C214
WGU C214 Financial Management Exam Prep with Practice
Questions & Answers (Verified Answers) and Deep Expert
Rationales | Latest (2026/2027) Updated Version
,Question 1
Trading on the New York Stock Exchange (NYSE) is executed without a specialist
(market maker).
A. True
B. False
Correct Answer: B. False
Rationale: NYSE trading relies heavily on Designated Market Makers (DMMs),
historically referred to as specialists. DMMs facilitate liquidity, maintain an orderly
market, and execute trades for specific stocks. Markets like NASDAQ operate on a dealer
network without a single physical specialist floor.
Question 2
Which of the following best describes the classification of stocks and bonds?
A. Financial derivatives
B. Financial instruments
C. Tangible physical assets
D. Direct liabilities of the Federal Reserve
Correct Answer: B. Financial instruments
Rationale: Both common/preferred stocks (equity) and bonds (debt) are basic financial
instruments (securities) traded in financial markets to raise capital for corporations and
governments.
Question 3
When revenue generated in a period is directly matched with the expenses incurred
to generate that revenue, this accounting rule is known as the:
A. Historical Cost Principle
,B. Revenue Recognition Principle
C. Matching Principle
D. Conservatism Principle
Correct Answer: C. Matching Principle
Rationale: Under accrual accounting, the matching principle dictates that costs incurred
to produce revenues must be recognized in the same period as the associated revenues,
regardless of when cash is paid or received.
Question 4
A customer buys $500,000 of product with $300,000 paid in cash today and $200,000
due in 60 days. The production cost is $300,000, of which $100,000 has not yet been
paid to the supplier. Under accrual accounting, what revenue and expense are
reported today?
A. Revenue: $300,000; Expense: $200,000
B. Revenue: $500,000; Expense: $300,000
C. Revenue: $300,000; Expense: $300,000
D. Revenue: $500,000; Expense: $200,000
Correct Answer: B. Revenue: $500,000; Expense: $300,000
Rationale: Accrual accounting recognizes revenue when earned ($500,000 total sales)
and matching expenses when incurred ($300,000 total cost of goods sold), regardless of
immediate cash collections or cash accounts payable balances.
Question 5
A firm reported Retained Earnings of $300 on 12/31/20x2. On 12/31/20x3, Retained
Earnings were $400, and the firm paid $25 in dividends during 20x3. What was the
Net Income for 20x3?
A. $75
, B. $100
C. $125
D. $150
Correct Answer: C. $125
Rationale:
$$\text{Ending Retained Earnings} = \text{Beginning Retained Earnings} + \text{Net
Income} - \text{Dividends}$$$$\$400 = \$300 + \text{Net Income} - \$25$$$$\text{Net
Income} = \$400 - \$300 + \$25 = \$125$$
Question 6
Which of the following correctly expresses the fundamental accounting equation for
the balance sheet?
A. $\text{Assets} = \text{Liabilities} - \text{Equity}$
B. $\text{Equity} = \text{Assets} - \text{Liabilities}$
C. $\text{Liabilities} = \text{Equity} - \text{Assets}$
D. $\text{Assets} = \text{Revenue} - \text{Expenses}$
Correct Answer: B. $\text{Equity} = \text{Assets} - \text{Liabilities}$
Rationale: The basic accounting identity is $\text{Assets} = \text{Liabilities} +
\text{Equity}$. Rearranging terms yields $\text{Equity} = \text{Assets} -
\text{Liabilities}$.
Question 7
Why is the Balance Sheet considered a "permanent" statement, whereas the Income
Statement is "temporary"?
A. Balance sheet values reflect market prices rather than historical costs
B. Balance sheet balances carry over from year to year, whereas income statement
WGU C214 Financial Management Exam Prep with Practice
Questions & Answers (Verified Answers) and Deep Expert
Rationales | Latest (2026/2027) Updated Version
,Question 1
Trading on the New York Stock Exchange (NYSE) is executed without a specialist
(market maker).
A. True
B. False
Correct Answer: B. False
Rationale: NYSE trading relies heavily on Designated Market Makers (DMMs),
historically referred to as specialists. DMMs facilitate liquidity, maintain an orderly
market, and execute trades for specific stocks. Markets like NASDAQ operate on a dealer
network without a single physical specialist floor.
Question 2
Which of the following best describes the classification of stocks and bonds?
A. Financial derivatives
B. Financial instruments
C. Tangible physical assets
D. Direct liabilities of the Federal Reserve
Correct Answer: B. Financial instruments
Rationale: Both common/preferred stocks (equity) and bonds (debt) are basic financial
instruments (securities) traded in financial markets to raise capital for corporations and
governments.
Question 3
When revenue generated in a period is directly matched with the expenses incurred
to generate that revenue, this accounting rule is known as the:
A. Historical Cost Principle
,B. Revenue Recognition Principle
C. Matching Principle
D. Conservatism Principle
Correct Answer: C. Matching Principle
Rationale: Under accrual accounting, the matching principle dictates that costs incurred
to produce revenues must be recognized in the same period as the associated revenues,
regardless of when cash is paid or received.
Question 4
A customer buys $500,000 of product with $300,000 paid in cash today and $200,000
due in 60 days. The production cost is $300,000, of which $100,000 has not yet been
paid to the supplier. Under accrual accounting, what revenue and expense are
reported today?
A. Revenue: $300,000; Expense: $200,000
B. Revenue: $500,000; Expense: $300,000
C. Revenue: $300,000; Expense: $300,000
D. Revenue: $500,000; Expense: $200,000
Correct Answer: B. Revenue: $500,000; Expense: $300,000
Rationale: Accrual accounting recognizes revenue when earned ($500,000 total sales)
and matching expenses when incurred ($300,000 total cost of goods sold), regardless of
immediate cash collections or cash accounts payable balances.
Question 5
A firm reported Retained Earnings of $300 on 12/31/20x2. On 12/31/20x3, Retained
Earnings were $400, and the firm paid $25 in dividends during 20x3. What was the
Net Income for 20x3?
A. $75
, B. $100
C. $125
D. $150
Correct Answer: C. $125
Rationale:
$$\text{Ending Retained Earnings} = \text{Beginning Retained Earnings} + \text{Net
Income} - \text{Dividends}$$$$\$400 = \$300 + \text{Net Income} - \$25$$$$\text{Net
Income} = \$400 - \$300 + \$25 = \$125$$
Question 6
Which of the following correctly expresses the fundamental accounting equation for
the balance sheet?
A. $\text{Assets} = \text{Liabilities} - \text{Equity}$
B. $\text{Equity} = \text{Assets} - \text{Liabilities}$
C. $\text{Liabilities} = \text{Equity} - \text{Assets}$
D. $\text{Assets} = \text{Revenue} - \text{Expenses}$
Correct Answer: B. $\text{Equity} = \text{Assets} - \text{Liabilities}$
Rationale: The basic accounting identity is $\text{Assets} = \text{Liabilities} +
\text{Equity}$. Rearranging terms yields $\text{Equity} = \text{Assets} -
\text{Liabilities}$.
Question 7
Why is the Balance Sheet considered a "permanent" statement, whereas the Income
Statement is "temporary"?
A. Balance sheet values reflect market prices rather than historical costs
B. Balance sheet balances carry over from year to year, whereas income statement
