GU C214 FINANCIAL
W
MANAGEMENT EXAM 2026-2027
| Questions & Verified Answers | OA
Exam Prep | Pass Guaranteed - A+
Graded
# **[DOMAIN 1: FINANCIAL STATEMENTS & RATIO ANALYSIS - 45 Questions]**
**Weight: 15% | Focus: Financial reporting, ratio analysis, cash flow interpretation**
---
### **Basic Accounting Principles (Questions 1-15)**
**1. What is the primary goal of the corporation in financial management?**
. Maximize market share
A
B. Maximize stock price
C. Maximize total assets
D. Maximize employee satisfaction
* *Answer: B** **[CORRECT]**
**Rationale:** The primary goal of financial management is to maximize shareholder wealth,
which is reflected in the stock price. This aligns with WGU C214 competency 1.1 on corporate
objectives and agency theory. Stock price incorporates all future cash flows, risk, and timing.
---
**2. The matching principle in accrual accounting requires that:**
. Revenues be recognized when cash is received
A
B. Revenues be recognized when the earnings process is complete and matches expenses to
revenues recognized
C. Expenses be paid before revenues are recognized
,D. All transactions be recorded on a cash basis
* *Answer: B** **[CORRECT]**
**Rationale:** The matching principle (competency 1.2) requires that expenses be matched to
the revenues they help generate in the same accounting period, regardless of cash flow timing.
This provides a more accurate picture of profitability.
---
**3. A basic equation for the balance sheet is:**
. Assets = Liabilities + Equity
A
B. Equity = Assets - Liabilities
C. Both A and B are correct
D. Assets = Liabilities - Equity
* *Answer: C** **[CORRECT]**
**Rationale:** Both equations are mathematically equivalent and correct. Assets = Liabilities +
Equity is the standard presentation, while Equity = Assets - Liabilities emphasizes that equity is
the residual claim (competency 1.3).
---
**4. Why is the Balance Sheet known as a "permanent statement"?**
. It shows permanent assets only
A
B. Because the other statements are reset at the end of the fiscal year
C. It never changes from period to period
D. It includes only long-term liabilities
* *Answer: B** **[CORRECT]**
**Rationale:** The balance sheet carries forward balances (permanent accounts), while income
statement and dividend accounts are temporary and reset to zero at year-end (closing entries).
This is covered in competency 1.3 on financial statement fundamentals.
---
**5. How do you calculate the change in Retained Earnings?**
. Net Income + Dividends
A
B. Beginning Retained Earnings + Net Income
C. Net Income - Dividends
D. Total Assets - Total Liabilities
,* *Answer: C** **[CORRECT]**
**Rationale:** The retained earnings change equals Net Income minus Dividends paid
(competency 1.3). This represents the portion of earnings reinvested in the business rather than
distributed to shareholders.
---
**6. Which of the following is generally true regarding Operating Income?**
. Operating Income and EBIT are always different
A
B. Operating Income and EBIT are the same
C. Operating Income includes interest expense
D. EBIT excludes depreciation
* *Answer: B** **[CORRECT]**
**Rationale:** Operating Income (or Operating Profit) and EBIT (Earnings Before Interest and
Taxes) are generally synonymous terms representing profit from core operations before
financing costs and taxes (competency 1.4).
---
**7. Which components are part of total assets?**
. Cash, Accounts Receivable, Inventory, Long Term Assets
A
B. Only current assets
C. Only fixed assets
D. Liabilities and equity
* *Answer: A** **[CORRECT]**
**Rationale:** Total assets include all resources owned by the firm: current assets (cash, A/R,
inventory, short-term investments) and long-term (fixed) assets (PP&E, intangibles). This is
fundamental to balance sheet structure (competency 1.3).
---
**8. Which components are part of current assets?**
. Only cash and accounts receivable
A
B. Inventory, Cash, Accounts Receivable, Short Term Investments
C. Only inventory and prepaid expenses
D. Property, Plant and Equipment
**Answer: B** **[CORRECT]**
, * *Rationale:** Current assets are resources expected to be converted to cash within one year or
operating cycle, including inventory, cash, accounts receivable, and short-term investments
(competency 1.3).
---
**9. Which of the following represents a cash inflow from operations?**
. Increase in accounts payable
A
B. Increase in inventory
C. Decrease in accounts receivable
D. Both A and C
* *Answer: D** **[CORRECT]**
**Rationale:** An increase in accounts payable (delaying payment) and a decrease in accounts
receivable (collecting cash) both represent operating cash inflows. Increases in operating assets
like inventory represent cash outflows (competency 1.6).
---
**10. The income statement measures performance over:**
. A specific point in time
A
B. A period of time
C. Only at year-end
D. Only quarterly periods
* *Answer: B** **[CORRECT]**
**Rationale:** Unlike the balance sheet (point-in-time snapshot), the income statement covers a
period (month, quarter, year) and shows revenues earned and expenses incurred during that
timeframe (competency 1.4).
---
**11. Which financial statement shows the firm's financial position at a specific date?**
. Income Statement
A
B. Statement of Cash Flows
C. Balance Sheet
D. Statement of Retained Earnings
**Answer: C** **[CORRECT]**
W
MANAGEMENT EXAM 2026-2027
| Questions & Verified Answers | OA
Exam Prep | Pass Guaranteed - A+
Graded
# **[DOMAIN 1: FINANCIAL STATEMENTS & RATIO ANALYSIS - 45 Questions]**
**Weight: 15% | Focus: Financial reporting, ratio analysis, cash flow interpretation**
---
### **Basic Accounting Principles (Questions 1-15)**
**1. What is the primary goal of the corporation in financial management?**
. Maximize market share
A
B. Maximize stock price
C. Maximize total assets
D. Maximize employee satisfaction
* *Answer: B** **[CORRECT]**
**Rationale:** The primary goal of financial management is to maximize shareholder wealth,
which is reflected in the stock price. This aligns with WGU C214 competency 1.1 on corporate
objectives and agency theory. Stock price incorporates all future cash flows, risk, and timing.
---
**2. The matching principle in accrual accounting requires that:**
. Revenues be recognized when cash is received
A
B. Revenues be recognized when the earnings process is complete and matches expenses to
revenues recognized
C. Expenses be paid before revenues are recognized
,D. All transactions be recorded on a cash basis
* *Answer: B** **[CORRECT]**
**Rationale:** The matching principle (competency 1.2) requires that expenses be matched to
the revenues they help generate in the same accounting period, regardless of cash flow timing.
This provides a more accurate picture of profitability.
---
**3. A basic equation for the balance sheet is:**
. Assets = Liabilities + Equity
A
B. Equity = Assets - Liabilities
C. Both A and B are correct
D. Assets = Liabilities - Equity
* *Answer: C** **[CORRECT]**
**Rationale:** Both equations are mathematically equivalent and correct. Assets = Liabilities +
Equity is the standard presentation, while Equity = Assets - Liabilities emphasizes that equity is
the residual claim (competency 1.3).
---
**4. Why is the Balance Sheet known as a "permanent statement"?**
. It shows permanent assets only
A
B. Because the other statements are reset at the end of the fiscal year
C. It never changes from period to period
D. It includes only long-term liabilities
* *Answer: B** **[CORRECT]**
**Rationale:** The balance sheet carries forward balances (permanent accounts), while income
statement and dividend accounts are temporary and reset to zero at year-end (closing entries).
This is covered in competency 1.3 on financial statement fundamentals.
---
**5. How do you calculate the change in Retained Earnings?**
. Net Income + Dividends
A
B. Beginning Retained Earnings + Net Income
C. Net Income - Dividends
D. Total Assets - Total Liabilities
,* *Answer: C** **[CORRECT]**
**Rationale:** The retained earnings change equals Net Income minus Dividends paid
(competency 1.3). This represents the portion of earnings reinvested in the business rather than
distributed to shareholders.
---
**6. Which of the following is generally true regarding Operating Income?**
. Operating Income and EBIT are always different
A
B. Operating Income and EBIT are the same
C. Operating Income includes interest expense
D. EBIT excludes depreciation
* *Answer: B** **[CORRECT]**
**Rationale:** Operating Income (or Operating Profit) and EBIT (Earnings Before Interest and
Taxes) are generally synonymous terms representing profit from core operations before
financing costs and taxes (competency 1.4).
---
**7. Which components are part of total assets?**
. Cash, Accounts Receivable, Inventory, Long Term Assets
A
B. Only current assets
C. Only fixed assets
D. Liabilities and equity
* *Answer: A** **[CORRECT]**
**Rationale:** Total assets include all resources owned by the firm: current assets (cash, A/R,
inventory, short-term investments) and long-term (fixed) assets (PP&E, intangibles). This is
fundamental to balance sheet structure (competency 1.3).
---
**8. Which components are part of current assets?**
. Only cash and accounts receivable
A
B. Inventory, Cash, Accounts Receivable, Short Term Investments
C. Only inventory and prepaid expenses
D. Property, Plant and Equipment
**Answer: B** **[CORRECT]**
, * *Rationale:** Current assets are resources expected to be converted to cash within one year or
operating cycle, including inventory, cash, accounts receivable, and short-term investments
(competency 1.3).
---
**9. Which of the following represents a cash inflow from operations?**
. Increase in accounts payable
A
B. Increase in inventory
C. Decrease in accounts receivable
D. Both A and C
* *Answer: D** **[CORRECT]**
**Rationale:** An increase in accounts payable (delaying payment) and a decrease in accounts
receivable (collecting cash) both represent operating cash inflows. Increases in operating assets
like inventory represent cash outflows (competency 1.6).
---
**10. The income statement measures performance over:**
. A specific point in time
A
B. A period of time
C. Only at year-end
D. Only quarterly periods
* *Answer: B** **[CORRECT]**
**Rationale:** Unlike the balance sheet (point-in-time snapshot), the income statement covers a
period (month, quarter, year) and shows revenues earned and expenses incurred during that
timeframe (competency 1.4).
---
**11. Which financial statement shows the firm's financial position at a specific date?**
. Income Statement
A
B. Statement of Cash Flows
C. Balance Sheet
D. Statement of Retained Earnings
**Answer: C** **[CORRECT]**
