WGU C213 ACCOUNTING FOR
DECISION MAKERS FINAL EXAM PREP
QUESTIONS AND ANSWERS
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. Cost Principle
C. Matching Principle
D. Full Disclosure Principle
Answer: C
Conceptual Explanation: The Matching Principle (expense recognition) dictates that
efforts (expenses) be matched with results (revenues) in the period they occur.
2. Under the indirect method of preparing the Statement of Cash Flows, how is a decrease in
Accounts Receivable handled?
A. Subtracted from Net Income in the Operating section
B. Subtracted from Net Income in the Financing section
,C. Added to Net Income in the Investing section
D. Added to Net Income in the Operating section
Answer: D
Conceptual Explanation: A decrease in a current asset like Accounts Receivable
represents cash collected that was not part of current period revenue, thus it is added back
to Net Income.
3. Which inventory valuation method results in the highest Net Income during a period of
rising prices (inflation)?
A. FIFO (First-In, First-Out)
B. LIFO (Last-In, First-Out)
C. Weighted Average Cost
D. Specific Identification
Answer: A
Conceptual Explanation: FIFO assigns the oldest, lower costs to COGS, leading to higher
gross profit and higher net income when prices are rising.
4. A company has a Current Ratio of 2.5. If they pay off a current liability using cash, what
happens to the Current Ratio?
A. The ratio decreases
B. The ratio increases
, C. The ratio stays the same
D. The ratio becomes negative
Answer: B
Conceptual Explanation: Since the ratio is currently greater than 1.0, an equal reduction
in both current assets and current liabilities results in a mathematical increase in the ratio.
5. Which of the following is considered a ‘period cost’ rather than a ‘product cost’?
A. Direct Materials
B. Factory Utilities
C. Direct Labor
D. Sales Commissions
Answer: D
Conceptual Explanation: Sales commissions are selling and administrative expenses,
which are period costs. The others are components of manufacturing/product costs.
6. In CVP analysis, what is the formula to calculate the Break-Even Point in units?
A. Net Income / Contribution Margin per Unit
B. Total Fixed Costs / Contribution Margin Ratio
C. Variable Costs / Sales Price
D. Total Fixed Costs / Contribution Margin per Unit
DECISION MAKERS FINAL EXAM PREP
QUESTIONS AND ANSWERS
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. Cost Principle
C. Matching Principle
D. Full Disclosure Principle
Answer: C
Conceptual Explanation: The Matching Principle (expense recognition) dictates that
efforts (expenses) be matched with results (revenues) in the period they occur.
2. Under the indirect method of preparing the Statement of Cash Flows, how is a decrease in
Accounts Receivable handled?
A. Subtracted from Net Income in the Operating section
B. Subtracted from Net Income in the Financing section
,C. Added to Net Income in the Investing section
D. Added to Net Income in the Operating section
Answer: D
Conceptual Explanation: A decrease in a current asset like Accounts Receivable
represents cash collected that was not part of current period revenue, thus it is added back
to Net Income.
3. Which inventory valuation method results in the highest Net Income during a period of
rising prices (inflation)?
A. FIFO (First-In, First-Out)
B. LIFO (Last-In, First-Out)
C. Weighted Average Cost
D. Specific Identification
Answer: A
Conceptual Explanation: FIFO assigns the oldest, lower costs to COGS, leading to higher
gross profit and higher net income when prices are rising.
4. A company has a Current Ratio of 2.5. If they pay off a current liability using cash, what
happens to the Current Ratio?
A. The ratio decreases
B. The ratio increases
, C. The ratio stays the same
D. The ratio becomes negative
Answer: B
Conceptual Explanation: Since the ratio is currently greater than 1.0, an equal reduction
in both current assets and current liabilities results in a mathematical increase in the ratio.
5. Which of the following is considered a ‘period cost’ rather than a ‘product cost’?
A. Direct Materials
B. Factory Utilities
C. Direct Labor
D. Sales Commissions
Answer: D
Conceptual Explanation: Sales commissions are selling and administrative expenses,
which are period costs. The others are components of manufacturing/product costs.
6. In CVP analysis, what is the formula to calculate the Break-Even Point in units?
A. Net Income / Contribution Margin per Unit
B. Total Fixed Costs / Contribution Margin Ratio
C. Variable Costs / Sales Price
D. Total Fixed Costs / Contribution Margin per Unit
