WGU C213 ACCOUNTING FOR
DECISION MAKERS COMPREHENSIVE
PRACTICE EXAM QUESTIONS AND
ANSWERS
1. Which organization is primarily responsible for establishing Generally Accepted Accounting
Principles (GAAP) in the United States?
A. Financial Accounting Standards Board (FASB)
B. Securities and Exchange Commission (SEC)
C. International Accounting Standards Board (IASB)
D. Internal Revenue Service (IRS)
Answer: A
Conceptual Explanation: The FASB is a private, non-profit body given the primary
responsibility to establish GAAP in the U.S., though the SEC has the legal authority to do so.
2. Under the accrual basis of accounting, when is revenue generally recognized?
A. When cash is received from the customer
B. When the performance obligation is satisfied
,C. At the end of the fiscal year
D. When the contract is signed
Answer: B
Conceptual Explanation: Accrual accounting recognizes revenue when it is earned
(performance obligation satisfied), regardless of when cash is exchanged.
3. Which of the following would be classified as an ‘Investing Activity’ on the Statement of
Cash Flows?
A. Issuing common stock for cash
B. Paying dividends to shareholders
C. Collecting cash from accounts receivable
D. Selling a piece of manufacturing equipment
Answer: D
Conceptual Explanation: Investing activities involve the purchase and sale of long-term
assets and other investments.
4. If a company has a Current Ratio of 2.5 and a Quick Ratio of 0.8, what does this most likely
suggest?
A. The company has very little debt.
B. The company has a high level of inventory.
C. The company is highly profitable.
, D. The company has excessive cash reserves.
Answer: B
Conceptual Explanation: The Quick Ratio excludes inventory from current assets. A large
gap between the Current Ratio and Quick Ratio typically indicates a significant amount of
capital tied up in inventory.
5. Which financial statement reports a company’s financial position at a specific point in
time?
A. Income Statement
B. Statement of Retained Earnings
C. Balance Sheet
D. Statement of Cash Flows
Answer: C
Conceptual Explanation: The Balance Sheet is a ‘snapshot’ of assets, liabilities, and equity
at a specific date, whereas others report activity over a period.
6. In a period of rising prices (inflation), which inventory costing method results in the highest
Net Income?
A. LIFO (Last-In, First-Out)
B. Specific Identification
C. Weighted Average Cost
DECISION MAKERS COMPREHENSIVE
PRACTICE EXAM QUESTIONS AND
ANSWERS
1. Which organization is primarily responsible for establishing Generally Accepted Accounting
Principles (GAAP) in the United States?
A. Financial Accounting Standards Board (FASB)
B. Securities and Exchange Commission (SEC)
C. International Accounting Standards Board (IASB)
D. Internal Revenue Service (IRS)
Answer: A
Conceptual Explanation: The FASB is a private, non-profit body given the primary
responsibility to establish GAAP in the U.S., though the SEC has the legal authority to do so.
2. Under the accrual basis of accounting, when is revenue generally recognized?
A. When cash is received from the customer
B. When the performance obligation is satisfied
,C. At the end of the fiscal year
D. When the contract is signed
Answer: B
Conceptual Explanation: Accrual accounting recognizes revenue when it is earned
(performance obligation satisfied), regardless of when cash is exchanged.
3. Which of the following would be classified as an ‘Investing Activity’ on the Statement of
Cash Flows?
A. Issuing common stock for cash
B. Paying dividends to shareholders
C. Collecting cash from accounts receivable
D. Selling a piece of manufacturing equipment
Answer: D
Conceptual Explanation: Investing activities involve the purchase and sale of long-term
assets and other investments.
4. If a company has a Current Ratio of 2.5 and a Quick Ratio of 0.8, what does this most likely
suggest?
A. The company has very little debt.
B. The company has a high level of inventory.
C. The company is highly profitable.
, D. The company has excessive cash reserves.
Answer: B
Conceptual Explanation: The Quick Ratio excludes inventory from current assets. A large
gap between the Current Ratio and Quick Ratio typically indicates a significant amount of
capital tied up in inventory.
5. Which financial statement reports a company’s financial position at a specific point in
time?
A. Income Statement
B. Statement of Retained Earnings
C. Balance Sheet
D. Statement of Cash Flows
Answer: C
Conceptual Explanation: The Balance Sheet is a ‘snapshot’ of assets, liabilities, and equity
at a specific date, whereas others report activity over a period.
6. In a period of rising prices (inflation), which inventory costing method results in the highest
Net Income?
A. LIFO (Last-In, First-Out)
B. Specific Identification
C. Weighted Average Cost
