INTERMEDIATE ACCOUNTING II - D104 WGU: ACCOUNTING
PRINCIPLES EXAM 2025
1. What is the formula for calculating the debt to asset ratio?
total liabilities/total assets
total assets/total liabilities
total equity/total assets
total liabilities/total equity
2. Norton Co. reports the following for the current year: Cash, $300; short-
term investments, $500; accounts receivable, $1,000; inventory, $700;
total current assets, $2,500; and total current liabilities, $1,000. Which of
the following is true regarding the current ratio and the quick ratio?
2.5:1 0.8:1
2.5:1 1.8:1
2.5:1 2.5:1
1.8:1 2.5:1
3. Describe how the straight-line method of depreciation differs from other
depreciation methods.
The straight-line method calculates depreciation based on the
asset's market value.
The straight-line method allocates depreciation evenly over the
asset's useful life, unlike methods that consider usage or
production levels.
The straight-line method requires a higher depreciation charge in
the early years of an asset's life.
The straight-line method applies a fixed percentage to the asset's
,cost each year.
,4. Under what condition is interest capitalization allowed in relation to land
costs?
When building a structure on the land
When purchasing land with the intention of developing it for lot
sales
When holding the land as an investment
When selling the land
5. Describe how a 2-for-1 stock split affects the number of shares
outstanding and the par value of each share.
A 2-for-1 stock split doubles the number of shares outstanding
and halves the par value of each share.
A 2-for-1 stock split has no effect on the number of shares or par
value.
A 2-for-1 stock split keeps the number of shares the same but
increases the par value.
A 2-for-1 stock split reduces the number of shares outstanding and
increases the par value of each share.
6. Securities are considered to be dilutive to earnings per share if:
they can be converted to common shares now or at any time in
the future.
converting them to common shares would actually reduce
earnings per share, compared to basic earnings per share.
converting them to common shares would decrease earnings
available to common shareholders.
7. Describe the significance of the payout ratio in evaluating a company's
financial health.
The payout ratio is used to calculate the total equity of a company.
, The payout ratio measures the total assets of a company
compared to its liabilities.
The payout ratio indicates the proportion of earnings distributed
to shareholders as dividends, reflecting the company's
profitability and reinvestment strategy.
The payout ratio shows the total revenue generated by the
company in a given period.
8. When a company buys land with a building on it and tears down the
building so the land can be used, this cost should be
added to the cost of the land
expensed as incurred
added to the cost of the plant
recorded as a reduction to sales
9. If the company decides not to reverse the impairment, what will be the
asset's book value after depreciation for the next year?
$215,000
$205,000
$225,000
$260,000
10. What is the Debt-to-Assets Ratio?
Net Income / Total Assets
Total Assets / Total Liabilities
Total Assets / Net Income
Total Liabilities / Total Assets
PRINCIPLES EXAM 2025
1. What is the formula for calculating the debt to asset ratio?
total liabilities/total assets
total assets/total liabilities
total equity/total assets
total liabilities/total equity
2. Norton Co. reports the following for the current year: Cash, $300; short-
term investments, $500; accounts receivable, $1,000; inventory, $700;
total current assets, $2,500; and total current liabilities, $1,000. Which of
the following is true regarding the current ratio and the quick ratio?
2.5:1 0.8:1
2.5:1 1.8:1
2.5:1 2.5:1
1.8:1 2.5:1
3. Describe how the straight-line method of depreciation differs from other
depreciation methods.
The straight-line method calculates depreciation based on the
asset's market value.
The straight-line method allocates depreciation evenly over the
asset's useful life, unlike methods that consider usage or
production levels.
The straight-line method requires a higher depreciation charge in
the early years of an asset's life.
The straight-line method applies a fixed percentage to the asset's
,cost each year.
,4. Under what condition is interest capitalization allowed in relation to land
costs?
When building a structure on the land
When purchasing land with the intention of developing it for lot
sales
When holding the land as an investment
When selling the land
5. Describe how a 2-for-1 stock split affects the number of shares
outstanding and the par value of each share.
A 2-for-1 stock split doubles the number of shares outstanding
and halves the par value of each share.
A 2-for-1 stock split has no effect on the number of shares or par
value.
A 2-for-1 stock split keeps the number of shares the same but
increases the par value.
A 2-for-1 stock split reduces the number of shares outstanding and
increases the par value of each share.
6. Securities are considered to be dilutive to earnings per share if:
they can be converted to common shares now or at any time in
the future.
converting them to common shares would actually reduce
earnings per share, compared to basic earnings per share.
converting them to common shares would decrease earnings
available to common shareholders.
7. Describe the significance of the payout ratio in evaluating a company's
financial health.
The payout ratio is used to calculate the total equity of a company.
, The payout ratio measures the total assets of a company
compared to its liabilities.
The payout ratio indicates the proportion of earnings distributed
to shareholders as dividends, reflecting the company's
profitability and reinvestment strategy.
The payout ratio shows the total revenue generated by the
company in a given period.
8. When a company buys land with a building on it and tears down the
building so the land can be used, this cost should be
added to the cost of the land
expensed as incurred
added to the cost of the plant
recorded as a reduction to sales
9. If the company decides not to reverse the impairment, what will be the
asset's book value after depreciation for the next year?
$215,000
$205,000
$225,000
$260,000
10. What is the Debt-to-Assets Ratio?
Net Income / Total Assets
Total Assets / Total Liabilities
Total Assets / Net Income
Total Liabilities / Total Assets
