WGU D774 Western Governors University
Pre-Assessment Complete Practice Exam
with Answers and Expert Rationales
Study Guide ,
Q1
Which of the following best describes the primary purpose of financial
accounting?
A. To provide internal management with detailed operational data
B. To prepare tax returns for government agencies
C. To provide standardized financial information to external users
D. To forecast future cash flows for investors
Correct Answer: C
Rationale: Financial accounting focuses on producing standardized
financial statements (income statement, balance sheet, cash flow statement)
for external users such as investors, creditors, and regulators. Internal
operational data is the domain of managerial accounting.
,Q2
A company’s balance sheet shows total assets of $500,000 and total
liabilities of $300,000. What is the owners’ equity?
A. $200,000
B. $300,000
C. $500,000
D. $800,000
Correct Answer: A
Rationale: The accounting equation is Assets = Liabilities + Owners’ Equity.
Therefore, Owners’ Equity = Assets – Liabilities = $500,000 – $300,000 =
$200,000.
Q3
Which of the following is an example of a current asset?
A. Patent
B. Building
C. Accounts receivable
,D. Equipment
Correct Answer: C
Rationale: Current assets are expected to be converted to cash or used
within one year. Accounts receivable typically fit this definition. Patents,
buildings, and equipment are long-term (non-current) assets.
Q4
A company pays $12,000 for a 12-month insurance policy in advance. How
should this transaction be recorded initially? A. As an expense on the
income statement
B. As a prepaid asset on the balance sheet
C. As a liability on the balance sheet
D. As a reduction to retained earnings
Correct Answer: B
Rationale: Prepaid insurance is an asset because the company has paid for
a future benefit. It will be expensed monthly over the coverage period.
, Q5
Which financial statement reports a company’s profitability over a specific
period? A. Balance sheet
B. Statement of cash flows
C. Income statement
D. Statement of retained earnings
Correct Answer: C
Rationale: The income statement reports revenues, expenses, and net
income or loss over a period of time (e.g., a quarter or year). The balance
sheet is a snapshot at a point in time.
Q6
Under accrual accounting, when should revenue be recognized?
A. When cash is received from the customer
B. When the customer places an order
C. When the goods or services are delivered, regardless of cash receipt
D. At the end of the fiscal year
Pre-Assessment Complete Practice Exam
with Answers and Expert Rationales
Study Guide ,
Q1
Which of the following best describes the primary purpose of financial
accounting?
A. To provide internal management with detailed operational data
B. To prepare tax returns for government agencies
C. To provide standardized financial information to external users
D. To forecast future cash flows for investors
Correct Answer: C
Rationale: Financial accounting focuses on producing standardized
financial statements (income statement, balance sheet, cash flow statement)
for external users such as investors, creditors, and regulators. Internal
operational data is the domain of managerial accounting.
,Q2
A company’s balance sheet shows total assets of $500,000 and total
liabilities of $300,000. What is the owners’ equity?
A. $200,000
B. $300,000
C. $500,000
D. $800,000
Correct Answer: A
Rationale: The accounting equation is Assets = Liabilities + Owners’ Equity.
Therefore, Owners’ Equity = Assets – Liabilities = $500,000 – $300,000 =
$200,000.
Q3
Which of the following is an example of a current asset?
A. Patent
B. Building
C. Accounts receivable
,D. Equipment
Correct Answer: C
Rationale: Current assets are expected to be converted to cash or used
within one year. Accounts receivable typically fit this definition. Patents,
buildings, and equipment are long-term (non-current) assets.
Q4
A company pays $12,000 for a 12-month insurance policy in advance. How
should this transaction be recorded initially? A. As an expense on the
income statement
B. As a prepaid asset on the balance sheet
C. As a liability on the balance sheet
D. As a reduction to retained earnings
Correct Answer: B
Rationale: Prepaid insurance is an asset because the company has paid for
a future benefit. It will be expensed monthly over the coverage period.
, Q5
Which financial statement reports a company’s profitability over a specific
period? A. Balance sheet
B. Statement of cash flows
C. Income statement
D. Statement of retained earnings
Correct Answer: C
Rationale: The income statement reports revenues, expenses, and net
income or loss over a period of time (e.g., a quarter or year). The balance
sheet is a snapshot at a point in time.
Q6
Under accrual accounting, when should revenue be recognized?
A. When cash is received from the customer
B. When the customer places an order
C. When the goods or services are delivered, regardless of cash receipt
D. At the end of the fiscal year
