WGU D774 Intro to Business Accounting OA exam questions and
correct answers 2026
1 A company issues $500,000 of 10-year, 8% bonds at 96 when the market rate is
9 %. Using the effective-interest method, how does the carrying value of the
bond change over the first three interest periods?
A) Increases each period by a decreasing amount.
B) Increases each period by a constant amount.
C) Decreases each period by an increasing amount.
D) Decreases each period by a constant amount.
Answer: A
Rationale: Because the bond was issued at a discount, the carrying value
increases over time. The effective-interest method amortizes the discount by
the difference between market interest expense (increasing) and cash interest
paid (constant), so the amortization amount increases each period, causing the
carrying value to increase by an increasing amount. Options B, C, and D
misstate the pattern of amortization for a discount bond.
2 A company has net income of $150,000, depreciation expense of $20,000, an
increase in accounts receivable of $25,000, a decrease in inventory of $15,000,
and an increase in accounts payable of $10,000. What is the net cash provided
by operating activities using the indirect method?
A) $170,000
B) $180,000
C) $190,000
D) $200,000
Answer: A
Rationale: Start with net income ($150,000). Add back depreciation ($20,000) =
$170,000. Adjust for changes in working capital: subtract increase in AR ($25,000)
= $145,000; add decrease in inventory ($15,000) = $160,000; add increase in AP (
$10,000) = $170,000. Thus, cash provided is $170,000. Other options misapply the
signs or omit depreciation.
,3 Which of the following scenarios represents a fundamental flaw in internal control
that would allow an employee to perpetrate and conceal a fraud without
collusion?
A) The cashier also prepares the monthly bank reconciliation.
B) The accounts payable clerk has access to blank checks and a signature stamp.
C) The inventory warehouse manager conducts periodic physical counts.
D) The IT department has the ability to modify transaction records after posting.
Answer: B
Rationale: Having custody of checks and the ability to sign them without
independent review allows an employee to issue unauthorized payments and
conceal them by not recording them. Option A is a segregation of duties issue
but would require additional steps to conceal. Option C is a proper control.
Option D is an IT control issue but typically requires specialized knowledge and
may be detected by audit logs.
4 A company sells a product for $50 per unit, has variable costs of $30 per unit,
and fixed costs of $100,000. If the company wants to achieve a target profit of
$50,000, what is the required sales in units?
A) 5,000 units
B) 6,000 units
C) 7,500 units
D) 10,000 units
Answer: C
Rationale: Contribution margin per unit = $50 - $30 = $20. Required units =
(Fixed costs + Target profit) / CM per unit = ($100,000 + $50,000) / $20 = 7,500
units. Other options either ignore fixed costs, use total revenue, or misapply the
formula.
5 A company uses the LIFO inventory method. During a period of rising prices,
which of the following statements is true regarding the financial statements
compared to FIFO?
A) Cost of goods sold is lower and ending inventory is higher.
B) Cost of goods sold is higher and ending inventory is lower.
C) Net income is higher and taxes are higher.
D) Current ratio is higher and working capital is higher.
,Answer: B
Rationale: In a rising price environment, LIFO matches the most recent
(higher) costs against revenue, resulting in a higher cost of goods sold and lower
ending inventory compared to FIFO. Consequently, net income is lower (tax
benefit), and current ratio and working capital are typically lower. Options A,
C, and D describe effects of FIFO or incorrect relationships.
6 A company has a current ratio of 2.5 and an acid-test ratio of 1.2. If the company
pays off $50,000 of accounts payable with cash, what is the impact on both
ratios?
A) Current ratio increases, acid-test ratio decreases.
B) Current ratio decreases, acid-test ratio increases.
C) Both ratios increase.
D) Both ratios decrease.
Answer: C
Rationale: Paying accounts payable reduces both current assets and current
liabilities by the same amount. With a current ratio >1, reducing both by the
same amount increases the ratio. For the acid-test ratio (which excludes
inventory), assuming cash is included in quick assets, the same logic applies: if
the ratio >1, it increases. Therefore, both ratios increase. Options A, B, and D
misapply the mathematical relationship.
7 Under the revenue recognition principle, when should a company recognize
revenue for a software license that includes significant customization services?
A) At the inception of the contract.
B) Over time as the customization services are performed.
C) At the point the software is delivered.
D) When the customer obtains control of the software license.
Answer: B
Rationale: When a contract includes significant integration services, the
performance obligations are not distinct, and revenue is recognized over time as
the services are performed, using an appropriate measure of progress. Option A
is premature, option C ignores the customization, and option D applies to
distinct licenses without customization.
, 8 A company purchases a patent for $200,000 with a legal life of 20 years and an
estimated useful life of 10 years. After 3 years, the company determines the
patent's fair value is $120,000 and expected future cash flows are $100,000.
Under U.S. GAAP, which impairment test and amount should be recognized?
A) Recoverability test: no impairment because book value $140,000 > undiscounted
cash flows $100,000? Actually, impairment is recognized.
B) Fair value test: impairment of $20,000.
C) Recoverability test: impairment of $40,000.
D) No impairment because the patent is amortized over its legal life.
Answer: B
Rationale: Under GAAP, for intangible assets with finite lives, the
recoverability test compares book value ($200,000 - 3*$20,000 = $140,000) to
undiscounted future cash flows ($100,000). Since book value exceeds cash flows,
an impairment exists. The impairment amount is the excess of book value over
fair value: $140,000 $120,000 = $20,000. Option A misstates the test outcome, C
uses the wrong amount, and D incorrectly uses legal life.
9 Which of the following is the most appropriate classification for cash received
from the sale of equipment that was used in the company's operations?
A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash transaction
Answer: B
Rationale: Cash received from the sale of operational equipment is classified as
an investing activity because it relates to the acquisition and disposal of long-
term assets. Operating activities involve the primary revenue-generating
activities, while financing activities relate to equity and debt. The transaction is
clearly a cash receipt, so it is not a noncash transaction.
10 A company's trial balance has total debits of $500,000 and total credits of
$490,000. Which of the following could explain this discrepancy?
A) A $5,000 debit to Accounts Receivable was posted as a credit to Accounts Payable.
B) A $10,000 credit to Sales was posted as a $10,000 debit to Sales.
correct answers 2026
1 A company issues $500,000 of 10-year, 8% bonds at 96 when the market rate is
9 %. Using the effective-interest method, how does the carrying value of the
bond change over the first three interest periods?
A) Increases each period by a decreasing amount.
B) Increases each period by a constant amount.
C) Decreases each period by an increasing amount.
D) Decreases each period by a constant amount.
Answer: A
Rationale: Because the bond was issued at a discount, the carrying value
increases over time. The effective-interest method amortizes the discount by
the difference between market interest expense (increasing) and cash interest
paid (constant), so the amortization amount increases each period, causing the
carrying value to increase by an increasing amount. Options B, C, and D
misstate the pattern of amortization for a discount bond.
2 A company has net income of $150,000, depreciation expense of $20,000, an
increase in accounts receivable of $25,000, a decrease in inventory of $15,000,
and an increase in accounts payable of $10,000. What is the net cash provided
by operating activities using the indirect method?
A) $170,000
B) $180,000
C) $190,000
D) $200,000
Answer: A
Rationale: Start with net income ($150,000). Add back depreciation ($20,000) =
$170,000. Adjust for changes in working capital: subtract increase in AR ($25,000)
= $145,000; add decrease in inventory ($15,000) = $160,000; add increase in AP (
$10,000) = $170,000. Thus, cash provided is $170,000. Other options misapply the
signs or omit depreciation.
,3 Which of the following scenarios represents a fundamental flaw in internal control
that would allow an employee to perpetrate and conceal a fraud without
collusion?
A) The cashier also prepares the monthly bank reconciliation.
B) The accounts payable clerk has access to blank checks and a signature stamp.
C) The inventory warehouse manager conducts periodic physical counts.
D) The IT department has the ability to modify transaction records after posting.
Answer: B
Rationale: Having custody of checks and the ability to sign them without
independent review allows an employee to issue unauthorized payments and
conceal them by not recording them. Option A is a segregation of duties issue
but would require additional steps to conceal. Option C is a proper control.
Option D is an IT control issue but typically requires specialized knowledge and
may be detected by audit logs.
4 A company sells a product for $50 per unit, has variable costs of $30 per unit,
and fixed costs of $100,000. If the company wants to achieve a target profit of
$50,000, what is the required sales in units?
A) 5,000 units
B) 6,000 units
C) 7,500 units
D) 10,000 units
Answer: C
Rationale: Contribution margin per unit = $50 - $30 = $20. Required units =
(Fixed costs + Target profit) / CM per unit = ($100,000 + $50,000) / $20 = 7,500
units. Other options either ignore fixed costs, use total revenue, or misapply the
formula.
5 A company uses the LIFO inventory method. During a period of rising prices,
which of the following statements is true regarding the financial statements
compared to FIFO?
A) Cost of goods sold is lower and ending inventory is higher.
B) Cost of goods sold is higher and ending inventory is lower.
C) Net income is higher and taxes are higher.
D) Current ratio is higher and working capital is higher.
,Answer: B
Rationale: In a rising price environment, LIFO matches the most recent
(higher) costs against revenue, resulting in a higher cost of goods sold and lower
ending inventory compared to FIFO. Consequently, net income is lower (tax
benefit), and current ratio and working capital are typically lower. Options A,
C, and D describe effects of FIFO or incorrect relationships.
6 A company has a current ratio of 2.5 and an acid-test ratio of 1.2. If the company
pays off $50,000 of accounts payable with cash, what is the impact on both
ratios?
A) Current ratio increases, acid-test ratio decreases.
B) Current ratio decreases, acid-test ratio increases.
C) Both ratios increase.
D) Both ratios decrease.
Answer: C
Rationale: Paying accounts payable reduces both current assets and current
liabilities by the same amount. With a current ratio >1, reducing both by the
same amount increases the ratio. For the acid-test ratio (which excludes
inventory), assuming cash is included in quick assets, the same logic applies: if
the ratio >1, it increases. Therefore, both ratios increase. Options A, B, and D
misapply the mathematical relationship.
7 Under the revenue recognition principle, when should a company recognize
revenue for a software license that includes significant customization services?
A) At the inception of the contract.
B) Over time as the customization services are performed.
C) At the point the software is delivered.
D) When the customer obtains control of the software license.
Answer: B
Rationale: When a contract includes significant integration services, the
performance obligations are not distinct, and revenue is recognized over time as
the services are performed, using an appropriate measure of progress. Option A
is premature, option C ignores the customization, and option D applies to
distinct licenses without customization.
, 8 A company purchases a patent for $200,000 with a legal life of 20 years and an
estimated useful life of 10 years. After 3 years, the company determines the
patent's fair value is $120,000 and expected future cash flows are $100,000.
Under U.S. GAAP, which impairment test and amount should be recognized?
A) Recoverability test: no impairment because book value $140,000 > undiscounted
cash flows $100,000? Actually, impairment is recognized.
B) Fair value test: impairment of $20,000.
C) Recoverability test: impairment of $40,000.
D) No impairment because the patent is amortized over its legal life.
Answer: B
Rationale: Under GAAP, for intangible assets with finite lives, the
recoverability test compares book value ($200,000 - 3*$20,000 = $140,000) to
undiscounted future cash flows ($100,000). Since book value exceeds cash flows,
an impairment exists. The impairment amount is the excess of book value over
fair value: $140,000 $120,000 = $20,000. Option A misstates the test outcome, C
uses the wrong amount, and D incorrectly uses legal life.
9 Which of the following is the most appropriate classification for cash received
from the sale of equipment that was used in the company's operations?
A) Operating activity
B) Investing activity
C) Financing activity
D) Noncash transaction
Answer: B
Rationale: Cash received from the sale of operational equipment is classified as
an investing activity because it relates to the acquisition and disposal of long-
term assets. Operating activities involve the primary revenue-generating
activities, while financing activities relate to equity and debt. The transaction is
clearly a cash receipt, so it is not a noncash transaction.
10 A company's trial balance has total debits of $500,000 and total credits of
$490,000. Which of the following could explain this discrepancy?
A) A $5,000 debit to Accounts Receivable was posted as a credit to Accounts Payable.
B) A $10,000 credit to Sales was posted as a $10,000 debit to Sales.
