WGU D196 TEST BANK OA AND PRE-ASSESSMENT
2026/2027 | Actual Exam Questions and 100% Correct
Answers | Brand New D196 Practice Exam | Pass Guaranteed
- A+ Graded
COMPETENCY 1: ACCOUNTING INFORMATION AND THE ACCOUNTING
CYCLE (30 Questions)
Q1: Recall
Which of the following best defines the purpose of accounting?
● A. To minimize tax liabilities for a business
● B. To identify, record, and communicate economic events to interested users
[CORRECT]
● C. To prepare budgets for future business operations
● D. To audit financial statements for regulatory compliance
Correct Answer: B
Rationale: Accounting is defined as the process of identifying, recording, and
communicating economic events of an organization to interested users . Option A is
incorrect because tax minimization is a specific objective, not the primary purpose.
Option C describes managerial accounting functions specifically. Option D describes
auditing, which is a separate function from accounting.
Q2: Recall
According to the economic entity assumption, which statement is true?
● A. A business must use the same accounting methods as its competitors
, ● B. The activities of a business must be kept separate from the activities of its
owners [CORRECT]
● C. All business transactions must be recorded at their current market value
● D. Financial statements must be prepared annually
Correct Answer: B
Rationale: The economic entity assumption requires that business transactions be kept
separate from the personal transactions of the owners. Option A relates to consistency,
not economic entity. Option C describes fair value principle. Option D relates to the time
period assumption.
Q3: Comprehension
A corporation has the following accounts: Cash $50,000, Accounts Receivable $30,000,
Equipment $100,000, Accounts Payable $25,000, Notes Payable $40,000, Common
Stock $80,000. What is the amount of Retained Earnings?
● A. $35,000
● B. $180,000
● C. $35,000 [CORRECT]
● D. $115,000
Correct Answer: C
Rationale: Using the accounting equation: Assets = Liabilities + Stockholders' Equity.
Total Assets = $50,000 + $30,000 + $100,000 = $180,000. Total Liabilities = $25,000 +
$40,000 = $65,000. Therefore, Stockholders' Equity = $180,000 - $65,000 = $115,000.
Since Common Stock is $80,000, Retained Earnings = $115,000 - $80,000 = $35,000.
Q4: Application
,On March 1, a company pays $12,000 for a 12-month insurance policy. What is the
adjusting entry required on March 31?
● A. Debit Insurance Expense $12,000; Credit Prepaid Insurance $12,000
● B. Debit Insurance Expense $1,000; Credit Prepaid Insurance $1,000 [CORRECT]
● C. Debit Prepaid Insurance $1,000; Credit Insurance Expense $1,000
● D. No adjusting entry is needed
Correct Answer: B
Rationale: The monthly insurance expense is $12,000 ÷ 12 = $1,000. The adjusting entry
recognizes one month of expense and reduces the prepaid asset. Option A incorrectly
expenses the entire amount. Option C reverses the debit and credit. Option D is
incorrect because accrual accounting requires matching expenses to the period
incurred.
Q5: Application
A company performs services worth $5,000 for a client on December 28 but does not
bill the client until January 5. What adjusting entry is needed on December 31?
● A. Debit Cash $5,000; Credit Service Revenue $5,000
● B. Debit Accounts Receivable $5,000; Credit Service Revenue $5,000 [CORRECT]
● C. Debit Unearned Revenue $5,000; Credit Service Revenue $5,000
● D. No entry is needed until cash is received
Correct Answer: B
Rationale: Under the revenue recognition principle, revenue is recognized when earned
(December 28), not when billed or cash is received. This is an accrued revenue—debit
Accounts Receivable (asset increase), credit Service Revenue (revenue increase).
Option A incorrectly assumes cash was received. Option C describes deferred revenue.
Option D violates accrual accounting.
, Q6: Application
Which of the following journal entries correctly records the payment of $2,000 for
salaries earned by employees but not previously recorded?
● A. Debit Salaries Expense $2,000; Credit Cash $2,000
● B. Debit Salaries Payable $2,000; Credit Cash $2,000 [CORRECT]
● C. Debit Cash $2,000; Credit Salaries Expense $2,000
● D. Debit Salaries Expense $2,000; Credit Salaries Payable $2,000
Correct Answer: B
Rationale: Since the salaries were earned but not previously recorded, Salaries Payable
(liability) was established in a prior adjusting entry. The payment reduces the liability
(debit Salaries Payable) and reduces Cash (credit Cash). Option A would be correct if
recording the initial expense. Option C reverses the entry. Option D records the accrual,
not the payment.
Q7: Analysis
A company has the following trial balance before adjustments: Supplies $5,000 (debit),
Supplies Expense $0. A physical count reveals $1,200 of supplies remaining. What is the
effect of the adjusting entry on total assets?
● A. Total assets increase by $3,800
● B. Total assets decrease by $3,800 [CORRECT]
● C. Total assets remain unchanged
● D. Total assets decrease by $1,200
Correct Answer: B
Rationale: Supplies used = $5,000 - $1,200 = $3,800. The adjusting entry is: Debit
Supplies Expense $3,800, Credit Supplies $3,800. This reduces the asset account
2026/2027 | Actual Exam Questions and 100% Correct
Answers | Brand New D196 Practice Exam | Pass Guaranteed
- A+ Graded
COMPETENCY 1: ACCOUNTING INFORMATION AND THE ACCOUNTING
CYCLE (30 Questions)
Q1: Recall
Which of the following best defines the purpose of accounting?
● A. To minimize tax liabilities for a business
● B. To identify, record, and communicate economic events to interested users
[CORRECT]
● C. To prepare budgets for future business operations
● D. To audit financial statements for regulatory compliance
Correct Answer: B
Rationale: Accounting is defined as the process of identifying, recording, and
communicating economic events of an organization to interested users . Option A is
incorrect because tax minimization is a specific objective, not the primary purpose.
Option C describes managerial accounting functions specifically. Option D describes
auditing, which is a separate function from accounting.
Q2: Recall
According to the economic entity assumption, which statement is true?
● A. A business must use the same accounting methods as its competitors
, ● B. The activities of a business must be kept separate from the activities of its
owners [CORRECT]
● C. All business transactions must be recorded at their current market value
● D. Financial statements must be prepared annually
Correct Answer: B
Rationale: The economic entity assumption requires that business transactions be kept
separate from the personal transactions of the owners. Option A relates to consistency,
not economic entity. Option C describes fair value principle. Option D relates to the time
period assumption.
Q3: Comprehension
A corporation has the following accounts: Cash $50,000, Accounts Receivable $30,000,
Equipment $100,000, Accounts Payable $25,000, Notes Payable $40,000, Common
Stock $80,000. What is the amount of Retained Earnings?
● A. $35,000
● B. $180,000
● C. $35,000 [CORRECT]
● D. $115,000
Correct Answer: C
Rationale: Using the accounting equation: Assets = Liabilities + Stockholders' Equity.
Total Assets = $50,000 + $30,000 + $100,000 = $180,000. Total Liabilities = $25,000 +
$40,000 = $65,000. Therefore, Stockholders' Equity = $180,000 - $65,000 = $115,000.
Since Common Stock is $80,000, Retained Earnings = $115,000 - $80,000 = $35,000.
Q4: Application
,On March 1, a company pays $12,000 for a 12-month insurance policy. What is the
adjusting entry required on March 31?
● A. Debit Insurance Expense $12,000; Credit Prepaid Insurance $12,000
● B. Debit Insurance Expense $1,000; Credit Prepaid Insurance $1,000 [CORRECT]
● C. Debit Prepaid Insurance $1,000; Credit Insurance Expense $1,000
● D. No adjusting entry is needed
Correct Answer: B
Rationale: The monthly insurance expense is $12,000 ÷ 12 = $1,000. The adjusting entry
recognizes one month of expense and reduces the prepaid asset. Option A incorrectly
expenses the entire amount. Option C reverses the debit and credit. Option D is
incorrect because accrual accounting requires matching expenses to the period
incurred.
Q5: Application
A company performs services worth $5,000 for a client on December 28 but does not
bill the client until January 5. What adjusting entry is needed on December 31?
● A. Debit Cash $5,000; Credit Service Revenue $5,000
● B. Debit Accounts Receivable $5,000; Credit Service Revenue $5,000 [CORRECT]
● C. Debit Unearned Revenue $5,000; Credit Service Revenue $5,000
● D. No entry is needed until cash is received
Correct Answer: B
Rationale: Under the revenue recognition principle, revenue is recognized when earned
(December 28), not when billed or cash is received. This is an accrued revenue—debit
Accounts Receivable (asset increase), credit Service Revenue (revenue increase).
Option A incorrectly assumes cash was received. Option C describes deferred revenue.
Option D violates accrual accounting.
, Q6: Application
Which of the following journal entries correctly records the payment of $2,000 for
salaries earned by employees but not previously recorded?
● A. Debit Salaries Expense $2,000; Credit Cash $2,000
● B. Debit Salaries Payable $2,000; Credit Cash $2,000 [CORRECT]
● C. Debit Cash $2,000; Credit Salaries Expense $2,000
● D. Debit Salaries Expense $2,000; Credit Salaries Payable $2,000
Correct Answer: B
Rationale: Since the salaries were earned but not previously recorded, Salaries Payable
(liability) was established in a prior adjusting entry. The payment reduces the liability
(debit Salaries Payable) and reduces Cash (credit Cash). Option A would be correct if
recording the initial expense. Option C reverses the entry. Option D records the accrual,
not the payment.
Q7: Analysis
A company has the following trial balance before adjustments: Supplies $5,000 (debit),
Supplies Expense $0. A physical count reveals $1,200 of supplies remaining. What is the
effect of the adjusting entry on total assets?
● A. Total assets increase by $3,800
● B. Total assets decrease by $3,800 [CORRECT]
● C. Total assets remain unchanged
● D. Total assets decrease by $1,200
Correct Answer: B
Rationale: Supplies used = $5,000 - $1,200 = $3,800. The adjusting entry is: Debit
Supplies Expense $3,800, Credit Supplies $3,800. This reduces the asset account
