WGU C214 Financial Mngt Questions
with complete solution 2026
Cash accounting offers a superior method of analyzing a company - correct answer ✔False
Income Statement is the most easily interpreted of the basic financial statements - correct answer
✔False - The income statement is usually regarded as the most difficult to analyze and interpret.
The basic equation of an income statement is: - correct answer ✔Revenues - expenses = net income
Income statement equation: Revenues - expenses = net income
Revenues minus cost of goods sold is: - correct answer ✔Gross Profit.
Revenues
- COGS
= Gross Profit
- Operating Expenses
= EBIT/Operating Profit
- Interest Expenses
= EBT
- Tax Expenses
= Net Income/Earnings
On the income statement, Cost of Goods Sold includes - correct answer ✔Direct materials and direct
labor associated with production
,Which of the following best describes the guiding principle for revenue recognition within accrual
accounting system - correct answer ✔Revenue is reported when the earnings process is complete
With accrual accounting, revenue is recognized when the earnings process is complete. Indicators that
the earnings process is complete include the transfer of the risk of ownership and assurance of
payment.
A high-quality customer just purchased $500,000 worth of product from your company. The contract
calls for immediate delivery of the product with a cash payment of $300,000 today and $200,000 to be
paid 60 days. The expense associated with the product is $300,000, of which $100,000 has not been
paid to your supplier. Under accrual based accounting system, you will most likely report: - correct
answer ✔Revenues of $500,000 and expenses of $300,000.
Solution: Under accrual accounting system, you record the revenues when the earnings process is
complete and match the expense with the revenues. In this case, we delivered the product and have a
contract for payment with a high-quality firm. Hence, the earnings process is complete (including
reasonable assurance of payment) so the firm will recognize $500,000 in revenue. The matching
principle requires expense recognition for revenues recognized. The fact that our firm hasn't paid the
supplier doesn't impact the expenses incurred to generate the $500,000 in revenue. Hence, the firm will
recognize $300,000 in expense associated with the sale.
The basic equation for the balance sheet is: - correct answer ✔Equity = Assets - Liabilities
The equation is usually introduced as Assets = Liabilities + Equity. Commonly, we solve for Equity as is
the case for this questions (E=A-L).
Thirty years ago, your firm purchased a parcel of land for $100,000. You still own the land. The current
market price of the land is $1,000,000. Under accrual accounting, which of the following adjustment
should be made to recognize the current value of the land? - correct answer ✔There is no adjustment
to be made.
Solution: Under the historical cost principle, the book value of the land is not changed.
A firm purchased equipment three years ago for $500,000. The equipment is the only fixed asset the
firm has ever owned. If the firm claimed depreciation of $20,000 the first year, $35,000 the second year
and $32,500 the third year, the Gross Fixed Assets should be equal to: - correct answer ✔$500,000
, Solution: GROSS fixed assets represent the original cost of the firm's fixed assets before accumulated
depreciation.
Inventory is the most liquid component of current assets. - correct answer ✔False
Of the major components comprising current assets (i.e., cash, marketable securities, accounts
receivable, and inventory), inventory is usually the least liquid.
On the balance sheet, Gross Fixed Assets represent: - correct answer ✔The original cost of the fixed
assets currently owned by the firm.
Solution: Gross fixed assets represent the original cost of the fixed assets currently owned by the firm. In
general, market values are not relevant to fixed assets (note: there are times when market values are
reported on the balance sheet; these exceptions are not included in the discussion for this learning
resource).
Current liabilities are reported in order of: - correct answer ✔Maturity (shortest first)
Current liabilities are reported in order of shortest to longest maturity.
Retained earnings represent the accumulated net income of the firm less dividends paid. - correct
answer ✔True
Current liabilities represent money owed by a firm that requires payment within one year. - correct
answer ✔True
Net Income = - correct answer ✔Dividends + Change in RE
New RE = - correct answer ✔Old RE + Change in RE
New RE = - correct answer ✔Old RE + Net Income - Dividends
with complete solution 2026
Cash accounting offers a superior method of analyzing a company - correct answer ✔False
Income Statement is the most easily interpreted of the basic financial statements - correct answer
✔False - The income statement is usually regarded as the most difficult to analyze and interpret.
The basic equation of an income statement is: - correct answer ✔Revenues - expenses = net income
Income statement equation: Revenues - expenses = net income
Revenues minus cost of goods sold is: - correct answer ✔Gross Profit.
Revenues
- COGS
= Gross Profit
- Operating Expenses
= EBIT/Operating Profit
- Interest Expenses
= EBT
- Tax Expenses
= Net Income/Earnings
On the income statement, Cost of Goods Sold includes - correct answer ✔Direct materials and direct
labor associated with production
,Which of the following best describes the guiding principle for revenue recognition within accrual
accounting system - correct answer ✔Revenue is reported when the earnings process is complete
With accrual accounting, revenue is recognized when the earnings process is complete. Indicators that
the earnings process is complete include the transfer of the risk of ownership and assurance of
payment.
A high-quality customer just purchased $500,000 worth of product from your company. The contract
calls for immediate delivery of the product with a cash payment of $300,000 today and $200,000 to be
paid 60 days. The expense associated with the product is $300,000, of which $100,000 has not been
paid to your supplier. Under accrual based accounting system, you will most likely report: - correct
answer ✔Revenues of $500,000 and expenses of $300,000.
Solution: Under accrual accounting system, you record the revenues when the earnings process is
complete and match the expense with the revenues. In this case, we delivered the product and have a
contract for payment with a high-quality firm. Hence, the earnings process is complete (including
reasonable assurance of payment) so the firm will recognize $500,000 in revenue. The matching
principle requires expense recognition for revenues recognized. The fact that our firm hasn't paid the
supplier doesn't impact the expenses incurred to generate the $500,000 in revenue. Hence, the firm will
recognize $300,000 in expense associated with the sale.
The basic equation for the balance sheet is: - correct answer ✔Equity = Assets - Liabilities
The equation is usually introduced as Assets = Liabilities + Equity. Commonly, we solve for Equity as is
the case for this questions (E=A-L).
Thirty years ago, your firm purchased a parcel of land for $100,000. You still own the land. The current
market price of the land is $1,000,000. Under accrual accounting, which of the following adjustment
should be made to recognize the current value of the land? - correct answer ✔There is no adjustment
to be made.
Solution: Under the historical cost principle, the book value of the land is not changed.
A firm purchased equipment three years ago for $500,000. The equipment is the only fixed asset the
firm has ever owned. If the firm claimed depreciation of $20,000 the first year, $35,000 the second year
and $32,500 the third year, the Gross Fixed Assets should be equal to: - correct answer ✔$500,000
, Solution: GROSS fixed assets represent the original cost of the firm's fixed assets before accumulated
depreciation.
Inventory is the most liquid component of current assets. - correct answer ✔False
Of the major components comprising current assets (i.e., cash, marketable securities, accounts
receivable, and inventory), inventory is usually the least liquid.
On the balance sheet, Gross Fixed Assets represent: - correct answer ✔The original cost of the fixed
assets currently owned by the firm.
Solution: Gross fixed assets represent the original cost of the fixed assets currently owned by the firm. In
general, market values are not relevant to fixed assets (note: there are times when market values are
reported on the balance sheet; these exceptions are not included in the discussion for this learning
resource).
Current liabilities are reported in order of: - correct answer ✔Maturity (shortest first)
Current liabilities are reported in order of shortest to longest maturity.
Retained earnings represent the accumulated net income of the firm less dividends paid. - correct
answer ✔True
Current liabilities represent money owed by a firm that requires payment within one year. - correct
answer ✔True
Net Income = - correct answer ✔Dividends + Change in RE
New RE = - correct answer ✔Old RE + Change in RE
New RE = - correct answer ✔Old RE + Net Income - Dividends
