WGU C213 PRE-ASSESSMENT:
ACCOUNTING FOR DECISION MAKERS.
EXAM QUESTIONS AND ANSWERS
1. Which of the following describes the impact on the financial statements when a company
records an accrued expense at the end of the fiscal year?
A. Assets decrease and expenses increase.
B. Assets increase and liabilities increase.
C. Liabilities decrease and equity increases.
D. Liabilities increase and expenses increase.
Answer: D
Conceptual Explanation: An accrued expense is one that has been incurred but not yet
paid. The journal entry involves a debit to an expense account (increasing expenses) and a
credit to a liability account (increasing liabilities).
2. Under the FIFO inventory costing method, during a period of rising prices, which of the
following is true compared to LIFO?
A. Cost of Goods Sold is higher and Net Income is lower.
,B. Ending Inventory is lower and Net Income is higher.
C. Gross Profit is lower and Ending Inventory is higher.
D. Cost of Goods Sold is lower and Net Income is higher.
Answer: D
Conceptual Explanation: FIFO (First-In, First-Out) assumes the oldest, cheaper items are
sold first during inflation, resulting in a lower Cost of Goods Sold and consequently a higher
Net Income and higher Ending Inventory value.
3. A company purchased equipment for $50,000 with a residual value of $5,000 and an
estimated life of 5 years. Using the double-declining balance method, what is the
depreciation expense for the second year?
A. $12,000
B. $20,000
C. $9,000
D. $18,000
Answer: A
Conceptual Explanation: Year 1 DDB rate is 40% (2/5). Year 1 expense: $50,000 * 0.40 =
$20,000. Book value at start of Year 2: $50,000 - $20,000 = $30,000. Year 2 expense:
$30,000 * 0.40 = $12,000.
, 4. In a statement of cash flows, which of the following is classified as an investing activity?
A. Collection of principal on a loan made to another entity.
B. Proceeds from the issuance of common stock.
C. Purchase of treasury stock.
D. Payment of dividends to shareholders.
Answer: A
Conceptual Explanation: Investing activities involve the purchase and sale of long-term
assets and other investments (including lending money and collecting principal). Dividend
payments and stock issuances are financing activities.
5. What is the effect on the Debt-to-Equity ratio if a company issues new common stock to
pay off a long-term bank loan?
A. The ratio decreases.
B. The ratio increases.
C. The ratio remains unchanged.
D. Total assets decrease significantly.
Answer: A
Conceptual Explanation: Issuing stock increases Equity, and paying off a loan decreases
total Debt. Both actions work to decrease the numerator and increase the denominator of
the Debt-to-Equity ratio, thus lowering it.
ACCOUNTING FOR DECISION MAKERS.
EXAM QUESTIONS AND ANSWERS
1. Which of the following describes the impact on the financial statements when a company
records an accrued expense at the end of the fiscal year?
A. Assets decrease and expenses increase.
B. Assets increase and liabilities increase.
C. Liabilities decrease and equity increases.
D. Liabilities increase and expenses increase.
Answer: D
Conceptual Explanation: An accrued expense is one that has been incurred but not yet
paid. The journal entry involves a debit to an expense account (increasing expenses) and a
credit to a liability account (increasing liabilities).
2. Under the FIFO inventory costing method, during a period of rising prices, which of the
following is true compared to LIFO?
A. Cost of Goods Sold is higher and Net Income is lower.
,B. Ending Inventory is lower and Net Income is higher.
C. Gross Profit is lower and Ending Inventory is higher.
D. Cost of Goods Sold is lower and Net Income is higher.
Answer: D
Conceptual Explanation: FIFO (First-In, First-Out) assumes the oldest, cheaper items are
sold first during inflation, resulting in a lower Cost of Goods Sold and consequently a higher
Net Income and higher Ending Inventory value.
3. A company purchased equipment for $50,000 with a residual value of $5,000 and an
estimated life of 5 years. Using the double-declining balance method, what is the
depreciation expense for the second year?
A. $12,000
B. $20,000
C. $9,000
D. $18,000
Answer: A
Conceptual Explanation: Year 1 DDB rate is 40% (2/5). Year 1 expense: $50,000 * 0.40 =
$20,000. Book value at start of Year 2: $50,000 - $20,000 = $30,000. Year 2 expense:
$30,000 * 0.40 = $12,000.
, 4. In a statement of cash flows, which of the following is classified as an investing activity?
A. Collection of principal on a loan made to another entity.
B. Proceeds from the issuance of common stock.
C. Purchase of treasury stock.
D. Payment of dividends to shareholders.
Answer: A
Conceptual Explanation: Investing activities involve the purchase and sale of long-term
assets and other investments (including lending money and collecting principal). Dividend
payments and stock issuances are financing activities.
5. What is the effect on the Debt-to-Equity ratio if a company issues new common stock to
pay off a long-term bank loan?
A. The ratio decreases.
B. The ratio increases.
C. The ratio remains unchanged.
D. Total assets decrease significantly.
Answer: A
Conceptual Explanation: Issuing stock increases Equity, and paying off a loan decreases
total Debt. Both actions work to decrease the numerator and increase the denominator of
the Debt-to-Equity ratio, thus lowering it.
