WGU C213 ACCOUNTING FOR DECISION MAKERS FINAL EXAM
| QUESTIONS AND ANSWERS (VERIFIED ANSWERS) | EXAM
PREP PRACTICE QUESTIONS AND ANSWERS | LATEST EXAM
GUIDE 2026&2027
1. A manager is reviewing the financial statements of a company before approving a major
equipment purchase. Which financial statement provides the best information about the
company's assets, liabilities, and equity at a specific point in time?
A. Income statement
B. Statement of cash flows
C. Balance sheet
D. Statement of retained earnings
Answer: C
The balance sheet reports assets, liabilities, and equity at a specific date, allowing decision
makers to evaluate the company's financial position.
2. A company reports revenue of $480,000 and expenses of $360,000 for the year. What is
the company's net income before taxes?
A. $120,000
B. $840,000
C. $360,000
D. $480,000
Answer: A
Net income before taxes is calculated by subtracting total expenses from revenue: $480,000 −
$360,000 = $120,000.
3. A purchasing manager wants to determine whether the company can meet obligations
due within the next 12 months. Which category of financial information is most relevant?
A. Gross profit
B. Current assets and current liabilities
C. Long-term investments
D. Retained earnings
Answer: B
Current assets and current liabilities are used to assess short-term liquidity and the
organization's ability to meet obligations due within one year.
,4. A company purchases inventory for $25,000 on credit. What is the immediate effect of
this transaction on the accounting equation?
A. Assets increase and equity decreases
B. Assets decrease and liabilities increase
C. Assets increase and liabilities increase
D. Liabilities decrease and equity increases
Answer: C
Inventory increases assets by $25,000, while the credit purchase creates an accounts payable
liability of $25,000.
5. Which principle requires companies to recognize expenses in the same period as the
revenues those expenses helped generate?
A. Revenue recognition principle
B. Matching principle
C. Cost principle
D. Conservatism principle
Answer: B
The matching principle requires expenses to be recognized in the period in which the related
revenue is recognized, improving the usefulness of reported profit.
6. A company receives $18,000 from a customer for services that will be performed over the
next six months. Under accrual accounting, how should the initial receipt be recorded?
A. Revenue of $18,000
B. Expense of $18,000
C. Accounts receivable of $18,000
D. Unearned revenue of $18,000
Answer: D
Because the company has received cash before providing the services, it records a liability
called unearned revenue until the services are performed.
7. Which accounting basis generally recognizes revenue when it is earned rather than when
cash is received?
A. Accrual basis
B. Cash basis
C. Tax basis
D. Modified cash basis
,Answer: A
Accrual accounting recognizes revenue when the company has earned it, regardless of when
the related cash is collected.
8. A company has total assets of $900,000 and total liabilities of $540,000. What is total
equity?
A. $360,000
B. $440,000
C. $540,000
D. $1,440,000
Answer: A
The accounting equation is Assets = Liabilities + Equity. Therefore, equity equals $900,000 −
$540,000 = $360,000.
9. A manager compares this year's financial statements with those from the previous three
years to identify trends. Which type of analysis is being performed?
A. Vertical analysis
B. Horizontal analysis
C. Ratio classification
D. Contribution analysis
Answer: B
Horizontal analysis compares financial information across periods to identify changes and
trends over time.
10. In a common-size income statement, each income statement item is generally expressed
as a percentage of:
A. Total assets
B. Total liabilities
C. Net income
D. Sales revenue
Answer: D
A common-size income statement expresses each item as a percentage of sales revenue,
making comparisons among periods or companies easier.
11. A company has current assets of $250,000 and current liabilities of $125,000. What is its
current ratio?
, A. 0.50
B. 1.00
C. 2.00
D. 3.00
Answer: C
The current ratio is current assets divided by current liabilities: $250,000 ÷ $125,000 = 2.00.
12. Which ratio is most directly used to evaluate a company's ability to pay its current
liabilities using its most liquid assets?
A. Debt-to-equity ratio
B. Gross margin ratio
C. Quick ratio
D. Return on assets
Answer: C
The quick ratio focuses on highly liquid assets and excludes less-liquid current assets such as
inventory from the numerator.
13. A company has $600,000 in sales and cost of goods sold of $390,000. What is gross
profit?
A. $210,000
B. $390,000
C. $600,000
D. $990,000
Answer: A
Gross profit equals sales revenue minus cost of goods sold: $600,000 − $390,000 = $210,000.
14. A retailer wants to determine how efficiently it converts inventory into sales. Which
measure would be most useful?
A. Debt ratio
B. Inventory turnover
C. Return on equity
D. Current ratio
Answer: B
Inventory turnover measures how many times inventory is sold and replaced during a period
and is therefore useful for evaluating inventory efficiency.
| QUESTIONS AND ANSWERS (VERIFIED ANSWERS) | EXAM
PREP PRACTICE QUESTIONS AND ANSWERS | LATEST EXAM
GUIDE 2026&2027
1. A manager is reviewing the financial statements of a company before approving a major
equipment purchase. Which financial statement provides the best information about the
company's assets, liabilities, and equity at a specific point in time?
A. Income statement
B. Statement of cash flows
C. Balance sheet
D. Statement of retained earnings
Answer: C
The balance sheet reports assets, liabilities, and equity at a specific date, allowing decision
makers to evaluate the company's financial position.
2. A company reports revenue of $480,000 and expenses of $360,000 for the year. What is
the company's net income before taxes?
A. $120,000
B. $840,000
C. $360,000
D. $480,000
Answer: A
Net income before taxes is calculated by subtracting total expenses from revenue: $480,000 −
$360,000 = $120,000.
3. A purchasing manager wants to determine whether the company can meet obligations
due within the next 12 months. Which category of financial information is most relevant?
A. Gross profit
B. Current assets and current liabilities
C. Long-term investments
D. Retained earnings
Answer: B
Current assets and current liabilities are used to assess short-term liquidity and the
organization's ability to meet obligations due within one year.
,4. A company purchases inventory for $25,000 on credit. What is the immediate effect of
this transaction on the accounting equation?
A. Assets increase and equity decreases
B. Assets decrease and liabilities increase
C. Assets increase and liabilities increase
D. Liabilities decrease and equity increases
Answer: C
Inventory increases assets by $25,000, while the credit purchase creates an accounts payable
liability of $25,000.
5. Which principle requires companies to recognize expenses in the same period as the
revenues those expenses helped generate?
A. Revenue recognition principle
B. Matching principle
C. Cost principle
D. Conservatism principle
Answer: B
The matching principle requires expenses to be recognized in the period in which the related
revenue is recognized, improving the usefulness of reported profit.
6. A company receives $18,000 from a customer for services that will be performed over the
next six months. Under accrual accounting, how should the initial receipt be recorded?
A. Revenue of $18,000
B. Expense of $18,000
C. Accounts receivable of $18,000
D. Unearned revenue of $18,000
Answer: D
Because the company has received cash before providing the services, it records a liability
called unearned revenue until the services are performed.
7. Which accounting basis generally recognizes revenue when it is earned rather than when
cash is received?
A. Accrual basis
B. Cash basis
C. Tax basis
D. Modified cash basis
,Answer: A
Accrual accounting recognizes revenue when the company has earned it, regardless of when
the related cash is collected.
8. A company has total assets of $900,000 and total liabilities of $540,000. What is total
equity?
A. $360,000
B. $440,000
C. $540,000
D. $1,440,000
Answer: A
The accounting equation is Assets = Liabilities + Equity. Therefore, equity equals $900,000 −
$540,000 = $360,000.
9. A manager compares this year's financial statements with those from the previous three
years to identify trends. Which type of analysis is being performed?
A. Vertical analysis
B. Horizontal analysis
C. Ratio classification
D. Contribution analysis
Answer: B
Horizontal analysis compares financial information across periods to identify changes and
trends over time.
10. In a common-size income statement, each income statement item is generally expressed
as a percentage of:
A. Total assets
B. Total liabilities
C. Net income
D. Sales revenue
Answer: D
A common-size income statement expresses each item as a percentage of sales revenue,
making comparisons among periods or companies easier.
11. A company has current assets of $250,000 and current liabilities of $125,000. What is its
current ratio?
, A. 0.50
B. 1.00
C. 2.00
D. 3.00
Answer: C
The current ratio is current assets divided by current liabilities: $250,000 ÷ $125,000 = 2.00.
12. Which ratio is most directly used to evaluate a company's ability to pay its current
liabilities using its most liquid assets?
A. Debt-to-equity ratio
B. Gross margin ratio
C. Quick ratio
D. Return on assets
Answer: C
The quick ratio focuses on highly liquid assets and excludes less-liquid current assets such as
inventory from the numerator.
13. A company has $600,000 in sales and cost of goods sold of $390,000. What is gross
profit?
A. $210,000
B. $390,000
C. $600,000
D. $990,000
Answer: A
Gross profit equals sales revenue minus cost of goods sold: $600,000 − $390,000 = $210,000.
14. A retailer wants to determine how efficiently it converts inventory into sales. Which
measure would be most useful?
A. Debt ratio
B. Inventory turnover
C. Return on equity
D. Current ratio
Answer: B
Inventory turnover measures how many times inventory is sold and replaced during a period
and is therefore useful for evaluating inventory efficiency.
