matching Principle dictates that efforts (expenses) must be
matched with accomplishments (revenues) in the period they occur.
2. A company has a Current Ratio of 2.5 and a Quick Ratio of 0.8. What does this discrepancy
most likely suggest?
A. The company has high levels of cash and low debt
B. The company is highly profitable but has low cash flow
,C. The company relies heavily on inventory to meet current obligations
D. The company has significant long-term liabilities
Answer: C
Conceptual Explanation: The Quick Ratio excludes inventory. A large gap between the
Current Ratio and Quick Ratio indicates that a significant portion of current assets is tied
up in inventory.
3. Under the indirect method of preparing the Statement of Cash Flows, how is a decrease in
Accounts Receivable treated?
A. Subtracted from Net Income in Financing Activities
B. Subtracted from Net Income in Operating Activities
C. Added to Net Income in Investing Activities
D. Added to Net Income in Operating Activities
Answer: D
Conceptual Explanation: A decrease in Accounts Receivable means the company collected
more cash than the sales recorded on the income statement, thus it is added back to net
income.
4. Which of the following would be considered a product cost in a manufacturing
environment?
A. Sales commissions for the marketing team
, B. Depreciation on the administrative office building
C. Advertising costs for a new product launch
D. Wages for the factory assembly line workers
Answer: D
Conceptual Explanation: Product costs include direct materials, direct labor (assembly
line wages), and manufacturing overhead. Admin and selling costs are period costs.
5. Company X uses the LIFO method for inventory. In a period of rising prices, what is the
effect compared to FIFO?
A. Higher Net Income and Higher Ending Inventory
B. Lower Net Income and Higher Ending Inventory
C. Lower Net Income and Lower Ending Inventory
D. Higher Net Income and Lower Ending Inventory
Answer: C
Conceptual Explanation: In rising prices, LIFO assigns the most recent (higher) costs to
COGS, resulting in lower Net Income and lower value for remaining inventory.
6. If a company’s Contribution Margin Ratio is 40% and it wants to increase its profit by
$20,000, how much must sales increase?
A. $8,000
B. $33,333
