WGU C213 ACCOUNTING FOR
DECISION MAKERS MIDTERM EXAM
PREP QUESTIONS AND VERIFIED
ANSWERS | 100% CORRECT | GRADE A+
1. Which of the following describes the impact on the accounting equation when a company
borrows $50,000 from a bank by signing a long-term note?
A. Assets increase and Equity increases
B. Assets increase and Liabilities increase
C. Liabilities increase and Equity decreases
D. Assets decrease and Liabilities decrease
Answer: B
Conceptual Explanation: Borrowing cash increases the asset ‘Cash’ and increases the
liability ‘Notes Payable’. The accounting equation (A = L + E) remains in balance.
2. Under the accrual basis of accounting, when is revenue recognized?
A. When the cash is received from the customer
B. At the end of the fiscal year
C. When the performance obligation is satisfied
D. When the contract is signed
,Answer: C
Conceptual Explanation: The revenue recognition principle states that revenue should be
recognized in the period in which the service is performed or the goods are delivered,
regardless of when cash is received.
3. Which financial statement reports the financial position of a company at a specific point in
time?
A. Income Statement
B. Statement of Retained Earnings
C. Statement of Cash Flows
D. Balance Sheet
Answer: D
Conceptual Explanation: The Balance Sheet provides a ‘snapshot’ of assets, liabilities, and
equity at a specific date, whereas the other statements cover a period of time.
4. If a company fails to make an adjusting entry for accrued salaries at the end of the period,
what is the effect on the financial statements?
A. Liabilities are overstated and Assets are understated
B. Net Income is understated and Assets are overstated
C. Expenses are overstated and Equity is understated
D. Expenses are understated and Liabilities are understated
, Answer: D
Conceptual Explanation: Accrued salaries are expenses incurred but not yet paid. Failing
to record them means expenses are too low (understated) and the obligation (liability) is
not recorded.
5. In a period of rising prices (inflation), which inventory costing method typically results in
the lowest Net Income?
A. LIFO (Last-In, First-Out)
B. Weighted Average Cost
C. FIFO (First-In, First-Out)
D. Specific Identification
Answer: A
Conceptual Explanation: LIFO assumes the most recently purchased (expensive) items
are sold first, leading to a higher Cost of Goods Sold (COGS) and lower Net Income during
inflation.
6. Which of the following is considered a ‘financing activity’ on the Statement of Cash Flows?
A. Purchase of equipment for cash
B. Payment of interest on a loan
C. Payment of dividends to stockholders
D. Sale of inventory
DECISION MAKERS MIDTERM EXAM
PREP QUESTIONS AND VERIFIED
ANSWERS | 100% CORRECT | GRADE A+
1. Which of the following describes the impact on the accounting equation when a company
borrows $50,000 from a bank by signing a long-term note?
A. Assets increase and Equity increases
B. Assets increase and Liabilities increase
C. Liabilities increase and Equity decreases
D. Assets decrease and Liabilities decrease
Answer: B
Conceptual Explanation: Borrowing cash increases the asset ‘Cash’ and increases the
liability ‘Notes Payable’. The accounting equation (A = L + E) remains in balance.
2. Under the accrual basis of accounting, when is revenue recognized?
A. When the cash is received from the customer
B. At the end of the fiscal year
C. When the performance obligation is satisfied
D. When the contract is signed
,Answer: C
Conceptual Explanation: The revenue recognition principle states that revenue should be
recognized in the period in which the service is performed or the goods are delivered,
regardless of when cash is received.
3. Which financial statement reports the financial position of a company at a specific point in
time?
A. Income Statement
B. Statement of Retained Earnings
C. Statement of Cash Flows
D. Balance Sheet
Answer: D
Conceptual Explanation: The Balance Sheet provides a ‘snapshot’ of assets, liabilities, and
equity at a specific date, whereas the other statements cover a period of time.
4. If a company fails to make an adjusting entry for accrued salaries at the end of the period,
what is the effect on the financial statements?
A. Liabilities are overstated and Assets are understated
B. Net Income is understated and Assets are overstated
C. Expenses are overstated and Equity is understated
D. Expenses are understated and Liabilities are understated
, Answer: D
Conceptual Explanation: Accrued salaries are expenses incurred but not yet paid. Failing
to record them means expenses are too low (understated) and the obligation (liability) is
not recorded.
5. In a period of rising prices (inflation), which inventory costing method typically results in
the lowest Net Income?
A. LIFO (Last-In, First-Out)
B. Weighted Average Cost
C. FIFO (First-In, First-Out)
D. Specific Identification
Answer: A
Conceptual Explanation: LIFO assumes the most recently purchased (expensive) items
are sold first, leading to a higher Cost of Goods Sold (COGS) and lower Net Income during
inflation.
6. Which of the following is considered a ‘financing activity’ on the Statement of Cash Flows?
A. Purchase of equipment for cash
B. Payment of interest on a loan
C. Payment of dividends to stockholders
D. Sale of inventory
