WGU D774 Introduction to Business Accounting - Objective
Assessment Practice Exam Questions with Correct Answers and
Explanations
This objective assessment practice exam covers the foundational principles of financial accounting as taught in
WGU D774. It emphasizes the accounting cycle, preparation and analysis of financial statements, internal
controls, receivables, inventory, long-term assets, liabilities, equity, and ratio analysis. Questions require
application, analysis, and synthesis of GAAP concepts to business scenarios. It contains 99 multiple-choice
questions, each with four distractors and a fully worked rationale that explains why the keyed answer is correct.
Questions are organized into clearly labelled sections that mirror the major content areas of the course. Targeted
learning outcomes include: Apply the accounting cycle to record, adjust, and close business transactions in
accordance with GAAP.; Prepare and interpret the four basic financial statements and evaluate an entity's
financial position and performance.; Analyze internal control procedures, cash management, and the impact of
transactions on financial statements and ratios.. Every item has been reviewed for clinical accuracy, current
guidelines, and clarity so that students can study with confidence and self-correct as they work through the bank.
Use it as a high-yield review immediately before the exam, or as a structured practice tool during the unit - the
rationales double as concise teaching notes. The recommended writing time is 2.5 hours, with a passing score of
80% (Competent). Aligned with This exam aligns with US university standards for introductory financial
accounting, including AACSB accreditation expectations and WGU competency-based education requirements.
Section 1: General (Questions 1-99)
1 A company records a sale on account for $5,000 with terms 2/10, n/30. The
customer pays on day 12. What is the journal entry?
A) Debit Cash $5,000; Credit Accounts Receivable $5,000
B) Debit Cash $4,900; Debit Sales Discounts $100; Credit Accounts Receivable
$5,000
C) Debit Cash $5,000; Debit Sales Discounts $100; Credit Accounts Receivable
$5,100
D) Debit Cash $4,900; Credit Accounts Receivable $4,900
Answer: A
Rationale: The payment is made on day 12, which is after the 10-day discount
period. Therefore, no discount is taken, and the full $5,000 is collected. Option A
correctly records the cash receipt and removes the receivable. Options B and D
incorrectly apply the discount; option C misstates the receivable and discount.
2 A company uses the allowance method. It writes off a specific $800 account.
What is the effect on net accounts receivable and net income?
A) Net accounts receivable decreases; net income decreases.
B) Net accounts receivable decreases; net income is unchanged.
C) Net accounts receivable is unchanged; net income is unchanged.
D) Net accounts receivable is unchanged; net income decreases.
,Answer: C
Rationale: Under the allowance method, a write-off reduces both Accounts
Receivable and the Allowance for Doubtful Accounts by the same amount, leaving
net accounts receivable unchanged. It also does not affect net income because the
expense was recognized when the allowance was established. Thus, both net
accounts receivable and net income are unchanged.
3 Which inventory cost flow method generally results in the highest ending
inventory during periods of rising prices?
A) FIFO
B) LIFO
C) Weighted average
D) Specific identification
Answer: A
Rationale: During rising prices, FIFO assigns the earliest (lower) costs to cost of
goods sold and the most recent (higher) costs to ending inventory, resulting in the
highest ending inventory. LIFO and weighted average typically produce lower
ending inventory in inflationary periods. Specific identification depends on the
actual flow and is not generally the highest.
4 A company purchases equipment for $50,000, with residual value $5,000 and
useful life 5 years. Using straight-line, what is depreciation expense for year 2?
A) $9,000
B) $10,000
C) $8,000
D) $5,000
Answer: A
Rationale: Straight-line depreciation = (Cost - Residual Value) / Useful Life =
($50,000 - $5,000) / 5 = $9,000 per year. The same amount is recorded each year, so
year 2 depreciation is also $9,000. Options B, C, and D miscalculate the annual
expense.
5 A company issues $100,000 of 5-year, 6% bonds when the market rate is 8%.
How are the bonds issued?
A) At a premium
B) At a discount
C) At par
D) Cannot be determined
,Answer: B
Rationale: When the stated interest rate (6%) is lower than the market rate (8%),
investors are unwilling to pay face value, so the bonds are issued at a discount. A
premium occurs when the stated rate exceeds the market rate; par occurs when they
are equal. Thus, the correct answer is at a discount.
6 A company has current assets $200,000, inventory $50,000, and current liabilities
$100,000. What is the quick ratio?
A) 1.5
B) 2.0
C) 1.0
D) 0.5
Answer: A
Rationale: Quick ratio = (Current Assets - Inventory) / Current Liabilities =
($200,000 - $50,000) / $100,000 = 1.5. This measures liquidity without relying on
inventory. Options B, C, and D reflect miscalculations or use of the current ratio
instead.
7 A company's bank statement shows a balance of $10,000; deposits in transit are
$2,000; outstanding checks are $1,500. What is the adjusted bank balance?
A) $10,500
B) $11,500
C) $9,500
D) $13,500
Answer: A
Rationale: Adjusted bank balance = Bank statement balance + Deposits in transit -
Outstanding checks = $10,000 + $2,000 - $1,500 = $10,500. This reconciles the
bank's records to the company's true cash balance. The other options incorrectly add
or subtract items.
8 A company reports net income $80,000, beginning retained earnings $200,000,
and dividends $30,000. What is ending retained earnings?
A) $250,000
B) $280,000
C) $220,000
D) $310,000
Answer: A
Rationale: Ending retained earnings = Beginning retained earnings + Net income -
, Dividends = $200,000 + $80,000 - $30,000 = $250,000. This reflects the
accumulation of profits not distributed to owners. The other options miscalculate the
addition or subtraction.
9 Which of the following is a fundamental qualitative characteristic of useful
financial information under GAAP?
A) Comparability
B) Relevance
C) Timeliness
D) Understandability
Answer: B
Rationale: Under FASB's Conceptual Framework, the two fundamental qualitative
characteristics are relevance and faithful representation. Comparability, timeliness,
and understandability are enhancing characteristics. Therefore, relevance is the
correct answer.
10 A company uses the percentage-of-receivables method. It estimates 5% of
$200,000 receivables will be uncollectible. Allowance has a credit balance of
$2,000. What is bad debt expense?
A) $10,000
B) $8,000
C) $12,000
D) $2,000
Answer: B
Rationale: Desired allowance = 5% × $200,000 = $10,000. Since the allowance
already has a $2,000 credit balance, the adjustment needed is $10,000 - $2,000 =
$8,000. This amount is recorded as bad debt expense. Options A, C, and D fail to
consider the existing balance.
11 A company records a $5,000 cash sale with a 2% credit card fee. What is the net
cash received?
A) $4,900
B) $5,000
C) $4,950
D) $5,100
Answer: A
Rationale: The credit card fee is 2% of $5,000 = $100, so net cash is $5,000 - $100 =
$4,900. The fee is recorded as an expense, not a reduction of revenue. Options B, C,
Assessment Practice Exam Questions with Correct Answers and
Explanations
This objective assessment practice exam covers the foundational principles of financial accounting as taught in
WGU D774. It emphasizes the accounting cycle, preparation and analysis of financial statements, internal
controls, receivables, inventory, long-term assets, liabilities, equity, and ratio analysis. Questions require
application, analysis, and synthesis of GAAP concepts to business scenarios. It contains 99 multiple-choice
questions, each with four distractors and a fully worked rationale that explains why the keyed answer is correct.
Questions are organized into clearly labelled sections that mirror the major content areas of the course. Targeted
learning outcomes include: Apply the accounting cycle to record, adjust, and close business transactions in
accordance with GAAP.; Prepare and interpret the four basic financial statements and evaluate an entity's
financial position and performance.; Analyze internal control procedures, cash management, and the impact of
transactions on financial statements and ratios.. Every item has been reviewed for clinical accuracy, current
guidelines, and clarity so that students can study with confidence and self-correct as they work through the bank.
Use it as a high-yield review immediately before the exam, or as a structured practice tool during the unit - the
rationales double as concise teaching notes. The recommended writing time is 2.5 hours, with a passing score of
80% (Competent). Aligned with This exam aligns with US university standards for introductory financial
accounting, including AACSB accreditation expectations and WGU competency-based education requirements.
Section 1: General (Questions 1-99)
1 A company records a sale on account for $5,000 with terms 2/10, n/30. The
customer pays on day 12. What is the journal entry?
A) Debit Cash $5,000; Credit Accounts Receivable $5,000
B) Debit Cash $4,900; Debit Sales Discounts $100; Credit Accounts Receivable
$5,000
C) Debit Cash $5,000; Debit Sales Discounts $100; Credit Accounts Receivable
$5,100
D) Debit Cash $4,900; Credit Accounts Receivable $4,900
Answer: A
Rationale: The payment is made on day 12, which is after the 10-day discount
period. Therefore, no discount is taken, and the full $5,000 is collected. Option A
correctly records the cash receipt and removes the receivable. Options B and D
incorrectly apply the discount; option C misstates the receivable and discount.
2 A company uses the allowance method. It writes off a specific $800 account.
What is the effect on net accounts receivable and net income?
A) Net accounts receivable decreases; net income decreases.
B) Net accounts receivable decreases; net income is unchanged.
C) Net accounts receivable is unchanged; net income is unchanged.
D) Net accounts receivable is unchanged; net income decreases.
,Answer: C
Rationale: Under the allowance method, a write-off reduces both Accounts
Receivable and the Allowance for Doubtful Accounts by the same amount, leaving
net accounts receivable unchanged. It also does not affect net income because the
expense was recognized when the allowance was established. Thus, both net
accounts receivable and net income are unchanged.
3 Which inventory cost flow method generally results in the highest ending
inventory during periods of rising prices?
A) FIFO
B) LIFO
C) Weighted average
D) Specific identification
Answer: A
Rationale: During rising prices, FIFO assigns the earliest (lower) costs to cost of
goods sold and the most recent (higher) costs to ending inventory, resulting in the
highest ending inventory. LIFO and weighted average typically produce lower
ending inventory in inflationary periods. Specific identification depends on the
actual flow and is not generally the highest.
4 A company purchases equipment for $50,000, with residual value $5,000 and
useful life 5 years. Using straight-line, what is depreciation expense for year 2?
A) $9,000
B) $10,000
C) $8,000
D) $5,000
Answer: A
Rationale: Straight-line depreciation = (Cost - Residual Value) / Useful Life =
($50,000 - $5,000) / 5 = $9,000 per year. The same amount is recorded each year, so
year 2 depreciation is also $9,000. Options B, C, and D miscalculate the annual
expense.
5 A company issues $100,000 of 5-year, 6% bonds when the market rate is 8%.
How are the bonds issued?
A) At a premium
B) At a discount
C) At par
D) Cannot be determined
,Answer: B
Rationale: When the stated interest rate (6%) is lower than the market rate (8%),
investors are unwilling to pay face value, so the bonds are issued at a discount. A
premium occurs when the stated rate exceeds the market rate; par occurs when they
are equal. Thus, the correct answer is at a discount.
6 A company has current assets $200,000, inventory $50,000, and current liabilities
$100,000. What is the quick ratio?
A) 1.5
B) 2.0
C) 1.0
D) 0.5
Answer: A
Rationale: Quick ratio = (Current Assets - Inventory) / Current Liabilities =
($200,000 - $50,000) / $100,000 = 1.5. This measures liquidity without relying on
inventory. Options B, C, and D reflect miscalculations or use of the current ratio
instead.
7 A company's bank statement shows a balance of $10,000; deposits in transit are
$2,000; outstanding checks are $1,500. What is the adjusted bank balance?
A) $10,500
B) $11,500
C) $9,500
D) $13,500
Answer: A
Rationale: Adjusted bank balance = Bank statement balance + Deposits in transit -
Outstanding checks = $10,000 + $2,000 - $1,500 = $10,500. This reconciles the
bank's records to the company's true cash balance. The other options incorrectly add
or subtract items.
8 A company reports net income $80,000, beginning retained earnings $200,000,
and dividends $30,000. What is ending retained earnings?
A) $250,000
B) $280,000
C) $220,000
D) $310,000
Answer: A
Rationale: Ending retained earnings = Beginning retained earnings + Net income -
, Dividends = $200,000 + $80,000 - $30,000 = $250,000. This reflects the
accumulation of profits not distributed to owners. The other options miscalculate the
addition or subtraction.
9 Which of the following is a fundamental qualitative characteristic of useful
financial information under GAAP?
A) Comparability
B) Relevance
C) Timeliness
D) Understandability
Answer: B
Rationale: Under FASB's Conceptual Framework, the two fundamental qualitative
characteristics are relevance and faithful representation. Comparability, timeliness,
and understandability are enhancing characteristics. Therefore, relevance is the
correct answer.
10 A company uses the percentage-of-receivables method. It estimates 5% of
$200,000 receivables will be uncollectible. Allowance has a credit balance of
$2,000. What is bad debt expense?
A) $10,000
B) $8,000
C) $12,000
D) $2,000
Answer: B
Rationale: Desired allowance = 5% × $200,000 = $10,000. Since the allowance
already has a $2,000 credit balance, the adjustment needed is $10,000 - $2,000 =
$8,000. This amount is recorded as bad debt expense. Options A, C, and D fail to
consider the existing balance.
11 A company records a $5,000 cash sale with a 2% credit card fee. What is the net
cash received?
A) $4,900
B) $5,000
C) $4,950
D) $5,100
Answer: A
Rationale: The credit card fee is 2% of $5,000 = $100, so net cash is $5,000 - $100 =
$4,900. The fee is recorded as an expense, not a reduction of revenue. Options B, C,
