WGU D102 FINANCIAL ACCOUNTING:
ADVANCED ACTUAL EXAM PRACTICE
QUESTIONS & DETAILED
EXPLANATIONS GRADED A+
Subtopic: The Accounting Cycle, Journal Entries, and the
Adjusting Process
1. A company purchased equipment for $50,000 on January 1, Year 1. The
equipment has an estimated useful life of 5 years and a residual value of $5,000.
The company uses the double-declining balance method of depreciation. What is
the book value of the equipment at the end of Year 2?
A. $18,000
B. **$18,000**
C. $30,000
D. $32,000
Explanation: Under the double-declining balance method, the depreciation rate is 2 ×
(1/5) = 40%. Year 1 depreciation = $50,000 × 40% = $20,000. Book value at end of Year 1
= $50,000 − $20,000 = $30,000. Year 2 depreciation = $30,000 × 40% = $12,000. Book
value at end of Year 2 = $30,000 − $12,000 = $18,000. Note: The residual value is not
subtracted when calculating the depreciation base under the declining balance method; it
only serves as a floor to prevent over-depreciation.
2. A company's trial balance shows a debit balance of $5,000 in the Supplies
account. A physical count at year-end reveals $1,800 of supplies on hand. What is
the adjusting journal entry required at year-end?
A. Debit Supplies Expense $1,800; Credit Supplies $1,800
B. Debit Supplies $3,200; Credit Supplies Expense $3,200
C. Debit Supplies Expense $3,200; Credit Supplies $3,200
D. Debit Supplies Expense $5,000; Credit Supplies $5,000
, WGU D102 FINANCIAL ACCOUNTING:
ADVANCED ACTUAL EXAM PRACTICE
QUESTIONS & DETAILED
EXPLANATIONS GRADED A+
Explanation: The unadjusted Supplies balance is $5,000. The physical count shows only
$1,800 remains. Therefore, $3,200 ($5,000 − $1,800) of supplies were used during the
period. The adjusting entry must record the expense and reduce the asset. The correct
entry is to debit Supplies Expense for $3,200 and credit Supplies for $3,200.
3. Which of the following transactions would result in an increase in both total
assets and total liabilities?
A. Collecting cash from a customer for services previously billed
B. Purchasing inventory on account
C. Paying off a supplier's invoice with cash
D. Issuing common stock for cash
Explanation: Purchasing inventory on account increases the asset Inventory (debit) and
increases the liability Accounts Payable (credit). Collecting cash from a customer for
services previously billed increases Cash and decreases Accounts Receivable—both are
assets, so total assets remain unchanged. Paying off a supplier with cash decreases both
Cash (asset) and Accounts Payable (liability). Issuing common stock increases Cash (asset)
and increases Common Stock (equity), not liabilities.
4. A company has a beginning retained earnings balance of $120,000. During the
year, it earned net income of $45,000 and declared dividends of $15,000. What is
the ending retained earnings balance?**
A. $120,000
B. $150,000
C. **$150,000
D. $180,000
, WGU D102 FINANCIAL ACCOUNTING:
ADVANCED ACTUAL EXAM PRACTICE
QUESTIONS & DETAILED
EXPLANATIONS GRADED A+
Explanation: Ending Retained Earnings = Beginning Retained Earnings + Net Income −
Dividends. $120,000 + $45,000 − $15,000 = $150,000. Retained earnings represent the
cumulative profits retained in the business after dividends are distributed.
5. Under the accrual basis of accounting, revenue is recognized when:
A. Cash is received from the customer
B. The invoice is mailed to the customer
C. The performance obligation is satisfied
D. The contract is signed with the customer
Explanation: Under accrual accounting, revenue is recognized when the performance
obligation is satisfied—that is, when the goods or services have been transferred to the
customer, regardless of when cash is received. Cash-basis accounting recognizes revenue
when cash is received. Mailing an invoice or signing a contract does not necessarily mean
the performance obligation has been satisfied.
**6. A company records a $2,000 debit to Prepaid Insurance on October 1 for a one-year
policy. What adjusting entry is needed on December 31?**
A. Debit Insurance Expense $500; Credit Prepaid Insurance $500
B. **Debit Insurance Expense $500; Credit Prepaid Insurance $500**
C. Debit Prepaid Insurance $1,500; Credit Insurance Expense $1,500
D. Debit Insurance Expense $2,000; Credit Prepaid Insurance $2,000
Explanation: The $2,000 premium covers 12 months. Three months (October, November,
December) have expired by December 31. Monthly expense = $2,000 ÷ 12 = $166.67.
Three months = $500. The adjusting entry debits Insurance Expense $500 and credits
Prepaid Insurance $500 to recognize the expired portion.
, WGU D102 FINANCIAL ACCOUNTING:
ADVANCED ACTUAL EXAM PRACTICE
QUESTIONS & DETAILED
EXPLANATIONS GRADED A+
7. Which financial statement reports the financial position of a company at a
specific point in time?
A. Income Statement
B. Statement of Retained Earnings
C. Balance Sheet
D. Statement of Cash Flows
Explanation: The Balance Sheet (also called the Statement of Financial Position) reports
assets, liabilities, and equity at a specific date. The Income Statement reports revenues and
expenses over a period. The Statement of Retained Earnings reconciles beginning and
ending retained earnings. The Statement of Cash Flows reports cash inflows and outflows
over a period.
8. A company fails to record an adjusting entry for accrued salaries at year-end.
What is the effect on the financial statements?
A. Assets are overstated; expenses are overstated
B. Liabilities are understated; expenses are understated
C. Liabilities are overstated; expenses are understated
D. Assets are understated; liabilities are overstated
Explanation: Accrued salaries represent wages earned by employees but not yet paid. If the
adjusting entry is not recorded, Salaries Expense is understated (net income overstated),
and Salaries Payable (a liability) is understated. Assets are not affected because no cash
has been paid yet.
9. Which of the following is considered a contra-asset account?
A. Prepaid Rent
B. Accumulated Depreciation
ADVANCED ACTUAL EXAM PRACTICE
QUESTIONS & DETAILED
EXPLANATIONS GRADED A+
Subtopic: The Accounting Cycle, Journal Entries, and the
Adjusting Process
1. A company purchased equipment for $50,000 on January 1, Year 1. The
equipment has an estimated useful life of 5 years and a residual value of $5,000.
The company uses the double-declining balance method of depreciation. What is
the book value of the equipment at the end of Year 2?
A. $18,000
B. **$18,000**
C. $30,000
D. $32,000
Explanation: Under the double-declining balance method, the depreciation rate is 2 ×
(1/5) = 40%. Year 1 depreciation = $50,000 × 40% = $20,000. Book value at end of Year 1
= $50,000 − $20,000 = $30,000. Year 2 depreciation = $30,000 × 40% = $12,000. Book
value at end of Year 2 = $30,000 − $12,000 = $18,000. Note: The residual value is not
subtracted when calculating the depreciation base under the declining balance method; it
only serves as a floor to prevent over-depreciation.
2. A company's trial balance shows a debit balance of $5,000 in the Supplies
account. A physical count at year-end reveals $1,800 of supplies on hand. What is
the adjusting journal entry required at year-end?
A. Debit Supplies Expense $1,800; Credit Supplies $1,800
B. Debit Supplies $3,200; Credit Supplies Expense $3,200
C. Debit Supplies Expense $3,200; Credit Supplies $3,200
D. Debit Supplies Expense $5,000; Credit Supplies $5,000
, WGU D102 FINANCIAL ACCOUNTING:
ADVANCED ACTUAL EXAM PRACTICE
QUESTIONS & DETAILED
EXPLANATIONS GRADED A+
Explanation: The unadjusted Supplies balance is $5,000. The physical count shows only
$1,800 remains. Therefore, $3,200 ($5,000 − $1,800) of supplies were used during the
period. The adjusting entry must record the expense and reduce the asset. The correct
entry is to debit Supplies Expense for $3,200 and credit Supplies for $3,200.
3. Which of the following transactions would result in an increase in both total
assets and total liabilities?
A. Collecting cash from a customer for services previously billed
B. Purchasing inventory on account
C. Paying off a supplier's invoice with cash
D. Issuing common stock for cash
Explanation: Purchasing inventory on account increases the asset Inventory (debit) and
increases the liability Accounts Payable (credit). Collecting cash from a customer for
services previously billed increases Cash and decreases Accounts Receivable—both are
assets, so total assets remain unchanged. Paying off a supplier with cash decreases both
Cash (asset) and Accounts Payable (liability). Issuing common stock increases Cash (asset)
and increases Common Stock (equity), not liabilities.
4. A company has a beginning retained earnings balance of $120,000. During the
year, it earned net income of $45,000 and declared dividends of $15,000. What is
the ending retained earnings balance?**
A. $120,000
B. $150,000
C. **$150,000
D. $180,000
, WGU D102 FINANCIAL ACCOUNTING:
ADVANCED ACTUAL EXAM PRACTICE
QUESTIONS & DETAILED
EXPLANATIONS GRADED A+
Explanation: Ending Retained Earnings = Beginning Retained Earnings + Net Income −
Dividends. $120,000 + $45,000 − $15,000 = $150,000. Retained earnings represent the
cumulative profits retained in the business after dividends are distributed.
5. Under the accrual basis of accounting, revenue is recognized when:
A. Cash is received from the customer
B. The invoice is mailed to the customer
C. The performance obligation is satisfied
D. The contract is signed with the customer
Explanation: Under accrual accounting, revenue is recognized when the performance
obligation is satisfied—that is, when the goods or services have been transferred to the
customer, regardless of when cash is received. Cash-basis accounting recognizes revenue
when cash is received. Mailing an invoice or signing a contract does not necessarily mean
the performance obligation has been satisfied.
**6. A company records a $2,000 debit to Prepaid Insurance on October 1 for a one-year
policy. What adjusting entry is needed on December 31?**
A. Debit Insurance Expense $500; Credit Prepaid Insurance $500
B. **Debit Insurance Expense $500; Credit Prepaid Insurance $500**
C. Debit Prepaid Insurance $1,500; Credit Insurance Expense $1,500
D. Debit Insurance Expense $2,000; Credit Prepaid Insurance $2,000
Explanation: The $2,000 premium covers 12 months. Three months (October, November,
December) have expired by December 31. Monthly expense = $2,000 ÷ 12 = $166.67.
Three months = $500. The adjusting entry debits Insurance Expense $500 and credits
Prepaid Insurance $500 to recognize the expired portion.
, WGU D102 FINANCIAL ACCOUNTING:
ADVANCED ACTUAL EXAM PRACTICE
QUESTIONS & DETAILED
EXPLANATIONS GRADED A+
7. Which financial statement reports the financial position of a company at a
specific point in time?
A. Income Statement
B. Statement of Retained Earnings
C. Balance Sheet
D. Statement of Cash Flows
Explanation: The Balance Sheet (also called the Statement of Financial Position) reports
assets, liabilities, and equity at a specific date. The Income Statement reports revenues and
expenses over a period. The Statement of Retained Earnings reconciles beginning and
ending retained earnings. The Statement of Cash Flows reports cash inflows and outflows
over a period.
8. A company fails to record an adjusting entry for accrued salaries at year-end.
What is the effect on the financial statements?
A. Assets are overstated; expenses are overstated
B. Liabilities are understated; expenses are understated
C. Liabilities are overstated; expenses are understated
D. Assets are understated; liabilities are overstated
Explanation: Accrued salaries represent wages earned by employees but not yet paid. If the
adjusting entry is not recorded, Salaries Expense is understated (net income overstated),
and Salaries Payable (a liability) is understated. Assets are not affected because no cash
has been paid yet.
9. Which of the following is considered a contra-asset account?
A. Prepaid Rent
B. Accumulated Depreciation
