WGU D102 Financial Accounting 2026/2027 All-Inclusive Certification Study Guide: Extensive Practice Questions, Complete Test Bank Review, Detailed Knowledge Assessment, and Final Exam Prep Manual

Which transaction should be classified as an operating cash flow? A. Cash received from issuing common stock B. Cash paid to purchase land C. Cash received from customers for services D. Cash received from selling equipment Correct Answer: C. Cash received from customers for services Rationale: Operating activities include cash flows arising from the company’s primary revenue-producing activities, such as collecting cash from customers. Issuing common stock is a financing activity, while purchasing land and selling equipment are investing activities because they involve long-term assets. Question 2 A company reports total assets of $285,000 and stockholders’ equity of $174,000. Based on the accounting equation, what amount should be reported as total liabilities? A. $174,000 B. $459,000 C. $111,000 D. $285,000 Correct Answer: C. $111,000 Rationale: The accounting equation is: Assets = Liabilities + Stockholders’ Equity Therefore: Liabilities = Assets − Stockholders’ Equity $285,000 − $174,000 = $111,000. Question 3 Which presentation is characteristic of a single-step income statement? A. Only cash revenues and cash expenses are reported. B. Revenues are grouped together, expenses are grouped together, and total expenses are subtracted from total revenues. C. Gross profit, operating income, and income before taxes must each be separately calculated. D. Cost of goods sold is reported as a deduction from assets. Correct Answer: B. Revenues are grouped together, expenses are grouped together, and total expenses are subtracted from total revenues. Rationale: A single-step income statement combines all revenues into one total and all expenses into another total. Total expenses are then subtracted from total revenues to determine net income. A multiple-step statement separately reports measures such as gross profit and operating income. Question 4 A manufacturing company owns raw materials, production machinery, office furniture, and finished products awaiting sale. Which items should be classified as inventory? A. Office furniture and finished products B. Raw materials and production machinery C. Production machinery and office furniture D. Raw materials and finished products Correct Answer: D. Raw materials and finished products Rationale: Inventory includes goods held for sale and materials that will be used to produce goods for sale. Therefore, raw materials and finished products are classified as inventory. Production machinery and office furniture are long-term operating assets. Question 5 A corporation reports net income of $360,000 and has 120,000 common shares outstanding throughout the year. What is its earnings per share? A. $3.00 B. $0.33 C. $4.80 D. $2.00 Correct Answer: A. $3.00 Rationale: Basic earnings per share is calculated as: Earnings per Share = Net Income ÷ Common Shares Outstanding $360,000 ÷ 120,000 = $3.00 per share. Question 6 A company’s normal operating cycle is 15 months. Which obligation would generally be classified as a current liability? A. A mortgage payable due in 10 years B. An account payable expected to be paid in 12 months C. A bond payable due in five years D. A note payable due in 20 months Correct Answer: B. An account payable expected to be paid in 12 months Rationale: A current liability is generally expected to be settled within one year or the company’s normal operating cycle, whichever is longer. Since the operating cycle i s 15 months, an account payable due within 12 months qualifies as a current liability. The other obligations extend beyond the operating cycle. Question 7 A retailer reports net sales of $760,000 and cost of goods sold of $470,000. What is the retailer’s gross profit? A. $760,000 B. $1,230,000 C. $290,000 D. $470,000 Correct Answer: C. $290,000 Rationale: Gross profit is calculated as: Gross Profit = Net Sales − Cost of Goods Sold $760,000 − $470,000 = $290,000. Gross profit represents the amount remaining from sales after covering the cost of the inventory sold. Question 8 An investor wants a report showing a company’s economic resources, financial obligations, and residual ownership interest on December 31. Which financial statement should the investor review? A. Statement of retained earnings B. Balance sheet C. Income statement D. Statement of cash flows Correct Answer: B. Balance sheet Rationale: The balance sheet reports assets, liabilities, and stockholders’ equity at a specific point in time. The income statement reports revenues and expenses over a period, while the statement of cash flows reports cash inflows and outflows. Question 9 A company makes credit sales during the year and estimates that some customers will not pay. What does bad debt expense represent? A. Depreciation on long-lived assets B. Discounts granted for early customer payment C. The estimated cost of uncollectible credit accounts D. Inventory lost through theft or damage Correct Answer: C. The estimated cost of uncollectible credit accounts Rationale: Bad debt expense represents the estimated amount of credit sales or receivables that will not be collected. Recognizing this expense helps match the cost of extending credit with the related revenue. Question 10 Using net sales of $760,000 and gross profit of $290,000, what is the company’s gross profit percentage, rounded to one decimal place? A. 61.8% B. 26.3% C. 162.1% D. 38.2% Correct Answer: D. 38.2% Rationale: Gross profit percentage is calculated as: Gross Profit Percentage = Gross Profit ÷ Net Sales × 100 $290,000 ÷ $760,000 × 100 ≈ 38.2%. This percentage indicates how much gross profit the company earns from each dollar of sales before operating and nonoperating expenses.