WGU C213 ACCOUNTING FOR
DECISION MAKERS FINAL EXAM PREP
QUESTIONS AND ANSWERS
1. Under the accrual basis of accounting, when should revenue be recognized?
A. When the performance obligation is satisfied
B. When cash is received from the customer
C. When the invoice is mailed to the customer
D. At the end of the fiscal year
Answer: A
Conceptual Explanation: Accrual accounting dictates that revenue is recognized when
earned, which occurs when a performance obligation is satisfied, regardless of when cash is
received.
2. Which of the following would cause a decrease in the current ratio?
A. Collecting accounts receivable
B. Purchasing inventory with cash
C. Paying off a long-term debt with cash
,D. Borrowing money using a long-term note
Answer: C
Conceptual Explanation: Paying off a long-term debt with cash decreases current assets
(cash) but does not change current liabilities, thus lowering the current ratio.
3. If a company uses the LIFO inventory method during a period of rising prices, which of the
following is true?
A. Cost of goods sold will be higher than under FIFO
B. Net income will be higher than under FIFO
C. Ending inventory will be higher than under FIFO
D. Income tax expense will be higher than under FIFO
Answer: A
Conceptual Explanation: LIFO assumes the last items purchased (the most expensive in
rising prices) are sold first, resulting in a higher COGS and lower net income.
4. What is the primary purpose of the Statement of Cash Flows?
A. To show the profitability of the firm
B. To reconcile the change in retained earnings
C. To list all assets and liabilities of the company
D. To provide information about cash receipts and cash payments
, Answer: D
Conceptual Explanation: The Statement of Cash Flows reports the sources and uses of
cash during a period, categorized by operating, investing, and financing activities.
5. Which accounting principle requires that expenses be recorded in the same period as the
revenues they helped generate?
A. The Revenue Recognition Principle
B. The Materiality Principle
C. The Conservatism Principle
D. The Matching Principle
Answer: D
Conceptual Explanation: The Matching Principle (or Expense Recognition Principle)
requires expenses to follow revenues to accurately reflect profit for a specific period.
6. A company has a contribution margin of $40 per unit and fixed costs of $120,000. What is
the break-even point in units?
A. 2,500 units
B. 4,000 units
C. 3,000 units
D. 5,000 units
Answer: C
DECISION MAKERS FINAL EXAM PREP
QUESTIONS AND ANSWERS
1. Under the accrual basis of accounting, when should revenue be recognized?
A. When the performance obligation is satisfied
B. When cash is received from the customer
C. When the invoice is mailed to the customer
D. At the end of the fiscal year
Answer: A
Conceptual Explanation: Accrual accounting dictates that revenue is recognized when
earned, which occurs when a performance obligation is satisfied, regardless of when cash is
received.
2. Which of the following would cause a decrease in the current ratio?
A. Collecting accounts receivable
B. Purchasing inventory with cash
C. Paying off a long-term debt with cash
,D. Borrowing money using a long-term note
Answer: C
Conceptual Explanation: Paying off a long-term debt with cash decreases current assets
(cash) but does not change current liabilities, thus lowering the current ratio.
3. If a company uses the LIFO inventory method during a period of rising prices, which of the
following is true?
A. Cost of goods sold will be higher than under FIFO
B. Net income will be higher than under FIFO
C. Ending inventory will be higher than under FIFO
D. Income tax expense will be higher than under FIFO
Answer: A
Conceptual Explanation: LIFO assumes the last items purchased (the most expensive in
rising prices) are sold first, resulting in a higher COGS and lower net income.
4. What is the primary purpose of the Statement of Cash Flows?
A. To show the profitability of the firm
B. To reconcile the change in retained earnings
C. To list all assets and liabilities of the company
D. To provide information about cash receipts and cash payments
, Answer: D
Conceptual Explanation: The Statement of Cash Flows reports the sources and uses of
cash during a period, categorized by operating, investing, and financing activities.
5. Which accounting principle requires that expenses be recorded in the same period as the
revenues they helped generate?
A. The Revenue Recognition Principle
B. The Materiality Principle
C. The Conservatism Principle
D. The Matching Principle
Answer: D
Conceptual Explanation: The Matching Principle (or Expense Recognition Principle)
requires expenses to follow revenues to accurately reflect profit for a specific period.
6. A company has a contribution margin of $40 per unit and fixed costs of $120,000. What is
the break-even point in units?
A. 2,500 units
B. 4,000 units
C. 3,000 units
D. 5,000 units
Answer: C
