COURSE CODE: WGU C213
EXAM DATE TIME
COURSE TITLE: Accounting for Decision Makers — Key
—/—/ ALLOWED
Points 90 Minutes
——
INSTRUCTOR: —
WGU C213 — Key Points
Examination
Accounting for Decision Makers — Comprehensive Review
ALL QUESTIONS ARE COMPULSORY
A MULTIPLE CHOICE QUESTIONS ◆ 30 Marks
Choose the single best answer for each question. Write the correct letter (A, B, C, or D) in the space provided.
1. A company has total liabilities of $400,000 and total assets of $1,000,000. What is the debt
ratio?
A. 25%
B. 40%
C. 60%
D. 250%
◆ B — 40%
RATIONALE: The debt ratio is calculated as Total Liabilities ÷ Total Assets. $400,000 ÷ $1,000,000 = 0.40 or 40%. This
ratio measures the percentage of assets funded by creditors. A 40% debt ratio means the company financed 40% of
its assets through borrowing and 60% through owners' equity. The debt ratio is a key measure of financial leverage
—higher ratios indicate greater reliance on debt financing and increased financial risk. Only the balance sheet is
needed to compute this ratio.
Page 1 of 8
, 2. Current assets are $150,000 and current liabilities are $75,000. What is the current ratio,
and what does it measure?
A. 0.5; measures profitability
B. 2.0; measures liquidity
C. 2.0; measures leverage
D. 0.5; measures efficiency
◆ B — 2.0; measures liquidity
RATIONALE: The current ratio (Current Assets ÷ Current Liabilities) is $150,000 ÷ $75,000 = 2.0. This means the
company has $2.00 in current assets for every $1.00 in current liabilities. The current ratio measures liquidity—a
company's ability to meet short-term obligations with short-term assets. Only the balance sheet is needed. A ratio
of 2.0 is generally considered healthy. Option A and D have the calculation inverted. Option C misidentifies what the
ratio measures.
3. Net income is $50,000 and sales are $500,000. What is the return on sales, and what does
it indicate?
A. 10%; indicates the company earns 10 cents in profit for every dollar of sales
B. 10%; indicates the company generates $10 in sales for every dollar of assets
C. 1,000%; indicates the company has high leverage
D. 0.1; indicates the company has low liquidity
◆ A — 10%; indicates the company earns 10 cents in profit for every dollar of sales
RATIONALE: Return on sales (Net Income ÷ Sales) is $50,000 ÷ $500,000 = 10%. This profitability ratio indicates how
many pennies of profit the company generates from each dollar of sales. Only the income statement is needed.
Return on sales is the profitability component in the DuPont framework. Option B describes asset turnover (Sales ÷
Total Assets). Options C and D are miscalculations or misinterpretations.
Page 2 of 8
EXAM DATE TIME
COURSE TITLE: Accounting for Decision Makers — Key
—/—/ ALLOWED
Points 90 Minutes
——
INSTRUCTOR: —
WGU C213 — Key Points
Examination
Accounting for Decision Makers — Comprehensive Review
ALL QUESTIONS ARE COMPULSORY
A MULTIPLE CHOICE QUESTIONS ◆ 30 Marks
Choose the single best answer for each question. Write the correct letter (A, B, C, or D) in the space provided.
1. A company has total liabilities of $400,000 and total assets of $1,000,000. What is the debt
ratio?
A. 25%
B. 40%
C. 60%
D. 250%
◆ B — 40%
RATIONALE: The debt ratio is calculated as Total Liabilities ÷ Total Assets. $400,000 ÷ $1,000,000 = 0.40 or 40%. This
ratio measures the percentage of assets funded by creditors. A 40% debt ratio means the company financed 40% of
its assets through borrowing and 60% through owners' equity. The debt ratio is a key measure of financial leverage
—higher ratios indicate greater reliance on debt financing and increased financial risk. Only the balance sheet is
needed to compute this ratio.
Page 1 of 8
, 2. Current assets are $150,000 and current liabilities are $75,000. What is the current ratio,
and what does it measure?
A. 0.5; measures profitability
B. 2.0; measures liquidity
C. 2.0; measures leverage
D. 0.5; measures efficiency
◆ B — 2.0; measures liquidity
RATIONALE: The current ratio (Current Assets ÷ Current Liabilities) is $150,000 ÷ $75,000 = 2.0. This means the
company has $2.00 in current assets for every $1.00 in current liabilities. The current ratio measures liquidity—a
company's ability to meet short-term obligations with short-term assets. Only the balance sheet is needed. A ratio
of 2.0 is generally considered healthy. Option A and D have the calculation inverted. Option C misidentifies what the
ratio measures.
3. Net income is $50,000 and sales are $500,000. What is the return on sales, and what does
it indicate?
A. 10%; indicates the company earns 10 cents in profit for every dollar of sales
B. 10%; indicates the company generates $10 in sales for every dollar of assets
C. 1,000%; indicates the company has high leverage
D. 0.1; indicates the company has low liquidity
◆ A — 10%; indicates the company earns 10 cents in profit for every dollar of sales
RATIONALE: Return on sales (Net Income ÷ Sales) is $50,000 ÷ $500,000 = 10%. This profitability ratio indicates how
many pennies of profit the company generates from each dollar of sales. Only the income statement is needed.
Return on sales is the profitability component in the DuPont framework. Option B describes asset turnover (Sales ÷
Total Assets). Options C and D are miscalculations or misinterpretations.
Page 2 of 8
