WGU D774 Introduction to Business Accounting OA Exam Actual Exam 2026/2027 –
Complete Study Questions with Detailed Rationales | 100% Verified | Pass Guaranteed
– A+ Graded
Section A: Accounting Fundamentals, Equation, & Cycle (15
Questions)
Q1: Maria starts a consulting business by investing $25,000 of her personal savings into
a business checking account. According to the accounting equation, which of the
following correctly describes the effect of this transaction?
A. Assets increase by $25,000; liabilities increase by $25,000
B. Assets increase by $25,000; owner's equity decreases by $25,000
C. Assets increase by $25,000; owner's equity increases by $25,000 [CORRECT]
D. Assets decrease by $25,000; owner's equity increases by $25,000
Correct Answer: C
,Rationale: Under GAAP and the accounting equation (Assets = Liabilities + Owner's
Equity), an owner contribution of cash increases the asset Cash and increases Owner's
Equity (Common Stock/Contributed Capital). No liability is created because this is an
investment, not a loan. Options A, B, and D all misapply the accounting equation.
Q2: A corporation purchases $8,000 of equipment on account. Which of the following
correctly shows the effect on the accounting equation?
A. Assets increase by $8,000; liabilities increase by $8,000 [CORRECT]
B. Assets increase by $8,000 and decrease by $8,000; liabilities increase by $8,000
C. Assets increase by $8,000; owner's equity increases by $8,000
D. Assets increase by $8,000; liabilities decrease by $8,000
Correct Answer: A
Rationale: Purchasing equipment on account increases the asset Equipment and
increases the liability Accounts Payable by $8,000 each. The accounting equation
remains in balance. Option B incorrectly suggests another asset changed; C and D
misstate the effect on equity and liabilities.
,Q3: Which of the following business forms provides its owners with limited liability
protection while avoiding double taxation at the entity level?
A. Sole proprietorship
B. General partnership
C. Corporation
D. Limited liability company (LLC) [CORRECT]
Correct Answer: D
Rationale: An LLC provides limited liability protection (like a corporation) while typically
being taxed as a pass-through entity (avoiding double taxation). Corporations face
double taxation (C-corp); sole proprietorships and general partnerships lack limited
liability.
Q4: During its first month of operations, BrightStart Corp. earned $12,000 in revenue,
incurred $7,500 in expenses, and paid $2,000 in dividends. What is the net effect on
retained earnings for the month?
A. Increase of $4,500
B. Increase of $2,500 [CORRECT]
, C. Increase of $12,000
D. Decrease of $2,000
Correct Answer: B
Rationale: Retained earnings increases by net income ($12,000 revenue − $7,500
expenses = $4,500) and decreases by dividends ($2,000), for a net increase of $2,500.
Option A ignores dividends; C uses revenue only; D ignores revenue and expenses.
Q5: Which of the following accounts normally carries a debit balance?
A. Accounts Payable
B. Unearned Revenue
C. Common Stock
D. Prepaid Insurance [CORRECT]
Correct Answer: D
Rationale: Prepaid Insurance is an asset, and assets normally have debit balances.
Accounts Payable (liability), Unearned Revenue (liability), and Common Stock (equity) all
normally carry credit balances.
Complete Study Questions with Detailed Rationales | 100% Verified | Pass Guaranteed
– A+ Graded
Section A: Accounting Fundamentals, Equation, & Cycle (15
Questions)
Q1: Maria starts a consulting business by investing $25,000 of her personal savings into
a business checking account. According to the accounting equation, which of the
following correctly describes the effect of this transaction?
A. Assets increase by $25,000; liabilities increase by $25,000
B. Assets increase by $25,000; owner's equity decreases by $25,000
C. Assets increase by $25,000; owner's equity increases by $25,000 [CORRECT]
D. Assets decrease by $25,000; owner's equity increases by $25,000
Correct Answer: C
,Rationale: Under GAAP and the accounting equation (Assets = Liabilities + Owner's
Equity), an owner contribution of cash increases the asset Cash and increases Owner's
Equity (Common Stock/Contributed Capital). No liability is created because this is an
investment, not a loan. Options A, B, and D all misapply the accounting equation.
Q2: A corporation purchases $8,000 of equipment on account. Which of the following
correctly shows the effect on the accounting equation?
A. Assets increase by $8,000; liabilities increase by $8,000 [CORRECT]
B. Assets increase by $8,000 and decrease by $8,000; liabilities increase by $8,000
C. Assets increase by $8,000; owner's equity increases by $8,000
D. Assets increase by $8,000; liabilities decrease by $8,000
Correct Answer: A
Rationale: Purchasing equipment on account increases the asset Equipment and
increases the liability Accounts Payable by $8,000 each. The accounting equation
remains in balance. Option B incorrectly suggests another asset changed; C and D
misstate the effect on equity and liabilities.
,Q3: Which of the following business forms provides its owners with limited liability
protection while avoiding double taxation at the entity level?
A. Sole proprietorship
B. General partnership
C. Corporation
D. Limited liability company (LLC) [CORRECT]
Correct Answer: D
Rationale: An LLC provides limited liability protection (like a corporation) while typically
being taxed as a pass-through entity (avoiding double taxation). Corporations face
double taxation (C-corp); sole proprietorships and general partnerships lack limited
liability.
Q4: During its first month of operations, BrightStart Corp. earned $12,000 in revenue,
incurred $7,500 in expenses, and paid $2,000 in dividends. What is the net effect on
retained earnings for the month?
A. Increase of $4,500
B. Increase of $2,500 [CORRECT]
, C. Increase of $12,000
D. Decrease of $2,000
Correct Answer: B
Rationale: Retained earnings increases by net income ($12,000 revenue − $7,500
expenses = $4,500) and decreases by dividends ($2,000), for a net increase of $2,500.
Option A ignores dividends; C uses revenue only; D ignores revenue and expenses.
Q5: Which of the following accounts normally carries a debit balance?
A. Accounts Payable
B. Unearned Revenue
C. Common Stock
D. Prepaid Insurance [CORRECT]
Correct Answer: D
Rationale: Prepaid Insurance is an asset, and assets normally have debit balances.
Accounts Payable (liability), Unearned Revenue (liability), and Common Stock (equity) all
normally carry credit balances.
