WGU C213 ACCOUNTING FOR
DECISION MAKERS FINAL EXAM
PREPARATION QUESTIONS AND
ANSWERS
1. Which of the following best describes the primary purpose of the Sarbanes-Oxley Act
(SOX)?
A. To standardize international accounting principles (IFRS) across all public companies.
B. To reduce unethical corporate behavior and decrease the likelihood of future corporate
scandals.
C. To eliminate the need for independent audits of financial statements for small
businesses.
D. To mandate that all companies use the LIFO method for inventory valuation.
Answer: B
Conceptual Explanation: SOX was enacted to improve corporate governance, increase
management accountability, and restore investor confidence after major accounting
scandals.
,2. Under the accrual basis of accounting, when is revenue generally recognized?
A. When cash is received from the customer.
B. When the performance obligation is satisfied.
C. When the invoice is mailed to the customer.
D. At the end of the fiscal year regardless of service status.
Answer: B
Conceptual Explanation: Accrual accounting recognizes revenue when it is earned
(performance obligation satisfied), regardless of when cash is received.
3. A company has a current ratio of 2.5. If they use cash to pay off a current liability, what
happens to the current ratio?
A. The ratio decreases.
B. The ratio becomes zero.
C. The ratio remains the same.
D. The ratio increases.
Answer: D
Conceptual Explanation: Since the current ratio is greater than 1.0, an equal decrease in
both current assets (cash) and current liabilities will increase the ratio.
, 4. Which financial statement reports a company’s financial position at a specific point in
time?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
D. Retained Earnings Statement
Answer: C
Conceptual Explanation: The Balance Sheet provides a ‘snapshot’ of assets, liabilities, and
equity at a specific date.
5. Which of the following is considered a ‘Product Cost’ under GAAP?
A. CEO’s salary
B. Advertising expenses
C. Direct materials used in production
D. Sales commissions
Answer: C
Conceptual Explanation: Product costs are costs necessary to manufacture a product,
including direct materials, direct labor, and manufacturing overhead.
6. What is the effect of purchasing inventory on account on the basic accounting equation?
A. Liabilities increase and Equity decreases.
DECISION MAKERS FINAL EXAM
PREPARATION QUESTIONS AND
ANSWERS
1. Which of the following best describes the primary purpose of the Sarbanes-Oxley Act
(SOX)?
A. To standardize international accounting principles (IFRS) across all public companies.
B. To reduce unethical corporate behavior and decrease the likelihood of future corporate
scandals.
C. To eliminate the need for independent audits of financial statements for small
businesses.
D. To mandate that all companies use the LIFO method for inventory valuation.
Answer: B
Conceptual Explanation: SOX was enacted to improve corporate governance, increase
management accountability, and restore investor confidence after major accounting
scandals.
,2. Under the accrual basis of accounting, when is revenue generally recognized?
A. When cash is received from the customer.
B. When the performance obligation is satisfied.
C. When the invoice is mailed to the customer.
D. At the end of the fiscal year regardless of service status.
Answer: B
Conceptual Explanation: Accrual accounting recognizes revenue when it is earned
(performance obligation satisfied), regardless of when cash is received.
3. A company has a current ratio of 2.5. If they use cash to pay off a current liability, what
happens to the current ratio?
A. The ratio decreases.
B. The ratio becomes zero.
C. The ratio remains the same.
D. The ratio increases.
Answer: D
Conceptual Explanation: Since the current ratio is greater than 1.0, an equal decrease in
both current assets (cash) and current liabilities will increase the ratio.
, 4. Which financial statement reports a company’s financial position at a specific point in
time?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet
D. Retained Earnings Statement
Answer: C
Conceptual Explanation: The Balance Sheet provides a ‘snapshot’ of assets, liabilities, and
equity at a specific date.
5. Which of the following is considered a ‘Product Cost’ under GAAP?
A. CEO’s salary
B. Advertising expenses
C. Direct materials used in production
D. Sales commissions
Answer: C
Conceptual Explanation: Product costs are costs necessary to manufacture a product,
including direct materials, direct labor, and manufacturing overhead.
6. What is the effect of purchasing inventory on account on the basic accounting equation?
A. Liabilities increase and Equity decreases.
