WGU D104 OA 2 Intermediate Accounting II Practice Exam 100
Questions with Answers and Detailed Rationales 2026/2027
Ratios and Financial Analysis
1. What is the asset turnover ratio?
Answer Net sales ÷ average total assets.
Rationale This efficiency ratio measures sales generated per dollar invested in
assets. Average assets usually equal beginning plus ending assets divided by two.
2. Net sales are $900,000; beginning assets are $400,000 and ending assets
are $500,000. Compute asset turnover.
Answer 2.00 times.
Rationale Average assets are $450,000. Dividing $900,000 by $450,000 gives
2.00; using ending assets alone would misstate the average investment.
3. What is the profit margin ratio?
Answer Net income ÷ net sales.
Rationale The ratio measures the share of each sales dollar remaining as net
income after expenses. Use net sales consistently when comparing companies.
4. Net income is $72,000 and net sales are $600,000. Compute profit
margin.
Answer 12%.
Rationale $72,000 ÷ $600,000 = 0.12. A percentage expresses earnings retained
from each dollar of sales.
5. What is return on assets using the convention in this exam?
Answer Net income ÷ average total assets.
Rationale This convention uses net income without adding back interest. Other
analytical conventions exist, so the numerator must be specified.
D104 OA 2 Practice Guide | 1
,6. Net income is $80,000 and average assets are $640,000. Compute return
on assets.
Answer 12.5%.
Rationale $80,000 ÷ $640,000 = 0.125. This expresses income relative to the
average asset base.
7. Profit margin is 8% and asset turnover is 1.5 times. Compute return on
assets.
Answer 12%.
Rationale The DuPont relationship is profit margin × asset turnover: 0.08 × 1.5 =
0.12. Net sales cancel algebraically.
8. A company doubles sales while average assets stay constant. What
happens to asset turnover?
Answer It doubles.
Rationale Sales are the numerator. With an unchanged denominator, doubling
the numerator doubles the ratio, regardless of the profit earned.
9. Sales are unchanged, but expenses fall. What happens to profit margin,
assuming no other changes?
Answer It increases.
Rationale Lower expenses raise net income. With net sales unchanged, net
income divided by sales increases.
10. What is the current ratio?
Answer Current assets ÷ current liabilities.
Rationale The ratio compares resources expected to become cash or be used
within the operating cycle with obligations classified as current.
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, 11. Current assets are $240,000 and current liabilities are $120,000.
Compute the current ratio.
Answer 2.00 to 1.
Rationale $240,000 ÷ $120,000 = 2.00. This means $2 of current assets for each
$1 of current liabilities.
12. What is the acid-test or quick ratio?
Answer Cash plus short-term investments plus net receivables, divided by
current liabilities.
Rationale Quick assets exclude inventory and prepaid expenses because they
are less readily available to satisfy immediate cash obligations.
13. Cash is $30,000, short-term investments $20,000, net receivables
$70,000, inventory $80,000, and current liabilities $100,000. Compute the
quick ratio.
Answer 1.20 to 1.
Rationale Quick assets total $120,000. Inventory is excluded, so $120,000 ÷
$100,000 = 1.20.
14. Why are prepaid expenses excluded from the quick ratio?
Answer They generally cannot be used to pay current liabilities.
Rationale Prepaid services provide future benefits but do not normally convert
into cash available for creditors. Their inclusion would overstate immediate
liquidity.
15. Current assets are $200,000 and current liabilities $100,000. The
company pays $20,000 of accounts payable in cash. What is the new current
ratio?
Answer 2.25 to 1.
Rationale Both balances decline: $180,000 ÷ $80,000 = 2.25. Paying current
debt raises a current ratio that initially exceeds 1.
D104 OA 2 Practice Guide | 3
Questions with Answers and Detailed Rationales 2026/2027
Ratios and Financial Analysis
1. What is the asset turnover ratio?
Answer Net sales ÷ average total assets.
Rationale This efficiency ratio measures sales generated per dollar invested in
assets. Average assets usually equal beginning plus ending assets divided by two.
2. Net sales are $900,000; beginning assets are $400,000 and ending assets
are $500,000. Compute asset turnover.
Answer 2.00 times.
Rationale Average assets are $450,000. Dividing $900,000 by $450,000 gives
2.00; using ending assets alone would misstate the average investment.
3. What is the profit margin ratio?
Answer Net income ÷ net sales.
Rationale The ratio measures the share of each sales dollar remaining as net
income after expenses. Use net sales consistently when comparing companies.
4. Net income is $72,000 and net sales are $600,000. Compute profit
margin.
Answer 12%.
Rationale $72,000 ÷ $600,000 = 0.12. A percentage expresses earnings retained
from each dollar of sales.
5. What is return on assets using the convention in this exam?
Answer Net income ÷ average total assets.
Rationale This convention uses net income without adding back interest. Other
analytical conventions exist, so the numerator must be specified.
D104 OA 2 Practice Guide | 1
,6. Net income is $80,000 and average assets are $640,000. Compute return
on assets.
Answer 12.5%.
Rationale $80,000 ÷ $640,000 = 0.125. This expresses income relative to the
average asset base.
7. Profit margin is 8% and asset turnover is 1.5 times. Compute return on
assets.
Answer 12%.
Rationale The DuPont relationship is profit margin × asset turnover: 0.08 × 1.5 =
0.12. Net sales cancel algebraically.
8. A company doubles sales while average assets stay constant. What
happens to asset turnover?
Answer It doubles.
Rationale Sales are the numerator. With an unchanged denominator, doubling
the numerator doubles the ratio, regardless of the profit earned.
9. Sales are unchanged, but expenses fall. What happens to profit margin,
assuming no other changes?
Answer It increases.
Rationale Lower expenses raise net income. With net sales unchanged, net
income divided by sales increases.
10. What is the current ratio?
Answer Current assets ÷ current liabilities.
Rationale The ratio compares resources expected to become cash or be used
within the operating cycle with obligations classified as current.
D104 OA 2 Practice Guide | 2
, 11. Current assets are $240,000 and current liabilities are $120,000.
Compute the current ratio.
Answer 2.00 to 1.
Rationale $240,000 ÷ $120,000 = 2.00. This means $2 of current assets for each
$1 of current liabilities.
12. What is the acid-test or quick ratio?
Answer Cash plus short-term investments plus net receivables, divided by
current liabilities.
Rationale Quick assets exclude inventory and prepaid expenses because they
are less readily available to satisfy immediate cash obligations.
13. Cash is $30,000, short-term investments $20,000, net receivables
$70,000, inventory $80,000, and current liabilities $100,000. Compute the
quick ratio.
Answer 1.20 to 1.
Rationale Quick assets total $120,000. Inventory is excluded, so $120,000 ÷
$100,000 = 1.20.
14. Why are prepaid expenses excluded from the quick ratio?
Answer They generally cannot be used to pay current liabilities.
Rationale Prepaid services provide future benefits but do not normally convert
into cash available for creditors. Their inclusion would overstate immediate
liquidity.
15. Current assets are $200,000 and current liabilities $100,000. The
company pays $20,000 of accounts payable in cash. What is the new current
ratio?
Answer 2.25 to 1.
Rationale Both balances decline: $180,000 ÷ $80,000 = 2.25. Paying current
debt raises a current ratio that initially exceeds 1.
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