WGU C213 ACCOUNTING FOR
DECISION MAKERS FINAL PREP
QUESTIONS AND VERIFIED ANSWERS |
100% CORRECT | GRADE A+
1. Which of the following describes the impact of using the LIFO inventory valuation method
during a period of rising prices compared to FIFO?
A. Higher ending inventory and higher net income
B. Lower cost of goods sold and higher taxes
C. Higher ending inventory and lower cost of goods sold
D. Lower ending inventory and lower net income
Answer: D
Conceptual Explanation: In a period of rising prices, LIFO (Last-In, First-Out) assumes the
most expensive items are sold first, leading to a higher Cost of Goods Sold (COGS), which
results in lower net income and lower ending inventory on the balance sheet.
2. A company has a current ratio of 2.5. If the company uses cash to pay off a current liability,
what happens to the current ratio?
A. The ratio decreases
B. The ratio increases
,C. The ratio remains the same
D. The ratio becomes negative
Answer: B
Conceptual Explanation: Since the current ratio is greater than 1.0, subtracting an equal
amount from both the numerator (current assets) and denominator (current liabilities)
results in a proportional increase in the ratio.
3. 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. At the end of the fiscal year
D. When the purchase order is received
Answer: B
Conceptual Explanation: The revenue recognition principle states that revenue should be
recognized in the period in which the performance obligation is satisfied, regardless of
when cash is received.
4. Which financial statement is considered a ‘snapshot’ of a company’s financial position at a
specific point in time?
A. Income Statement
B. Balance Sheet
, C. Statement of Cash Flows
D. Statement of Retained Earnings
Answer: B
Conceptual Explanation: The Balance Sheet reports assets, liabilities, and equity at a
specific point in time, unlike the other statements which report activity over a period of
time.
5. Which of the following costs is considered a ‘period cost’ rather than a ‘product cost’?
A. Direct materials
B. Factory utilities
C. Sales commissions
D. Indirect labor
Answer: C
Conceptual Explanation: Period costs are non-manufacturing costs (selling and
administrative) that are expensed in the period incurred. Direct materials and factory
utilities are product costs.
6. If a company’s contribution margin is $40 per unit and its fixed costs are $80,000, what is
the break-even point in units?
A. 2,000 units
B. 3,200 units
DECISION MAKERS FINAL PREP
QUESTIONS AND VERIFIED ANSWERS |
100% CORRECT | GRADE A+
1. Which of the following describes the impact of using the LIFO inventory valuation method
during a period of rising prices compared to FIFO?
A. Higher ending inventory and higher net income
B. Lower cost of goods sold and higher taxes
C. Higher ending inventory and lower cost of goods sold
D. Lower ending inventory and lower net income
Answer: D
Conceptual Explanation: In a period of rising prices, LIFO (Last-In, First-Out) assumes the
most expensive items are sold first, leading to a higher Cost of Goods Sold (COGS), which
results in lower net income and lower ending inventory on the balance sheet.
2. A company has a current ratio of 2.5. If the company uses cash to pay off a current liability,
what happens to the current ratio?
A. The ratio decreases
B. The ratio increases
,C. The ratio remains the same
D. The ratio becomes negative
Answer: B
Conceptual Explanation: Since the current ratio is greater than 1.0, subtracting an equal
amount from both the numerator (current assets) and denominator (current liabilities)
results in a proportional increase in the ratio.
3. 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. At the end of the fiscal year
D. When the purchase order is received
Answer: B
Conceptual Explanation: The revenue recognition principle states that revenue should be
recognized in the period in which the performance obligation is satisfied, regardless of
when cash is received.
4. Which financial statement is considered a ‘snapshot’ of a company’s financial position at a
specific point in time?
A. Income Statement
B. Balance Sheet
, C. Statement of Cash Flows
D. Statement of Retained Earnings
Answer: B
Conceptual Explanation: The Balance Sheet reports assets, liabilities, and equity at a
specific point in time, unlike the other statements which report activity over a period of
time.
5. Which of the following costs is considered a ‘period cost’ rather than a ‘product cost’?
A. Direct materials
B. Factory utilities
C. Sales commissions
D. Indirect labor
Answer: C
Conceptual Explanation: Period costs are non-manufacturing costs (selling and
administrative) that are expensed in the period incurred. Direct materials and factory
utilities are product costs.
6. If a company’s contribution margin is $40 per unit and its fixed costs are $80,000, what is
the break-even point in units?
A. 2,000 units
B. 3,200 units
