WGU D076 Finance Skills for Managers Complete Study
Guide PDF – Western Governors University Course Notes,
Exam Review Questions, Accounting & Financial Decision-
Making Practice Material, Key Concepts Summary and
Updated Revision Guide for Guaranteed Assessment Success
Question 1: Which financial statement provides a snapshot of a company’s financial position
at a specific point in time?
A. Statement of Cash Flows
B. Income Statement
C. Statement of Retained Earnings
D. Balance Sheet
CORRECT ANSWER: D. Balance Sheet
Rationale: The balance sheet reports a company’s assets, liabilities, and equity as of a specific
date, offering a “snapshot” of its financial position. In contrast, the income statement and
statement of cash flows reflect activity over a period of time.
Question 2: What is the primary purpose of Generally Accepted Accounting Principles
(GAAP)?
A. To maximize shareholder dividends
B. To ensure consistency and comparability in financial reporting
C. To reduce corporate tax liability
D. To simplify bookkeeping for small businesses
CORRECT ANSWER: B. To ensure consistency and comparability in financial reporting
Rationale: GAAP establishes standardized guidelines for financial accounting to promote
transparency, consistency, and comparability across organizations, enabling stakeholders to
make informed decisions.
Question 3: Which of the following best describes accrual basis accounting?
A. Revenue is recognized only when cash is received
B. Expenses are recorded only when paid
C. Revenue and expenses are recorded when they are earned or incurred, regardless of cash
flow
D. Financial statements are prepared annually only
CORRECT ANSWER: C. Revenue and expenses are recorded when they are earned or incurred,
regardless of cash flow
Rationale: Accrual accounting matches revenues with the expenses incurred to generate them
in the same accounting period, providing a more accurate picture of financial performance than
cash basis accounting.
Question 4: A company purchases equipment for $50,000 with an estimated useful life of 10
years and no salvage value. Using straight-line depreciation, what is the annual depreciation
expense?
, A. $2,500
B. $10,000
C. $5,000
D. $7,500
CORRECT ANSWER: C. $5,000
Rationale: Straight-line depreciation is calculated as (Cost – Salvage Value) ÷ Useful Life. Here,
($50,000 – $0) ÷ 10 = $5,000 per year.
Question 5: Which account type normally has a credit balance?
A. Asset
B. Expense
C. Liability
D. Dividend
CORRECT ANSWER: C. Liability
Rationale: In double-entry accounting, liabilities increase with credits and decrease with debits,
so they typically carry a credit balance. Assets and expenses normally have debit balances.
Question 6: What does the current ratio measure?
A. Profitability over time
B. Ability to meet long-term obligations
C. Efficiency of inventory turnover
D. Ability to pay short-term obligations
CORRECT ANSWER: D. Ability to pay short-term obligations
Rationale: The current ratio (Current Assets ÷ Current Liabilities) assesses a company’s liquidity
and its capacity to settle short-term debts using its short-term assets.
Question 7: If a company declares a cash dividend, which accounts are affected on the
declaration date?
A. Cash decreases; Dividends Payable increases
B. Retained Earnings decreases; Dividends Payable increases
C. Cash decreases; Retained Earnings decreases
D. Common Stock increases; Cash decreases
CORRECT ANSWER: B. Retained Earnings decreases; Dividends Payable increases
Rationale: On the declaration date, retained earnings are reduced (debit) and a liability
(Dividends Payable) is created (credit). Cash is not affected until the payment date.
Question 8: Which of the following is classified as a financing activity on the statement of
cash flows?
A. Purchase of inventory
B. Sale of equipment
C. Issuance of common stock
D. Payment of salaries
Guide PDF – Western Governors University Course Notes,
Exam Review Questions, Accounting & Financial Decision-
Making Practice Material, Key Concepts Summary and
Updated Revision Guide for Guaranteed Assessment Success
Question 1: Which financial statement provides a snapshot of a company’s financial position
at a specific point in time?
A. Statement of Cash Flows
B. Income Statement
C. Statement of Retained Earnings
D. Balance Sheet
CORRECT ANSWER: D. Balance Sheet
Rationale: The balance sheet reports a company’s assets, liabilities, and equity as of a specific
date, offering a “snapshot” of its financial position. In contrast, the income statement and
statement of cash flows reflect activity over a period of time.
Question 2: What is the primary purpose of Generally Accepted Accounting Principles
(GAAP)?
A. To maximize shareholder dividends
B. To ensure consistency and comparability in financial reporting
C. To reduce corporate tax liability
D. To simplify bookkeeping for small businesses
CORRECT ANSWER: B. To ensure consistency and comparability in financial reporting
Rationale: GAAP establishes standardized guidelines for financial accounting to promote
transparency, consistency, and comparability across organizations, enabling stakeholders to
make informed decisions.
Question 3: Which of the following best describes accrual basis accounting?
A. Revenue is recognized only when cash is received
B. Expenses are recorded only when paid
C. Revenue and expenses are recorded when they are earned or incurred, regardless of cash
flow
D. Financial statements are prepared annually only
CORRECT ANSWER: C. Revenue and expenses are recorded when they are earned or incurred,
regardless of cash flow
Rationale: Accrual accounting matches revenues with the expenses incurred to generate them
in the same accounting period, providing a more accurate picture of financial performance than
cash basis accounting.
Question 4: A company purchases equipment for $50,000 with an estimated useful life of 10
years and no salvage value. Using straight-line depreciation, what is the annual depreciation
expense?
, A. $2,500
B. $10,000
C. $5,000
D. $7,500
CORRECT ANSWER: C. $5,000
Rationale: Straight-line depreciation is calculated as (Cost – Salvage Value) ÷ Useful Life. Here,
($50,000 – $0) ÷ 10 = $5,000 per year.
Question 5: Which account type normally has a credit balance?
A. Asset
B. Expense
C. Liability
D. Dividend
CORRECT ANSWER: C. Liability
Rationale: In double-entry accounting, liabilities increase with credits and decrease with debits,
so they typically carry a credit balance. Assets and expenses normally have debit balances.
Question 6: What does the current ratio measure?
A. Profitability over time
B. Ability to meet long-term obligations
C. Efficiency of inventory turnover
D. Ability to pay short-term obligations
CORRECT ANSWER: D. Ability to pay short-term obligations
Rationale: The current ratio (Current Assets ÷ Current Liabilities) assesses a company’s liquidity
and its capacity to settle short-term debts using its short-term assets.
Question 7: If a company declares a cash dividend, which accounts are affected on the
declaration date?
A. Cash decreases; Dividends Payable increases
B. Retained Earnings decreases; Dividends Payable increases
C. Cash decreases; Retained Earnings decreases
D. Common Stock increases; Cash decreases
CORRECT ANSWER: B. Retained Earnings decreases; Dividends Payable increases
Rationale: On the declaration date, retained earnings are reduced (debit) and a liability
(Dividends Payable) is created (credit). Cash is not affected until the payment date.
Question 8: Which of the following is classified as a financing activity on the statement of
cash flows?
A. Purchase of inventory
B. Sale of equipment
C. Issuance of common stock
D. Payment of salaries
