WGU C213 ACCOUNTING FOR DECISION
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QUESTION AND CORRECT DETAILED
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A financial analyst is reviewing a company's balance sheet and notes that the debt ratio
is 101.5%. What does this indicate about the company's financial position?
a. The company has more total assets than total liabilities
b. The company has 1.5% more total liabilities than total assets
c. The company has sufficient equity to cover all liabilities
d. The company is operating with no debt
✔️ Correct Answer: B
Rationale:
A debt ratio of 101.5% indicates that the company's total liabilities exceed its total
assets by 1.5%. This means the company is technically insolvent because it owes more
than it owns. The debt ratio is calculated as total liabilities divided by total assets, and a
ratio exceeding 100% signals that the company has negative equity. This is a significant
red flag for creditors and investors. Option A is incorrect because the debt ratio
exceeding 100% means liabilities exceed assets. Option C is incorrect because equity
,would be negative in this scenario. Option D is incorrect because the company clearly
has debt.
A retail company is experiencing a continual decline in gross profit while its cost of
goods sold remains unchanged. What is the most likely cause of this trend?
a. Continual increase in sales volume
b. Continual decrease in sales revenue
c. Continual decrease in operating expenses
d. Continual increase in administrative costs
✔️ Correct Answer: B
Rationale:
Gross profit is calculated as sales revenue minus cost of goods sold. If cost of goods
sold remains constant but gross profit is declining, it logically follows that sales revenue
must be decreasing. This indicates the company is selling fewer goods or is reducing
prices without a corresponding reduction in the cost of those goods. Option A is
incorrect because increasing sales would increase gross profit. Option C is incorrect
because operating expenses do not affect gross profit. Option D is incorrect because
administrative costs are not part of gross profit calculation.
A corporation began operations in January of Year 1. On January 3, the corporation
borrowed $250,000 from a bank. The loan is a four-year loan with an interest rate of 12
percent, payable each year on January 1 beginning in Year 2. On January 5, the
corporation purchased equipment for $200,000 cash. On January 8, the corporation
purchased inventory costing $200,000 by paying $120,000 in cash, with the remainder
on credit. On January 15, the corporation hired five employees, each to be paid $1,000
at the end of each month. On January 30, the corporation paid $6,000 cash for a one-
year insurance policy. What is the effect of the January 5 equipment purchase on the
accounting equation?
a. Equipment will decrease $200,000, and cash will increase $200,000
b. Equipment will increase $200,000, and cash will decrease $200,000
,c. Equipment will increase $200,000, and accounts payable will increase $200,000
d. Equipment will increase $200,000, and retained earnings will decrease $200,000
✔️ Correct Answer: B
Rationale:
The purchase of equipment for cash is an asset exchange transaction. Equipment (an
asset) increases by $200,000, and cash (another asset) decreases by the same amount.
The accounting equation (Assets = Liabilities + Equity) remains in balance because total
assets are unchanged; one asset account increases while another decreases. Option A is
incorrect because equipment should increase, not decrease. Option C is incorrect
because the purchase was for cash, not on credit. Option D is incorrect because retained
earnings is not affected by this transaction.
A corporation began operations in January of Year 1. On January 30, the corporation
paid $6,000 cash for a one-year insurance policy. What is the effect of this transaction
on the financial statements?
a. Prepaid insurance will increase $6,000, and cash will decrease $6,000
b. Insurance expense will increase $6,000, and cash will decrease $6,000
c. Prepaid insurance will decrease $6,000, and cash will increase $6,000
d. Insurance expense will increase $6,000, and accounts payable will increase $6,000
✔️ Correct Answer: A
Rationale:
The purchase of a one-year insurance policy for cash is a prepaid expense transaction.
Prepaid insurance (an asset) increases by $6,000 because the company has paid for
coverage that will benefit future periods. Cash decreases by $6,000. The expense is not
recognized until the insurance coverage is used over time. Option B is incorrect because
insurance expense should not be recognized until the coverage period elapses. Option C
is incorrect because both accounts are affected in the opposite direction. Option D is
incorrect because the payment was made in cash, not on credit.
Which two items' subtotals are included in a multi-step income statement? (Select two.)
, a. Total assets
b. Gross profit
c. Current liabilities
d. Income from operations
✔️ Correct Answer: B, D
Rationale:
A multi-step income statement includes several important subtotals to provide users
with more detailed information about a company's financial performance. Gross profit
(Option B) is calculated as net sales minus cost of goods sold and represents the profit a
company earns from its core operations before deducting operating expenses. Income
from operations (Option D), also called operating income, is calculated as gross profit
minus operating expenses and represents profit from normal business operations before
non-operating items. Option A is incorrect because total assets appear on the balance
sheet, not the income statement. Option C is incorrect because current liabilities appear
on the balance sheet.
A furniture company using accrual accounting purchased 20 sofas in November 2011. In
December 2011, 8 of the 20 sofas were sold to customers. Customers signed contracts
agreeing to pay half in February 2012 and the remaining half in March 2012. The
company was reasonably sure customers would pay. The company pays salespeople
commissions on each sofa sold, with December commissions paid in January 2012. The
company paid $3,000 for advertising that ran in the local newspaper in November 2011.
In which month should advertising costs be expensed?
a. February 2012
b. January 2012
c. December 2011
d. November 2011
✔️ Correct Answer: D
Rationale:
Under accrual accounting, advertising costs should be expensed in the period in which
the advertising is used or consumed, regardless of when payment is made. The
advertising ran in the local newspaper in November 2011, so the cost should be
recognized as an expense in November 2011. This follows the matching principle, which
MAKERS NEWEST VERSION ACTUAL TESTBANK
QUESTION AND CORRECT DETAILED
VERIFIED ANSWERS FROM VERIFIED SOURCES
RATED A GRADE.
2026/2027 Frequently Most Tested
Questions and 100% Accurate From Past
papers | Graded A+ , Reviewed and Updated
| 100% Guarantee Pass | Latest Exam and
Newest Version!!!
A financial analyst is reviewing a company's balance sheet and notes that the debt ratio
is 101.5%. What does this indicate about the company's financial position?
a. The company has more total assets than total liabilities
b. The company has 1.5% more total liabilities than total assets
c. The company has sufficient equity to cover all liabilities
d. The company is operating with no debt
✔️ Correct Answer: B
Rationale:
A debt ratio of 101.5% indicates that the company's total liabilities exceed its total
assets by 1.5%. This means the company is technically insolvent because it owes more
than it owns. The debt ratio is calculated as total liabilities divided by total assets, and a
ratio exceeding 100% signals that the company has negative equity. This is a significant
red flag for creditors and investors. Option A is incorrect because the debt ratio
exceeding 100% means liabilities exceed assets. Option C is incorrect because equity
,would be negative in this scenario. Option D is incorrect because the company clearly
has debt.
A retail company is experiencing a continual decline in gross profit while its cost of
goods sold remains unchanged. What is the most likely cause of this trend?
a. Continual increase in sales volume
b. Continual decrease in sales revenue
c. Continual decrease in operating expenses
d. Continual increase in administrative costs
✔️ Correct Answer: B
Rationale:
Gross profit is calculated as sales revenue minus cost of goods sold. If cost of goods
sold remains constant but gross profit is declining, it logically follows that sales revenue
must be decreasing. This indicates the company is selling fewer goods or is reducing
prices without a corresponding reduction in the cost of those goods. Option A is
incorrect because increasing sales would increase gross profit. Option C is incorrect
because operating expenses do not affect gross profit. Option D is incorrect because
administrative costs are not part of gross profit calculation.
A corporation began operations in January of Year 1. On January 3, the corporation
borrowed $250,000 from a bank. The loan is a four-year loan with an interest rate of 12
percent, payable each year on January 1 beginning in Year 2. On January 5, the
corporation purchased equipment for $200,000 cash. On January 8, the corporation
purchased inventory costing $200,000 by paying $120,000 in cash, with the remainder
on credit. On January 15, the corporation hired five employees, each to be paid $1,000
at the end of each month. On January 30, the corporation paid $6,000 cash for a one-
year insurance policy. What is the effect of the January 5 equipment purchase on the
accounting equation?
a. Equipment will decrease $200,000, and cash will increase $200,000
b. Equipment will increase $200,000, and cash will decrease $200,000
,c. Equipment will increase $200,000, and accounts payable will increase $200,000
d. Equipment will increase $200,000, and retained earnings will decrease $200,000
✔️ Correct Answer: B
Rationale:
The purchase of equipment for cash is an asset exchange transaction. Equipment (an
asset) increases by $200,000, and cash (another asset) decreases by the same amount.
The accounting equation (Assets = Liabilities + Equity) remains in balance because total
assets are unchanged; one asset account increases while another decreases. Option A is
incorrect because equipment should increase, not decrease. Option C is incorrect
because the purchase was for cash, not on credit. Option D is incorrect because retained
earnings is not affected by this transaction.
A corporation began operations in January of Year 1. On January 30, the corporation
paid $6,000 cash for a one-year insurance policy. What is the effect of this transaction
on the financial statements?
a. Prepaid insurance will increase $6,000, and cash will decrease $6,000
b. Insurance expense will increase $6,000, and cash will decrease $6,000
c. Prepaid insurance will decrease $6,000, and cash will increase $6,000
d. Insurance expense will increase $6,000, and accounts payable will increase $6,000
✔️ Correct Answer: A
Rationale:
The purchase of a one-year insurance policy for cash is a prepaid expense transaction.
Prepaid insurance (an asset) increases by $6,000 because the company has paid for
coverage that will benefit future periods. Cash decreases by $6,000. The expense is not
recognized until the insurance coverage is used over time. Option B is incorrect because
insurance expense should not be recognized until the coverage period elapses. Option C
is incorrect because both accounts are affected in the opposite direction. Option D is
incorrect because the payment was made in cash, not on credit.
Which two items' subtotals are included in a multi-step income statement? (Select two.)
, a. Total assets
b. Gross profit
c. Current liabilities
d. Income from operations
✔️ Correct Answer: B, D
Rationale:
A multi-step income statement includes several important subtotals to provide users
with more detailed information about a company's financial performance. Gross profit
(Option B) is calculated as net sales minus cost of goods sold and represents the profit a
company earns from its core operations before deducting operating expenses. Income
from operations (Option D), also called operating income, is calculated as gross profit
minus operating expenses and represents profit from normal business operations before
non-operating items. Option A is incorrect because total assets appear on the balance
sheet, not the income statement. Option C is incorrect because current liabilities appear
on the balance sheet.
A furniture company using accrual accounting purchased 20 sofas in November 2011. In
December 2011, 8 of the 20 sofas were sold to customers. Customers signed contracts
agreeing to pay half in February 2012 and the remaining half in March 2012. The
company was reasonably sure customers would pay. The company pays salespeople
commissions on each sofa sold, with December commissions paid in January 2012. The
company paid $3,000 for advertising that ran in the local newspaper in November 2011.
In which month should advertising costs be expensed?
a. February 2012
b. January 2012
c. December 2011
d. November 2011
✔️ Correct Answer: D
Rationale:
Under accrual accounting, advertising costs should be expensed in the period in which
the advertising is used or consumed, regardless of when payment is made. The
advertising ran in the local newspaper in November 2011, so the cost should be
recognized as an expense in November 2011. This follows the matching principle, which
