WGU D103 – Intermediate Accounting I
Exam Final Exam Prep (Latest Update
) Questions and Verified
Answers | 100% Correct | Grade A.
1. Which financial statement element represents a present obligation
of an entity arising from past events, the settlement of which is
expected to result in an outflow of economic resources?
A. Asset
B. Equity
C. Revenue
D. Liability
Rationale: A liability is a present obligation resulting from a past
transaction or event that is expected to require the future transfer of
assets, provision of services, or another economic resource. Examples
include accounts payable, notes payable, and accrued expenses. Assets
represent economic resources controlled by the entity, while equity
represents the residual interest after liabilities are deducted from assets.
2. A company purchases equipment for $80,000 by paying $20,000
cash and issuing a $60,000 note payable. What is the immediate effect
of this transaction on total assets?
,A. Assets decrease by $20,000
B. Assets increase by $20,000
C. Assets increase by $60,000
D. Assets remain unchanged
Rationale: The equipment increases assets by $80,000, while cash
decreases by $20,000. The net increase in total assets is therefore
$60,000 ($80,000 − $20,000). The $60,000 note payable increases
liabilities but does not directly affect total assets.
3. Which accounting principle requires expenses to be recognized in
the same accounting period as the revenues they help generate?
A. Cost principle
B. Revenue recognition principle
C. Full disclosure principle
D. Expense recognition principle
Rationale: The expense recognition principle, commonly associated with
the matching concept, requires expenses to be recognized in the period
in which the related revenue is recognized or when the economic benefit
is consumed. This helps ensure that reported income reflects the
revenues earned and the expenses incurred to generate those revenues
during the same period.
4. A company receives $12,000 cash in advance from a customer for
services that will be performed next year. How should the company
initially record the transaction?
,A. Debit Cash $12,000; credit Revenue $12,000
B. Debit Accounts Receivable $12,000; credit Revenue $12,000
C. Debit Cash $12,000; credit Unearned Revenue $12,000
D. Debit Unearned Revenue $12,000; credit Cash $12,000
Rationale: The company has received cash but has not yet earned the
revenue because the services have not been performed. Therefore, the
company records an increase in cash and a liability called unearned
revenue. As the services are performed, the liability is reduced and
revenue is recognized.
5. Which characteristic of useful financial information means that
information can influence decisions by helping users evaluate past,
present, or future events?
A. Verifiability
B. Comparability
C. Faithful representation
D. Relevance
Rationale: Relevance is a fundamental qualitative characteristic of
useful financial information. Information is relevant when it has
predictive value, confirmatory value, or both. Faithful representation is
the other fundamental characteristic and focuses on whether the
information accurately represents the economic phenomena it purports
to represent.
, 6. On January 1, a company pays $24,000 for a two-year insurance
policy. What amount of insurance expense should generally be
recognized during the first year, assuming straight-line coverage?
A. $0
B. $12,000
C. $12,000
D. $24,000
Rationale: The $24,000 payment provides coverage for 24 months.
Assuming equal coverage throughout the policy, annual insurance
expense is $24,000 ÷ 2 = $12,000. The remaining $12,000 is reported as
prepaid insurance, an asset, at the end of the first year.
7. Which of the following is classified as a current asset under normal
circumstances?
A. Land
B. Building
C. Long-term investment
D. Accounts receivable expected to be collected within the operating
cycle
Rationale: Current assets are generally expected to be converted into
cash, sold, or consumed within one year or the normal operating cycle,
whichever is longer. Accounts receivable expected to be collected during
this period are current assets. Land, buildings, and long-term
investments are generally classified as noncurrent assets.
Exam Final Exam Prep (Latest Update
) Questions and Verified
Answers | 100% Correct | Grade A.
1. Which financial statement element represents a present obligation
of an entity arising from past events, the settlement of which is
expected to result in an outflow of economic resources?
A. Asset
B. Equity
C. Revenue
D. Liability
Rationale: A liability is a present obligation resulting from a past
transaction or event that is expected to require the future transfer of
assets, provision of services, or another economic resource. Examples
include accounts payable, notes payable, and accrued expenses. Assets
represent economic resources controlled by the entity, while equity
represents the residual interest after liabilities are deducted from assets.
2. A company purchases equipment for $80,000 by paying $20,000
cash and issuing a $60,000 note payable. What is the immediate effect
of this transaction on total assets?
,A. Assets decrease by $20,000
B. Assets increase by $20,000
C. Assets increase by $60,000
D. Assets remain unchanged
Rationale: The equipment increases assets by $80,000, while cash
decreases by $20,000. The net increase in total assets is therefore
$60,000 ($80,000 − $20,000). The $60,000 note payable increases
liabilities but does not directly affect total assets.
3. Which accounting principle requires expenses to be recognized in
the same accounting period as the revenues they help generate?
A. Cost principle
B. Revenue recognition principle
C. Full disclosure principle
D. Expense recognition principle
Rationale: The expense recognition principle, commonly associated with
the matching concept, requires expenses to be recognized in the period
in which the related revenue is recognized or when the economic benefit
is consumed. This helps ensure that reported income reflects the
revenues earned and the expenses incurred to generate those revenues
during the same period.
4. A company receives $12,000 cash in advance from a customer for
services that will be performed next year. How should the company
initially record the transaction?
,A. Debit Cash $12,000; credit Revenue $12,000
B. Debit Accounts Receivable $12,000; credit Revenue $12,000
C. Debit Cash $12,000; credit Unearned Revenue $12,000
D. Debit Unearned Revenue $12,000; credit Cash $12,000
Rationale: The company has received cash but has not yet earned the
revenue because the services have not been performed. Therefore, the
company records an increase in cash and a liability called unearned
revenue. As the services are performed, the liability is reduced and
revenue is recognized.
5. Which characteristic of useful financial information means that
information can influence decisions by helping users evaluate past,
present, or future events?
A. Verifiability
B. Comparability
C. Faithful representation
D. Relevance
Rationale: Relevance is a fundamental qualitative characteristic of
useful financial information. Information is relevant when it has
predictive value, confirmatory value, or both. Faithful representation is
the other fundamental characteristic and focuses on whether the
information accurately represents the economic phenomena it purports
to represent.
, 6. On January 1, a company pays $24,000 for a two-year insurance
policy. What amount of insurance expense should generally be
recognized during the first year, assuming straight-line coverage?
A. $0
B. $12,000
C. $12,000
D. $24,000
Rationale: The $24,000 payment provides coverage for 24 months.
Assuming equal coverage throughout the policy, annual insurance
expense is $24,000 ÷ 2 = $12,000. The remaining $12,000 is reported as
prepaid insurance, an asset, at the end of the first year.
7. Which of the following is classified as a current asset under normal
circumstances?
A. Land
B. Building
C. Long-term investment
D. Accounts receivable expected to be collected within the operating
cycle
Rationale: Current assets are generally expected to be converted into
cash, sold, or consumed within one year or the normal operating cycle,
whichever is longer. Accounts receivable expected to be collected during
this period are current assets. Land, buildings, and long-term
investments are generally classified as noncurrent assets.
