WGU C214 - FINANCIAL MANAGEMENT |
OBJECTIVE ASSESSMENT | OA | EXAM
QUESTIONS AND ANSWERS |(VERIFIED
ANSWERS) | 2025/2026 UPDATE | WITH
COMPLETE SOLUTION
1. The stock price of a company increases and the
market is deemed efficient. What assumption can be
made?
A. A new, patented, product was introduced to the market.
B. New machinery was purchased with a useful life of 20 years.
C. Management is optimizing its resources and operating
efficiently.
D. Management hired new employees and invested in a training program.
✅ Correct Answer: C
Rationale:
In an efficient market, stock prices reflect all publicly available
information. If a stock price increases, it implies investors believe the
firm’s future cash flows and profitability have improved. This improvement
is typically attributed to management effectively allocating and optimizing
resources. Operational efficiency leads to higher expected returns, which
investors capitalize into the stock price.
,2. Which statement is true about how the global
market affects the U.S.?
A. A bad options trade executed by a foreign subsidiary of a Wall Street
bank will affect layoffs overseas.
B. A bad derivatives trade executed by a foreign subsidiary of a Wall
Street bank will affect layoffs overseas.
C. American investors and fund managers make decisions based
on financial reporting standards developed and financial
statements audited overseas.
D. Foreign investors and fund managers make decisions based on
financial reporting standards developed and financial statements audited
overseas.
✅ Correct Answer: C
Rationale:
Globalization has integrated financial markets worldwide. U.S. investors
routinely rely on financial statements prepared under international
standards such as IFRS. Decisions made by American fund managers
often depend on overseas audits and disclosures. This interconnectedness
demonstrates how international financial reporting directly affects U.S.
capital allocation.
3. What are secondary markets?
A. Markets where securities are traded subsequent to the initial
offering.
B. Markets where securities are issued for the first time.
C. Markets where securities are issued through a competitive sale.
D. Markets where securities are issued through a negotiated sale.
✅ Correct Answer: A
Rationale:
Secondary markets facilitate the trading of securities after they have been
initially issued. These markets provide liquidity, enabling investors to buy
and sell securities easily. Examples include stock exchanges such as the
NYSE and NASDAQ. Without secondary markets, primary market securities
would be less attractive to investors.
,4. A special interest group in the U.S. lobbies for
protectionism through tariffs. What is the most
likely result if successful?
A. Employees and shareholders will be hurt and the nation will benefit.
B. The overall economy will benefit from trade restrictions.
C. Removing the trade restrictions will result in a net economic loss.
D. Employees and shareholders of the protected industry will
benefit and the nation will be hurt.
✅ Correct Answer: D
Rationale:
Protectionism benefits specific domestic industries by reducing foreign
competition. However, it raises prices for consumers and leads to
inefficiencies in the overall economy. While workers and shareholders in
the protected industry may gain in the short term, the nation as a whole
experiences economic losses. This outcome reflects the concept of
deadweight loss.
5. What do the content and structure of a balance
sheet report?
A. Revenues and expenses over a period of time
B. Cash inflows and outflows
C. Assets, liabilities, and equity at a point in time
D. Changes in retained earnings
✅ Correct Answer: C
Rationale:
A balance sheet provides a snapshot of a company’s financial position at a
specific moment. It reports what the company owns (assets), what it owes
(liabilities), and the residual interest of owners (equity). This statement
follows the accounting equation: Assets = Liabilities + Equity. It differs
from income and cash flow statements, which cover periods of time.
, 6. What is the basis used to compute a company’s
income tax expense?
A. Pretax accounting income
B. Taxable income
C. Net operating income
D. Taxes payable
✅ Correct Answer: B
Rationale:
Income tax expense is based on taxable income, not accounting income.
Taxable income is determined under tax laws, which often differ from
accounting standards. Temporary and permanent differences cause
discrepancies between pretax income and taxable income. Therefore,
taxable income is the correct basis for tax expense calculations.
7. What is the firm’s cash flow from financing?
Given:
Net Income: $1,000
Depreciation: $300
Change in Operating Assets: $600
Change in Net PP&E: $5,000
Change in Long-Term Liabilities: $1,000
Dividends Paid: $200
A. $800
B. $800
C. $1,200
D. $6,000
✅ Correct Answer: B
Rationale:
Cash flow from financing includes changes in long-term liabilities and
OBJECTIVE ASSESSMENT | OA | EXAM
QUESTIONS AND ANSWERS |(VERIFIED
ANSWERS) | 2025/2026 UPDATE | WITH
COMPLETE SOLUTION
1. The stock price of a company increases and the
market is deemed efficient. What assumption can be
made?
A. A new, patented, product was introduced to the market.
B. New machinery was purchased with a useful life of 20 years.
C. Management is optimizing its resources and operating
efficiently.
D. Management hired new employees and invested in a training program.
✅ Correct Answer: C
Rationale:
In an efficient market, stock prices reflect all publicly available
information. If a stock price increases, it implies investors believe the
firm’s future cash flows and profitability have improved. This improvement
is typically attributed to management effectively allocating and optimizing
resources. Operational efficiency leads to higher expected returns, which
investors capitalize into the stock price.
,2. Which statement is true about how the global
market affects the U.S.?
A. A bad options trade executed by a foreign subsidiary of a Wall Street
bank will affect layoffs overseas.
B. A bad derivatives trade executed by a foreign subsidiary of a Wall
Street bank will affect layoffs overseas.
C. American investors and fund managers make decisions based
on financial reporting standards developed and financial
statements audited overseas.
D. Foreign investors and fund managers make decisions based on
financial reporting standards developed and financial statements audited
overseas.
✅ Correct Answer: C
Rationale:
Globalization has integrated financial markets worldwide. U.S. investors
routinely rely on financial statements prepared under international
standards such as IFRS. Decisions made by American fund managers
often depend on overseas audits and disclosures. This interconnectedness
demonstrates how international financial reporting directly affects U.S.
capital allocation.
3. What are secondary markets?
A. Markets where securities are traded subsequent to the initial
offering.
B. Markets where securities are issued for the first time.
C. Markets where securities are issued through a competitive sale.
D. Markets where securities are issued through a negotiated sale.
✅ Correct Answer: A
Rationale:
Secondary markets facilitate the trading of securities after they have been
initially issued. These markets provide liquidity, enabling investors to buy
and sell securities easily. Examples include stock exchanges such as the
NYSE and NASDAQ. Without secondary markets, primary market securities
would be less attractive to investors.
,4. A special interest group in the U.S. lobbies for
protectionism through tariffs. What is the most
likely result if successful?
A. Employees and shareholders will be hurt and the nation will benefit.
B. The overall economy will benefit from trade restrictions.
C. Removing the trade restrictions will result in a net economic loss.
D. Employees and shareholders of the protected industry will
benefit and the nation will be hurt.
✅ Correct Answer: D
Rationale:
Protectionism benefits specific domestic industries by reducing foreign
competition. However, it raises prices for consumers and leads to
inefficiencies in the overall economy. While workers and shareholders in
the protected industry may gain in the short term, the nation as a whole
experiences economic losses. This outcome reflects the concept of
deadweight loss.
5. What do the content and structure of a balance
sheet report?
A. Revenues and expenses over a period of time
B. Cash inflows and outflows
C. Assets, liabilities, and equity at a point in time
D. Changes in retained earnings
✅ Correct Answer: C
Rationale:
A balance sheet provides a snapshot of a company’s financial position at a
specific moment. It reports what the company owns (assets), what it owes
(liabilities), and the residual interest of owners (equity). This statement
follows the accounting equation: Assets = Liabilities + Equity. It differs
from income and cash flow statements, which cover periods of time.
, 6. What is the basis used to compute a company’s
income tax expense?
A. Pretax accounting income
B. Taxable income
C. Net operating income
D. Taxes payable
✅ Correct Answer: B
Rationale:
Income tax expense is based on taxable income, not accounting income.
Taxable income is determined under tax laws, which often differ from
accounting standards. Temporary and permanent differences cause
discrepancies between pretax income and taxable income. Therefore,
taxable income is the correct basis for tax expense calculations.
7. What is the firm’s cash flow from financing?
Given:
Net Income: $1,000
Depreciation: $300
Change in Operating Assets: $600
Change in Net PP&E: $5,000
Change in Long-Term Liabilities: $1,000
Dividends Paid: $200
A. $800
B. $800
C. $1,200
D. $6,000
✅ Correct Answer: B
Rationale:
Cash flow from financing includes changes in long-term liabilities and
