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WGU D775 Introduction to Business Finance Pre-
Assessment Actual Exam 2026/2027 | Complete Test
Bank with Verified Questions & Correct Detailed
Answers | Already Graded A+
SECTION 1: FINANCIAL STATEMENT ANALYSIS (Questions 1-15)
Q1: A company has current assets of $500,000, current liabilities of $250,000, inventory of
$150,000, and total assets of $1,200,000. What is the company's quick (acid-test) ratio?
A. 0.8
B. 1.0
C. 1.4 [CORRECT]
D. 2.0
Rationale: The quick ratio is calculated as (Current Assets - Inventory) / Current Liabilities.
Here, ($500,000 - $150,000) = $350,000, divided by $250,000 equals 1.4. Option A (0.8) might
result from incorrectly including inventory in the numerator. Option B (1.0) might come from
miscalculating current ratio or quick ratio with wrong figures. Option D (2.0) is the current ratio
($500,000/$250,000) without removing inventory.
Q2: Which of the following financial statements provides information about a company's
financial position at a specific point in time?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet [CORRECT]
D. Statement of Retained Earnings
Rationale: The Balance Sheet (or Statement of Financial Position) reports assets, liabilities, and
equity at a specific date, unlike the Income Statement and Statement of Cash Flows which cover
periods of time. Option A shows performance over time. Option B shows cash movements over a
period. Option D shows changes in retained earnings over a period.
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Q3: A firm has sales of $2,000,000, cost of goods sold of $1,200,000, and average inventory of
$300,000. What is the inventory turnover ratio?
A. 4.0 [CORRECT]
B. 6.7
C. 2.5
D. 0.25
Rationale: Inventory Turnover = Cost of Goods Sold / Average Inventory = $1,200,000 /
$300,000 = 4.0 times. This indicates the firm sells and replaces its inventory 4 times per year.
Option B results from using sales instead of COGS ($2M/$300k). Option C is the days' sales in
inventory calculation (365/4). Option D inverts the formula.
Q4: In the statement of cash flows, which activity category includes the purchase of equipment?
A. Operating Activities
B. Investing Activities [CORRECT]
C. Financing Activities
D. Non-cash Activities
Rationale: Investing Activities include the acquisition and disposal of long-term assets such as
property, plant, and equipment. Option A includes day-to-day business operations. Option C
includes borrowing, repaying debt, and equity transactions. Option D refers to significant non-
cash transactions disclosed separately.
Q5: Using the DuPont analysis, return on equity (ROE) is calculated by multiplying which three
components?
A. Net Profit Margin × Asset Turnover × Equity Multiplier [CORRECT]
B. Gross Profit Margin × Asset Turnover × Debt Ratio
C. Operating Margin × Inventory Turnover × Current Ratio
D. Net Profit Margin × Receivables Turnover × Equity Ratio
Rationale: The DuPont identity breaks ROE into: (Net Income/Sales) × (Sales/Total Assets) ×
(Total Assets/Total Equity). This reveals whether ROE is driven by profitability, efficiency, or
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leverage. Option B uses incorrect components. Option C mixes unrelated ratios. Option D
incorrectly substitutes receivables turnover.
Q6: A company reports net income of $450,000, interest expense of $50,000, and taxes of
$150,000. What is the company's times interest earned ratio?
A. 9.0
B. 10.0 [CORRECT]
C. 13.0
D. 3.0
Rationale: Times Interest Earned = EBIT / Interest Expense. EBIT = Net Income + Interest +
Taxes = $450,000 + $50,000 + $150,000 = $650,000. $650,000 / $50,000 = 13.0. Wait,
correction: The calculation is ($450,000 + $50,000 + $150,000) / $50,000 = $650,000 / $50,000
= 13.0. However, if using the provided options, the correct answer based on standard calculation
is 13.0 (Option C).
Correction: The correct answer is C. 13.0 [CORRECT]
Rationale: Times Interest Earned = EBIT / Interest Expense. EBIT = Net Income + Interest +
Taxes = $450,000 + $50,000 + $150,000 = $650,000. $650,000 / $50,000 = 13.0. Option A uses
net income only ($450k+$50k)/$50k. Option B might use pre-tax income. Option D uses net
income divided by interest.
Q7: Common-size financial statements express each item as a percentage of what base amount?
A. Total Liabilities for balance sheet items
B. Total Revenues for income statement items [CORRECT]
C. Net Income for all items
D. Total Current Assets for all items
Rationale: On common-size income statements, all items are expressed as a percentage of total
revenues (or sales). On common-size balance sheets, items are expressed as a percentage of total
assets. Option A is incorrect for balance sheets (should be total assets). Option C and D describe
non-standard approaches.
Q8: A current ratio of 0.8 indicates that a company:
WGU D775 Introduction to Business Finance Pre-
Assessment Actual Exam 2026/2027 | Complete Test
Bank with Verified Questions & Correct Detailed
Answers | Already Graded A+
SECTION 1: FINANCIAL STATEMENT ANALYSIS (Questions 1-15)
Q1: A company has current assets of $500,000, current liabilities of $250,000, inventory of
$150,000, and total assets of $1,200,000. What is the company's quick (acid-test) ratio?
A. 0.8
B. 1.0
C. 1.4 [CORRECT]
D. 2.0
Rationale: The quick ratio is calculated as (Current Assets - Inventory) / Current Liabilities.
Here, ($500,000 - $150,000) = $350,000, divided by $250,000 equals 1.4. Option A (0.8) might
result from incorrectly including inventory in the numerator. Option B (1.0) might come from
miscalculating current ratio or quick ratio with wrong figures. Option D (2.0) is the current ratio
($500,000/$250,000) without removing inventory.
Q2: Which of the following financial statements provides information about a company's
financial position at a specific point in time?
A. Income Statement
B. Statement of Cash Flows
C. Balance Sheet [CORRECT]
D. Statement of Retained Earnings
Rationale: The Balance Sheet (or Statement of Financial Position) reports assets, liabilities, and
equity at a specific date, unlike the Income Statement and Statement of Cash Flows which cover
periods of time. Option A shows performance over time. Option B shows cash movements over a
period. Option D shows changes in retained earnings over a period.
,2
Q3: A firm has sales of $2,000,000, cost of goods sold of $1,200,000, and average inventory of
$300,000. What is the inventory turnover ratio?
A. 4.0 [CORRECT]
B. 6.7
C. 2.5
D. 0.25
Rationale: Inventory Turnover = Cost of Goods Sold / Average Inventory = $1,200,000 /
$300,000 = 4.0 times. This indicates the firm sells and replaces its inventory 4 times per year.
Option B results from using sales instead of COGS ($2M/$300k). Option C is the days' sales in
inventory calculation (365/4). Option D inverts the formula.
Q4: In the statement of cash flows, which activity category includes the purchase of equipment?
A. Operating Activities
B. Investing Activities [CORRECT]
C. Financing Activities
D. Non-cash Activities
Rationale: Investing Activities include the acquisition and disposal of long-term assets such as
property, plant, and equipment. Option A includes day-to-day business operations. Option C
includes borrowing, repaying debt, and equity transactions. Option D refers to significant non-
cash transactions disclosed separately.
Q5: Using the DuPont analysis, return on equity (ROE) is calculated by multiplying which three
components?
A. Net Profit Margin × Asset Turnover × Equity Multiplier [CORRECT]
B. Gross Profit Margin × Asset Turnover × Debt Ratio
C. Operating Margin × Inventory Turnover × Current Ratio
D. Net Profit Margin × Receivables Turnover × Equity Ratio
Rationale: The DuPont identity breaks ROE into: (Net Income/Sales) × (Sales/Total Assets) ×
(Total Assets/Total Equity). This reveals whether ROE is driven by profitability, efficiency, or
, 3
leverage. Option B uses incorrect components. Option C mixes unrelated ratios. Option D
incorrectly substitutes receivables turnover.
Q6: A company reports net income of $450,000, interest expense of $50,000, and taxes of
$150,000. What is the company's times interest earned ratio?
A. 9.0
B. 10.0 [CORRECT]
C. 13.0
D. 3.0
Rationale: Times Interest Earned = EBIT / Interest Expense. EBIT = Net Income + Interest +
Taxes = $450,000 + $50,000 + $150,000 = $650,000. $650,000 / $50,000 = 13.0. Wait,
correction: The calculation is ($450,000 + $50,000 + $150,000) / $50,000 = $650,000 / $50,000
= 13.0. However, if using the provided options, the correct answer based on standard calculation
is 13.0 (Option C).
Correction: The correct answer is C. 13.0 [CORRECT]
Rationale: Times Interest Earned = EBIT / Interest Expense. EBIT = Net Income + Interest +
Taxes = $450,000 + $50,000 + $150,000 = $650,000. $650,000 / $50,000 = 13.0. Option A uses
net income only ($450k+$50k)/$50k. Option B might use pre-tax income. Option D uses net
income divided by interest.
Q7: Common-size financial statements express each item as a percentage of what base amount?
A. Total Liabilities for balance sheet items
B. Total Revenues for income statement items [CORRECT]
C. Net Income for all items
D. Total Current Assets for all items
Rationale: On common-size income statements, all items are expressed as a percentage of total
revenues (or sales). On common-size balance sheets, items are expressed as a percentage of total
assets. Option A is incorrect for balance sheets (should be total assets). Option C and D describe
non-standard approaches.
Q8: A current ratio of 0.8 indicates that a company:
