WGU C213 ACCOUNTING FOR
DECISION MAKERS MIDTERM EXAM
QUESTIONS AND VERIFIED ANSWERS |
100% CORRECT | GRADE A+
1. A company receives a $5,000 cash advance from a customer for services to be performed
over the next six months. How does this transaction affect the accounting equation?
A. Increase Assets and Increase Liabilities
B. Increase Assets and Increase Equity
C. Increase Liabilities and Decrease Equity
D. Decrease Assets and Decrease Liabilities
Answer: A
Conceptual Explanation: The cash advance is an asset (Cash), and because the service
hasn’t been performed, it creates a liability (Unearned Revenue).
2. During a period of rising prices, which inventory cost flow method typically results in the
lowest net income and the lowest ending inventory value?
A. LIFO (Last-In, First-Out)
B. Weighted Average Cost
C. FIFO (First-In, First-Out)
,D. Specific Identification
Answer: A
Conceptual Explanation: LIFO assigns the most recent (higher) costs to COGS, leading to
lower net income and leaving older (lower) costs in ending inventory.
3. Which of the following would cause a company’s Return on Equity (ROE) to increase,
assuming all other factors remain constant?
A. Issuing more common stock
B. Increasing the dividend payout ratio
C. Decreasing the asset turnover ratio
D. Increasing the use of debt financing to repurchase shares
Answer: D
Conceptual Explanation: Repurchasing shares with debt reduces equity (the
denominator) and can increase leverage, which boosts ROE if the return on assets exceeds
the interest rate.
4. Company X failed to record an adjusting entry for accrued salaries at the end of the year.
What is the impact on the financial statements?
A. Assets are overstated and Liabilities are understated
B. Liabilities are overstated and Equity is understated
C. Expenses are understated and Net Income is overstated
, D. Revenue is understated and Expenses are overstated
Answer: C
Conceptual Explanation: Accrued salaries are an expense. Failing to record them means
expenses are too low (understated) and profit is too high (overstated).
5. A piece of equipment was purchased for $100,000 with a residual value of $10,000 and a 5-
year useful life. Using the Double-Declining Balance method, what is the depreciation
expense for Year 2?
A. $40,000
B. $24,000
C. $18,000
D. $20,000
Answer: B
Conceptual Explanation: Year 1 DDB: $100,000 * 40% = $40,000. Year 2 DDB: ($100,000 -
$40,000) * 40% = $24,000.
6. Under the indirect method of preparing the Statement of Cash Flows, an increase in
Accounts Receivable is:
A. Added to Net Income in the Operating section
B. Reported as a cash outflow in the Investing section
C. Deducted from Net Income in the Operating section
DECISION MAKERS MIDTERM EXAM
QUESTIONS AND VERIFIED ANSWERS |
100% CORRECT | GRADE A+
1. A company receives a $5,000 cash advance from a customer for services to be performed
over the next six months. How does this transaction affect the accounting equation?
A. Increase Assets and Increase Liabilities
B. Increase Assets and Increase Equity
C. Increase Liabilities and Decrease Equity
D. Decrease Assets and Decrease Liabilities
Answer: A
Conceptual Explanation: The cash advance is an asset (Cash), and because the service
hasn’t been performed, it creates a liability (Unearned Revenue).
2. During a period of rising prices, which inventory cost flow method typically results in the
lowest net income and the lowest ending inventory value?
A. LIFO (Last-In, First-Out)
B. Weighted Average Cost
C. FIFO (First-In, First-Out)
,D. Specific Identification
Answer: A
Conceptual Explanation: LIFO assigns the most recent (higher) costs to COGS, leading to
lower net income and leaving older (lower) costs in ending inventory.
3. Which of the following would cause a company’s Return on Equity (ROE) to increase,
assuming all other factors remain constant?
A. Issuing more common stock
B. Increasing the dividend payout ratio
C. Decreasing the asset turnover ratio
D. Increasing the use of debt financing to repurchase shares
Answer: D
Conceptual Explanation: Repurchasing shares with debt reduces equity (the
denominator) and can increase leverage, which boosts ROE if the return on assets exceeds
the interest rate.
4. Company X failed to record an adjusting entry for accrued salaries at the end of the year.
What is the impact on the financial statements?
A. Assets are overstated and Liabilities are understated
B. Liabilities are overstated and Equity is understated
C. Expenses are understated and Net Income is overstated
, D. Revenue is understated and Expenses are overstated
Answer: C
Conceptual Explanation: Accrued salaries are an expense. Failing to record them means
expenses are too low (understated) and profit is too high (overstated).
5. A piece of equipment was purchased for $100,000 with a residual value of $10,000 and a 5-
year useful life. Using the Double-Declining Balance method, what is the depreciation
expense for Year 2?
A. $40,000
B. $24,000
C. $18,000
D. $20,000
Answer: B
Conceptual Explanation: Year 1 DDB: $100,000 * 40% = $40,000. Year 2 DDB: ($100,000 -
$40,000) * 40% = $24,000.
6. Under the indirect method of preparing the Statement of Cash Flows, an increase in
Accounts Receivable is:
A. Added to Net Income in the Operating section
B. Reported as a cash outflow in the Investing section
C. Deducted from Net Income in the Operating section
