,WGU C214 – Practice Questions for Financial Management Exam Prep |
Questions and Answers + Expert Rationales | 2026/27 Updates | 100%
correct
1. Trading on the NYSE is executed without a specialist (i.e. a market maker).
True/False
• A) True
• B) False
Correct Answer: B) False
Expert Rationale: The NYSE uses designated market makers (DMMs), formerly known
as specialists, to facilitate trading and maintain orderly markets. They provide liquidity
by matching buyers and sellers and can trade for their own accounts to stabilize prices.
2. Stocks and bonds are two types of financial instruments. True/False
• A) True
• B) False
Correct Answer: A) True
Expert Rationale: Stocks represent ownership in a corporation, while bonds represent
debt obligations. Both are financial instruments that trade in capital markets, making
this statement correct.
3. When revenue is matched with cost of sales in an income statement it is called:
• A) Matching Principle
, • B) Revenue Recognition Principle
• C) Accrual Accounting
• D) Cash Basis Accounting
Correct Answer: A) Matching Principle
Expert Rationale: The matching principle requires that expenses be recognized in the
same period as the revenues they help generate. This ensures that the income
statement accurately reflects the profitability of operations during a specific period.
4. 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:
• A) Revenues of $500,000, Expenses of $300,000
• B) Revenues of $300,000, Expenses of $200,000
• C) Revenues of $500,000, Expenses of $200,000
• D) Revenues of $300,000, Expenses of $300,000
Correct Answer: A) Revenues of $500,000, Expenses of $300,000
Expert Rationale: Under accrual accounting, revenue is recognized when earned (upon
delivery), not when cash is received. Expenses are recognized when incurred (matching
principle), regardless of whether they have been paid. Therefore, full revenue ($500,000)
and full expenses ($300,000) are recorded.
5. A firm reported retained earnings of $300 on 12/31/20x2. For 12/31/20x3, the
firm reports retained earnings of $400 and pays dividends of $25. What was net
income in 20x3?
• A) $100
• B) $125
• C) $75
• D) $150
, Correct Answer: B) $125
**Expert Rationale:** Ending RE = Beginning RE + Net Income – Dividends. $400 = $300
+ NI – $25. Therefore, NI = $400 – $300 + $25 = $125.
6. A basic equation for the balance sheet is:
• A) Assets = Liabilities + Equity
• B) Equity = Assets – Liabilities
• C) Liabilities = Assets – Equity
• D) All of the above
Correct Answer: D) All of the above
Expert Rationale: The fundamental accounting equation can be rearranged in multiple
ways. Assets = Liabilities + Equity; Equity = Assets – Liabilities; Liabilities = Assets –
Equity. All are mathematically equivalent.
7. Why is the Balance Sheet known as a permanent statement?
• A) Because the other statements are reset at the end of the fiscal year
• B) Because it never changes
• C) Because it reports data for a single day
• D) Because it is audited annually
Correct Answer: A) Because the other statements are reset at the end of the fiscal year
Expert Rationale: The balance sheet is a "permanent" or "snapshot" statement because
its balances carry forward from one period to the next. In contrast, income statement
and cash flow statement accounts are closed to retained earnings at year-end and reset
to zero.
8. How do you calculate the change in Retained Earnings?
• A) Net Income + Dividends
• B) Net Income – Dividends
Questions and Answers + Expert Rationales | 2026/27 Updates | 100%
correct
1. Trading on the NYSE is executed without a specialist (i.e. a market maker).
True/False
• A) True
• B) False
Correct Answer: B) False
Expert Rationale: The NYSE uses designated market makers (DMMs), formerly known
as specialists, to facilitate trading and maintain orderly markets. They provide liquidity
by matching buyers and sellers and can trade for their own accounts to stabilize prices.
2. Stocks and bonds are two types of financial instruments. True/False
• A) True
• B) False
Correct Answer: A) True
Expert Rationale: Stocks represent ownership in a corporation, while bonds represent
debt obligations. Both are financial instruments that trade in capital markets, making
this statement correct.
3. When revenue is matched with cost of sales in an income statement it is called:
• A) Matching Principle
, • B) Revenue Recognition Principle
• C) Accrual Accounting
• D) Cash Basis Accounting
Correct Answer: A) Matching Principle
Expert Rationale: The matching principle requires that expenses be recognized in the
same period as the revenues they help generate. This ensures that the income
statement accurately reflects the profitability of operations during a specific period.
4. 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:
• A) Revenues of $500,000, Expenses of $300,000
• B) Revenues of $300,000, Expenses of $200,000
• C) Revenues of $500,000, Expenses of $200,000
• D) Revenues of $300,000, Expenses of $300,000
Correct Answer: A) Revenues of $500,000, Expenses of $300,000
Expert Rationale: Under accrual accounting, revenue is recognized when earned (upon
delivery), not when cash is received. Expenses are recognized when incurred (matching
principle), regardless of whether they have been paid. Therefore, full revenue ($500,000)
and full expenses ($300,000) are recorded.
5. A firm reported retained earnings of $300 on 12/31/20x2. For 12/31/20x3, the
firm reports retained earnings of $400 and pays dividends of $25. What was net
income in 20x3?
• A) $100
• B) $125
• C) $75
• D) $150
, Correct Answer: B) $125
**Expert Rationale:** Ending RE = Beginning RE + Net Income – Dividends. $400 = $300
+ NI – $25. Therefore, NI = $400 – $300 + $25 = $125.
6. A basic equation for the balance sheet is:
• A) Assets = Liabilities + Equity
• B) Equity = Assets – Liabilities
• C) Liabilities = Assets – Equity
• D) All of the above
Correct Answer: D) All of the above
Expert Rationale: The fundamental accounting equation can be rearranged in multiple
ways. Assets = Liabilities + Equity; Equity = Assets – Liabilities; Liabilities = Assets –
Equity. All are mathematically equivalent.
7. Why is the Balance Sheet known as a permanent statement?
• A) Because the other statements are reset at the end of the fiscal year
• B) Because it never changes
• C) Because it reports data for a single day
• D) Because it is audited annually
Correct Answer: A) Because the other statements are reset at the end of the fiscal year
Expert Rationale: The balance sheet is a "permanent" or "snapshot" statement because
its balances carry forward from one period to the next. In contrast, income statement
and cash flow statement accounts are closed to retained earnings at year-end and reset
to zero.
8. How do you calculate the change in Retained Earnings?
• A) Net Income + Dividends
• B) Net Income – Dividends
