WGU C213 - ACCOUNTING FOR
DECISION MAKERS ADVANCED
QUESTIONS AND ANSWERS
1. Which of the following describes the impact on the financial statements when a company
records an accrued expense at year-end?
A. Assets decrease and expenses increase
B. Liabilities increase and revenue increases
C. Liabilities increase and expenses increase
D. Assets increase and liabilities increase
Answer: C
Conceptual Explanation: An accrued expense represents a cost incurred but not yet paid.
This requires an adjusting entry that increases an expense account and increases a liability
account (like Wages Payable or Interest Payable).
2. Under the indirect method of preparing the Statement of Cash Flows, how is a decrease in
Accounts Receivable treated?
A. It is subtracted from net income in the operating section
,B. It is reported as a cash inflow in the financing section
C. It is reported as a cash outflow in the investing section
D. It is added to net income in the operating section
Answer: D
Conceptual Explanation: A decrease in Accounts Receivable implies that the company
collected more cash from customers than the revenue recorded on the income statement;
therefore, it is added back to net income.
3. Which financial ratio measures a company’s ability to pay its current liabilities using only
its most liquid assets?
A. Current Ratio
B. Debt to Equity Ratio
C. Inventory Turnover Ratio
D. Acid-Test (Quick) Ratio
Answer: D
Conceptual Explanation: The Acid-Test or Quick Ratio excludes inventory and prepaid
expenses, focusing only on cash, short-term investments, and receivables to measure
immediate liquidity.
, 4. If a company uses LIFO (Last-In, First-Out) during a period of rising prices, what is the effect
on Net Income and Ending Inventory compared to FIFO?
A. Higher Net Income and Higher Ending Inventory
B. Lower Net Income and Higher Ending Inventory
C. Higher Net Income and Lower Ending Inventory
D. Lower Net Income and Lower Ending Inventory
Answer: D
Conceptual Explanation: During inflation, LIFO assigns the most recent (higher) costs to
COGS, which reduces Net Income. The older (lower) costs remain in Ending Inventory.
5. Which of the following is considered a product cost under GAAP?
A. Sales commissions
B. Advertising expenses
C. CEO salary
D. Depreciation on factory equipment
Answer: D
Conceptual Explanation: Product costs include direct materials, direct labor, and
manufacturing overhead (like factory depreciation). Sales commissions and administrative
salaries are period costs.
DECISION MAKERS ADVANCED
QUESTIONS AND ANSWERS
1. Which of the following describes the impact on the financial statements when a company
records an accrued expense at year-end?
A. Assets decrease and expenses increase
B. Liabilities increase and revenue increases
C. Liabilities increase and expenses increase
D. Assets increase and liabilities increase
Answer: C
Conceptual Explanation: An accrued expense represents a cost incurred but not yet paid.
This requires an adjusting entry that increases an expense account and increases a liability
account (like Wages Payable or Interest Payable).
2. Under the indirect method of preparing the Statement of Cash Flows, how is a decrease in
Accounts Receivable treated?
A. It is subtracted from net income in the operating section
,B. It is reported as a cash inflow in the financing section
C. It is reported as a cash outflow in the investing section
D. It is added to net income in the operating section
Answer: D
Conceptual Explanation: A decrease in Accounts Receivable implies that the company
collected more cash from customers than the revenue recorded on the income statement;
therefore, it is added back to net income.
3. Which financial ratio measures a company’s ability to pay its current liabilities using only
its most liquid assets?
A. Current Ratio
B. Debt to Equity Ratio
C. Inventory Turnover Ratio
D. Acid-Test (Quick) Ratio
Answer: D
Conceptual Explanation: The Acid-Test or Quick Ratio excludes inventory and prepaid
expenses, focusing only on cash, short-term investments, and receivables to measure
immediate liquidity.
, 4. If a company uses LIFO (Last-In, First-Out) during a period of rising prices, what is the effect
on Net Income and Ending Inventory compared to FIFO?
A. Higher Net Income and Higher Ending Inventory
B. Lower Net Income and Higher Ending Inventory
C. Higher Net Income and Lower Ending Inventory
D. Lower Net Income and Lower Ending Inventory
Answer: D
Conceptual Explanation: During inflation, LIFO assigns the most recent (higher) costs to
COGS, which reduces Net Income. The older (lower) costs remain in Ending Inventory.
5. Which of the following is considered a product cost under GAAP?
A. Sales commissions
B. Advertising expenses
C. CEO salary
D. Depreciation on factory equipment
Answer: D
Conceptual Explanation: Product costs include direct materials, direct labor, and
manufacturing overhead (like factory depreciation). Sales commissions and administrative
salaries are period costs.
