D102 Financial Accounting WGU UPDATED
ACTUAL Exam Questions and Correct Answers
WGU D102 Financial Accounting - Final OA Practice Exam
Section 1: Conceptual Framework & GAAP (Q1 - Q20)
Q1. Which accounting principle requires that revenue be recorded when it is earned,
regardless of when cash is received?
A) Matching Principle
B) Revenue Recognition Principle
C) Conservatism Principle
D) Cash Basis Principle
Correct Answer: B
• Rationale:
o A (Incorrect): The Matching Principle deals with expenses being recorded in
the same period as the revenue they helped generate, not the timing of
revenue itself.
o B (Correct): The Revenue Recognition Principle (ASC 606) dictates that
revenue is recognized when a performance obligation is satisfied (i.e., when
goods are sold or services are performed), not necessarily when cash changes
hands.
o C (Incorrect): Conservatism relates to choosing the less optimistic estimate
when uncertainty exists.
o D (Incorrect): The Cash Basis is the opposite of accrual accounting; it records
revenue only when cash is received.
Q2. A company purchases a piece of land for $500,000. Two years later, the land's market
value increases to $600,000. Under the Historical Cost Principle, what value will the land
be reported at on the balance sheet?
A) $600,000
B) $550,000
C) $500,000
D) $0 (It is expensed)
,Correct Answer: C
• Rationale:
o A (Incorrect): GAAP generally prohibits recording increases in market value
for long-term assets unless the asset is sold.
o C (Correct): The Historical Cost Principle mandates that assets be recorded
and maintained at their original purchase price, providing reliability and
verifiability.
o B/D (Incorrect): There is no basis for $550k or expensing the land, as land
does not depreciate.
Q3. Which assumption allows accountants to divide a company's long life into artificial
periods (months, quarters, years) for reporting purposes?
A) Economic Entity Assumption
B) Going Concern Assumption
C) Monetary Unit Assumption
D) Time Period Assumption
Correct Answer: D
• Rationale:
o D (Correct): The Time Period Assumption allows companies to provide timely
financial updates (e.g., quarterly reports) by breaking the business's infinite
life into specific reporting periods.
o A (Incorrect): Economic Entity separates business from owner.
o B (Incorrect): Going Concern assumes the business will continue operating
indefinitely.
o C (Incorrect): Monetary Unit assumes money is stable and used as a measure.
Q4. If a company omits a small accounting error that does not affect a user's decision-
making, this is permitted under which constraint?
A) Full Disclosure
B) Conservatism
C) Materiality
D) Relevance
Correct Answer: C
• Rationale:
, o C (Correct): The Materiality constraint states that only information significant
enough to influence the decisions of a reasonable user needs to be strictly
followed. Immaterial items can be handled in the most cost-effective manner.
o A (Incorrect): Full Disclosure requires all significant information to be
reported.
o B (Incorrect): Conservatism is about handling uncertainty.
o D (Incorrect): Relevance is a qualitative characteristic, not a constraint.
Q5. A company is being sued. Lawyers estimate a loss is "probable" and can be reasonably
estimated. How should this be reported?
A) Ignore it until the court rules.
B) Record a liability and disclose it in the footnotes.
C) Only disclose it in the footnotes.
D) Record it as a gain.
Correct Answer: B
• Rationale:
o B (Correct): Under the Conservatism principle and GAAP, probable losses that
can be estimated must be accrued (recorded as a liability and expense)
immediately.
o A/C (Incorrect): Simply disclosing or ignoring a probable loss violates the
matching principle.
o D (Incorrect): Gains are not recorded until realized (usually upon sale).
Q6. Which of the following best describes the role of the FASB?
A) To audit public companies for fraud.
B) To establish tax laws for the US government.
C) To establish financial accounting and reporting standards (GAAP) for private and public
companies in the US.
D) To enforce insider trading laws.
Correct Answer: C
• Rationale:
o C (Correct): The Financial Accounting Standards Board (FASB) is the
independent, private-sector body designated by the SEC to establish
Generally Accepted Accounting Principles (GAAP).
o A (Incorrect): Auditing is done by the PCAOB and CPAs.
o B (Incorrect): Tax laws are set by Congress/IRS.
, o D (Incorrect): This is the SEC's job.
Q7. Under the Matching Principle, the cost of a delivery truck should be expensed:
A) Immediately upon purchase.
B) When cash is paid for the truck.
C) Over the useful life of the truck as depreciation expense.
D) When the truck is sold.
Correct Answer: C
• Rationale:
o C (Correct): The Matching Principle requires that the cost of an asset (except
land) be allocated as an expense (depreciation) over the periods in which the
asset helps generate revenue.
o A (Incorrect): This would violate matching by putting the cost in one period
even though it benefits many periods.
o B (Incorrect): Cash basis is not GAAP.
o D (Incorrect): Selling the truck results in a gain/loss, not the expensing of its
original cost.
Q8. What is the primary purpose of the "Going Concern" assumption?
A) To allow companies to liquidate assets quickly.
B) To justify the use of historical cost and depreciation.
C) To require companies to use cash basis accounting.
D) To prevent companies from taking on debt.
Correct Answer: B
• Rationale:
o B (Correct): If a company is a going concern (will not bankrupt soon), it makes
sense to record assets at cost and depreciate them. If it were not a going
concern, assets would have to be valued at liquidation value.
o A/D (Incorrect): The assumption implies the opposite of liquidation or
avoiding debt.
o C (Incorrect): GAAP requires accrual, not cash basis.
Q9. Which of the following is NOT a qualitative characteristic of useful financial
information according to the FASB?
A) Relevance
B) Faithful Representation
ACTUAL Exam Questions and Correct Answers
WGU D102 Financial Accounting - Final OA Practice Exam
Section 1: Conceptual Framework & GAAP (Q1 - Q20)
Q1. Which accounting principle requires that revenue be recorded when it is earned,
regardless of when cash is received?
A) Matching Principle
B) Revenue Recognition Principle
C) Conservatism Principle
D) Cash Basis Principle
Correct Answer: B
• Rationale:
o A (Incorrect): The Matching Principle deals with expenses being recorded in
the same period as the revenue they helped generate, not the timing of
revenue itself.
o B (Correct): The Revenue Recognition Principle (ASC 606) dictates that
revenue is recognized when a performance obligation is satisfied (i.e., when
goods are sold or services are performed), not necessarily when cash changes
hands.
o C (Incorrect): Conservatism relates to choosing the less optimistic estimate
when uncertainty exists.
o D (Incorrect): The Cash Basis is the opposite of accrual accounting; it records
revenue only when cash is received.
Q2. A company purchases a piece of land for $500,000. Two years later, the land's market
value increases to $600,000. Under the Historical Cost Principle, what value will the land
be reported at on the balance sheet?
A) $600,000
B) $550,000
C) $500,000
D) $0 (It is expensed)
,Correct Answer: C
• Rationale:
o A (Incorrect): GAAP generally prohibits recording increases in market value
for long-term assets unless the asset is sold.
o C (Correct): The Historical Cost Principle mandates that assets be recorded
and maintained at their original purchase price, providing reliability and
verifiability.
o B/D (Incorrect): There is no basis for $550k or expensing the land, as land
does not depreciate.
Q3. Which assumption allows accountants to divide a company's long life into artificial
periods (months, quarters, years) for reporting purposes?
A) Economic Entity Assumption
B) Going Concern Assumption
C) Monetary Unit Assumption
D) Time Period Assumption
Correct Answer: D
• Rationale:
o D (Correct): The Time Period Assumption allows companies to provide timely
financial updates (e.g., quarterly reports) by breaking the business's infinite
life into specific reporting periods.
o A (Incorrect): Economic Entity separates business from owner.
o B (Incorrect): Going Concern assumes the business will continue operating
indefinitely.
o C (Incorrect): Monetary Unit assumes money is stable and used as a measure.
Q4. If a company omits a small accounting error that does not affect a user's decision-
making, this is permitted under which constraint?
A) Full Disclosure
B) Conservatism
C) Materiality
D) Relevance
Correct Answer: C
• Rationale:
, o C (Correct): The Materiality constraint states that only information significant
enough to influence the decisions of a reasonable user needs to be strictly
followed. Immaterial items can be handled in the most cost-effective manner.
o A (Incorrect): Full Disclosure requires all significant information to be
reported.
o B (Incorrect): Conservatism is about handling uncertainty.
o D (Incorrect): Relevance is a qualitative characteristic, not a constraint.
Q5. A company is being sued. Lawyers estimate a loss is "probable" and can be reasonably
estimated. How should this be reported?
A) Ignore it until the court rules.
B) Record a liability and disclose it in the footnotes.
C) Only disclose it in the footnotes.
D) Record it as a gain.
Correct Answer: B
• Rationale:
o B (Correct): Under the Conservatism principle and GAAP, probable losses that
can be estimated must be accrued (recorded as a liability and expense)
immediately.
o A/C (Incorrect): Simply disclosing or ignoring a probable loss violates the
matching principle.
o D (Incorrect): Gains are not recorded until realized (usually upon sale).
Q6. Which of the following best describes the role of the FASB?
A) To audit public companies for fraud.
B) To establish tax laws for the US government.
C) To establish financial accounting and reporting standards (GAAP) for private and public
companies in the US.
D) To enforce insider trading laws.
Correct Answer: C
• Rationale:
o C (Correct): The Financial Accounting Standards Board (FASB) is the
independent, private-sector body designated by the SEC to establish
Generally Accepted Accounting Principles (GAAP).
o A (Incorrect): Auditing is done by the PCAOB and CPAs.
o B (Incorrect): Tax laws are set by Congress/IRS.
, o D (Incorrect): This is the SEC's job.
Q7. Under the Matching Principle, the cost of a delivery truck should be expensed:
A) Immediately upon purchase.
B) When cash is paid for the truck.
C) Over the useful life of the truck as depreciation expense.
D) When the truck is sold.
Correct Answer: C
• Rationale:
o C (Correct): The Matching Principle requires that the cost of an asset (except
land) be allocated as an expense (depreciation) over the periods in which the
asset helps generate revenue.
o A (Incorrect): This would violate matching by putting the cost in one period
even though it benefits many periods.
o B (Incorrect): Cash basis is not GAAP.
o D (Incorrect): Selling the truck results in a gain/loss, not the expensing of its
original cost.
Q8. What is the primary purpose of the "Going Concern" assumption?
A) To allow companies to liquidate assets quickly.
B) To justify the use of historical cost and depreciation.
C) To require companies to use cash basis accounting.
D) To prevent companies from taking on debt.
Correct Answer: B
• Rationale:
o B (Correct): If a company is a going concern (will not bankrupt soon), it makes
sense to record assets at cost and depreciate them. If it were not a going
concern, assets would have to be valued at liquidation value.
o A/D (Incorrect): The assumption implies the opposite of liquidation or
avoiding debt.
o C (Incorrect): GAAP requires accrual, not cash basis.
Q9. Which of the following is NOT a qualitative characteristic of useful financial
information according to the FASB?
A) Relevance
B) Faithful Representation
