WGU C213 ACCOUNTING FOR
DECISION MAKERS MASTERY EXAM
QUESTIONS AND ANSWERS
1. During a period of steadily rising prices, which inventory valuation method will result in the
lowest reported net income and the lowest income tax expense?
A. First-In, First-Out (FIFO)
B. Specific Identification
C. Weighted Average Cost
D. Last-In, First-Out (LIFO)
Answer: D
Conceptual Explanation: In a period of rising prices, LIFO assigns the most recent, higher
costs to Cost of Goods Sold, which reduces taxable income and net income.
2. Which of the following would be classified as a financing activity on the Statement of Cash
Flows?
A. Issuing long-term bonds to investors
B. Collecting accounts receivable from customers
,C. Purchasing a new delivery truck for cash
D. Paying interest on a bank loan
Answer: A
Conceptual Explanation: Financing activities involve transactions with creditors and
owners, such as issuing debt or stock. Paying interest is typically an operating activity
under GAAP.
3. A company has a contribution margin ratio of 40%. If the company increases its fixed costs
by $20,000, how much additional sales revenue is required to maintain the same net income?
A. $8,000
B. $50,000
C. $20,000
D. $33,333
Answer: B
Conceptual Explanation: To cover the increase in fixed costs, the company needs
additional contribution margin of $20,000. Sales = Fixed Cost / Contribution Margin Ratio =
$20,.40 = $50,000.
4. Which accounting principle requires that expenses be recognized in the same period as the
revenues they helped generate?
A. The Matching Principle
, B. The Going Concern Assumption
C. The Revenue Recognition Principle
D. The Full Disclosure Principle
Answer: A
Conceptual Explanation: The Matching Principle dictates that efforts (expenses) be
matched with accomplishments (revenues).
5. Under the indirect method of preparing the Statement of Cash Flows, an increase in
Accounts Receivable is:
A. Added to net income in the operating section
B. Reported as a financing activity
C. Reported as an investing activity
D. Subtracted from net income in the operating section
Answer: D
Conceptual Explanation: An increase in Accounts Receivable represents sales revenue
included in net income for which cash has not yet been received, so it must be subtracted.
6. Which of the following is considered a product cost rather than a period cost?
A. Sales commissions
B. Factory supervisor’s salary
DECISION MAKERS MASTERY EXAM
QUESTIONS AND ANSWERS
1. During a period of steadily rising prices, which inventory valuation method will result in the
lowest reported net income and the lowest income tax expense?
A. First-In, First-Out (FIFO)
B. Specific Identification
C. Weighted Average Cost
D. Last-In, First-Out (LIFO)
Answer: D
Conceptual Explanation: In a period of rising prices, LIFO assigns the most recent, higher
costs to Cost of Goods Sold, which reduces taxable income and net income.
2. Which of the following would be classified as a financing activity on the Statement of Cash
Flows?
A. Issuing long-term bonds to investors
B. Collecting accounts receivable from customers
,C. Purchasing a new delivery truck for cash
D. Paying interest on a bank loan
Answer: A
Conceptual Explanation: Financing activities involve transactions with creditors and
owners, such as issuing debt or stock. Paying interest is typically an operating activity
under GAAP.
3. A company has a contribution margin ratio of 40%. If the company increases its fixed costs
by $20,000, how much additional sales revenue is required to maintain the same net income?
A. $8,000
B. $50,000
C. $20,000
D. $33,333
Answer: B
Conceptual Explanation: To cover the increase in fixed costs, the company needs
additional contribution margin of $20,000. Sales = Fixed Cost / Contribution Margin Ratio =
$20,.40 = $50,000.
4. Which accounting principle requires that expenses be recognized in the same period as the
revenues they helped generate?
A. The Matching Principle
, B. The Going Concern Assumption
C. The Revenue Recognition Principle
D. The Full Disclosure Principle
Answer: A
Conceptual Explanation: The Matching Principle dictates that efforts (expenses) be
matched with accomplishments (revenues).
5. Under the indirect method of preparing the Statement of Cash Flows, an increase in
Accounts Receivable is:
A. Added to net income in the operating section
B. Reported as a financing activity
C. Reported as an investing activity
D. Subtracted from net income in the operating section
Answer: D
Conceptual Explanation: An increase in Accounts Receivable represents sales revenue
included in net income for which cash has not yet been received, so it must be subtracted.
6. Which of the following is considered a product cost rather than a period cost?
A. Sales commissions
B. Factory supervisor’s salary
