Western Governors University
STPECNOC • 412C
✦ WGU ✦
C214 C214 · Financial Management
A NEW KIND OF U.
SALT LAKE
WGU C214 Concepts Only Multi Choice Version
F I N A N C I A L M A N A G E M E N T · C A P I TA L B U D G E T I N G · W A CC · F I N A N C I A L STAT E M E N TS · M A R K E TS ·
E T H I CS
INSTITUTION Western Governors University COURSE CODE C214 · Financial Management
PROGRAM MBA / MS in Management & Leadership ACADEMIC YEAR
EXAM TITLE C214 — Concepts Only Multi Choice TOTAL QUESTIONS 50 Questions (Part 1 of 3)
SUBJECT AREAS Financial Statements · WACC · Capital FORMAT Multiple Choice & True/False — Select the
Budgeting · Markets · Ethics Single Best Answer
EXAMINATION INSTRUCTIONS
▸ Select the single best answer for each question unless "Choose 2" or "Choose 3" is specified.
▸ Content covers: financial statements, time value of money, capital budgeting (NPV/IRR), WACC, financial markets, working
capital, ethics/regulations, and international finance.
▸ Each question includes the correct answer with a detailed rationale.
SECTION I — FINANCIAL STATEMENTS, TIME VALUE & CAPITAL Questions 1 –
BUDGETING 50
1. Trading on the NYSE is executed without a specialist (i.e., a market maker). True or False?
A. True
B. False
CORRECT ANSWER B — False
RATIONALE The NYSE uses DESIGNATED MARKET MAKERS (DMMs, formerly called "specialists") who facilitate trading by
providing liquidity — they match buyers with sellers and, when necessary, buy or sell from their own
inventory to maintain an orderly market. The specialist charges a bid-ask spread as compensation for this
service. In contrast, NASDAQ is a dealer market without a physical trading floor. The NYSE specialist has an
objective to provide liquidity. The bid-ask spread is compensation to the specialist. A market order to buy
executes at the current ASK price; a market order to sell executes at the current BID price.
,2. Stocks and bonds are two types of financial instruments. True or False?
A. True
B. False
CORRECT ANSWER A — True
RATIONALE Stocks (equity) and bonds (debt) are the two basic types of financial instruments. Stocks represent ownership
in a corporation with voting rights (common stock) and residual claims on assets. Bonds represent debt — the
issuer borrows money and promises to repay the principal at maturity with periodic interest payments. They
trade in both primary markets (new issuances) and secondary markets (trading between investors). Both
derive their market value from the present value of expected future cash flows. A key difference: stocks carry
voting rights; bonds do not.
3. The matching principle in accrual accounting requires that:
A. Revenues be recognized when the earnings process is complete and matches expenses to revenues recognized.
B. Expenses are matched to the year in which they are incurred.
C. Revenues are matched to the year in which they are booked.
D. Revenues should be large enough to match expenses.
CORRECT ANSWER A — Revenues be recognized when the earnings process is complete and matches expenses to
revenues recognized
RATIONALE The matching principle is a fundamental accrual accounting concept: expenses should be recorded in the
SAME period as the revenues they helped generate. This ensures that the income statement accurately
reflects the economic performance of the business during that period. For example, the cost of goods sold is
matched to the same period as the sales revenue from those goods. Depreciation spreads the cost of a fixed
asset over its useful life, matching the expense to the periods that benefit from the asset's use. Option B is
incomplete — expenses are matched to the revenues, not just to a year.
4. A basic equation for the balance sheet is:
A. Equity = Assets − Liabilities
B. Liabilities = Equity + Assets
C. Assets = Liabilities − Equity
D. Assets = Equity − Liabilities
CORRECT ANSWER A — Equity = Assets − Liabilities
RATIONALE The fundamental accounting equation: ASSETS = LIABILITIES + EQUITY. Rearranging: EQUITY = ASSETS −
LIABILITIES. The balance sheet is called a "permanent statement" because it carries balances forward from
period to period (unlike the income statement, which is reset at the end of each fiscal year). The balance sheet
reports assets, liabilities, and equity at a POINT in time (e.g., "as of December 31, 2023"), while the income
statement reports revenues and expenses over a PERIOD of time. The change in Retained Earnings is
calculated as: Net Income − Dividends.
, 5. Why is the Balance Sheet known as a permanent statement?
A. Because the statement is sent to the SEC.
B. Because the other statements are reset at the end of the fiscal year.
C. Because it is printed out and archived.
D. Because it persists in the minds of the shareholders.
CORRECT ANSWER B — Because the other statements are reset at the end of the fiscal year
RATIONALE The balance sheet is considered "permanent" because account balances carry forward from one accounting
period to the next. In contrast, the income statement and statement of cash flows are "temporary" — they are
reset to zero at the beginning of each new fiscal year and record activity only for that period. The balance
sheet shows cumulative balances for assets, liabilities, and equity that have accumulated over the entire life
of the business. For example, Retained Earnings on the balance sheet represents ALL net income retained
since the company's inception, not just the current year.
6. How do you calculate the change in Retained Earnings?
A. Ending Retained Earnings − Change in Cash
B. EBIT divided by Total Assets + Dividends
C. EBIT − Change in Cash − Dividends
D. Net Income − Dividends
CORRECT ANSWER D — Net Income − Dividends
RATIONALE The change in Retained Earnings from one period to the next equals Net Income (what the company earned)
minus Dividends (what was paid out to shareholders). This is the fundamental link between the income
statement and the balance sheet. Net Income increases Retained Earnings; paying dividends decreases
Retained Earnings. Ending Retained Earnings = Beginning Retained Earnings + Net Income − Dividends. This
reflects the portion of profits that have been reinvested in the business rather than distributed to owners.
7. Which of the following is generally true?
A. Gross Profit and Operating Income are the same
B. Cost of Goods Sold + Operating Expenses = Net Income
C. Operating Income and EBIT are the same
D. EBIT + Income Taxes = Net income
CORRECT ANSWER C — Operating Income and EBIT are the same
RATIONALE Operating Income and EBIT (Earnings Before Interest and Taxes) are generally the same thing — both
represent the profit a company generates from its core operations before accounting for interest expenses
and income taxes. Gross Profit (A) is Sales minus Cost of Goods Sold — Operating Income is Gross Profit minus
Operating Expenses, so they are not the same. COGS + Operating Expenses (B) equals Operating Expenses
total, not Net Income (which also subtracts interest and taxes). EBIT − Interest − Taxes = Net Income (D is
incorrect because it adds taxes instead of subtracting them).
STPECNOC • 412C
✦ WGU ✦
C214 C214 · Financial Management
A NEW KIND OF U.
SALT LAKE
WGU C214 Concepts Only Multi Choice Version
F I N A N C I A L M A N A G E M E N T · C A P I TA L B U D G E T I N G · W A CC · F I N A N C I A L STAT E M E N TS · M A R K E TS ·
E T H I CS
INSTITUTION Western Governors University COURSE CODE C214 · Financial Management
PROGRAM MBA / MS in Management & Leadership ACADEMIC YEAR
EXAM TITLE C214 — Concepts Only Multi Choice TOTAL QUESTIONS 50 Questions (Part 1 of 3)
SUBJECT AREAS Financial Statements · WACC · Capital FORMAT Multiple Choice & True/False — Select the
Budgeting · Markets · Ethics Single Best Answer
EXAMINATION INSTRUCTIONS
▸ Select the single best answer for each question unless "Choose 2" or "Choose 3" is specified.
▸ Content covers: financial statements, time value of money, capital budgeting (NPV/IRR), WACC, financial markets, working
capital, ethics/regulations, and international finance.
▸ Each question includes the correct answer with a detailed rationale.
SECTION I — FINANCIAL STATEMENTS, TIME VALUE & CAPITAL Questions 1 –
BUDGETING 50
1. Trading on the NYSE is executed without a specialist (i.e., a market maker). True or False?
A. True
B. False
CORRECT ANSWER B — False
RATIONALE The NYSE uses DESIGNATED MARKET MAKERS (DMMs, formerly called "specialists") who facilitate trading by
providing liquidity — they match buyers with sellers and, when necessary, buy or sell from their own
inventory to maintain an orderly market. The specialist charges a bid-ask spread as compensation for this
service. In contrast, NASDAQ is a dealer market without a physical trading floor. The NYSE specialist has an
objective to provide liquidity. The bid-ask spread is compensation to the specialist. A market order to buy
executes at the current ASK price; a market order to sell executes at the current BID price.
,2. Stocks and bonds are two types of financial instruments. True or False?
A. True
B. False
CORRECT ANSWER A — True
RATIONALE Stocks (equity) and bonds (debt) are the two basic types of financial instruments. Stocks represent ownership
in a corporation with voting rights (common stock) and residual claims on assets. Bonds represent debt — the
issuer borrows money and promises to repay the principal at maturity with periodic interest payments. They
trade in both primary markets (new issuances) and secondary markets (trading between investors). Both
derive their market value from the present value of expected future cash flows. A key difference: stocks carry
voting rights; bonds do not.
3. The matching principle in accrual accounting requires that:
A. Revenues be recognized when the earnings process is complete and matches expenses to revenues recognized.
B. Expenses are matched to the year in which they are incurred.
C. Revenues are matched to the year in which they are booked.
D. Revenues should be large enough to match expenses.
CORRECT ANSWER A — Revenues be recognized when the earnings process is complete and matches expenses to
revenues recognized
RATIONALE The matching principle is a fundamental accrual accounting concept: expenses should be recorded in the
SAME period as the revenues they helped generate. This ensures that the income statement accurately
reflects the economic performance of the business during that period. For example, the cost of goods sold is
matched to the same period as the sales revenue from those goods. Depreciation spreads the cost of a fixed
asset over its useful life, matching the expense to the periods that benefit from the asset's use. Option B is
incomplete — expenses are matched to the revenues, not just to a year.
4. A basic equation for the balance sheet is:
A. Equity = Assets − Liabilities
B. Liabilities = Equity + Assets
C. Assets = Liabilities − Equity
D. Assets = Equity − Liabilities
CORRECT ANSWER A — Equity = Assets − Liabilities
RATIONALE The fundamental accounting equation: ASSETS = LIABILITIES + EQUITY. Rearranging: EQUITY = ASSETS −
LIABILITIES. The balance sheet is called a "permanent statement" because it carries balances forward from
period to period (unlike the income statement, which is reset at the end of each fiscal year). The balance sheet
reports assets, liabilities, and equity at a POINT in time (e.g., "as of December 31, 2023"), while the income
statement reports revenues and expenses over a PERIOD of time. The change in Retained Earnings is
calculated as: Net Income − Dividends.
, 5. Why is the Balance Sheet known as a permanent statement?
A. Because the statement is sent to the SEC.
B. Because the other statements are reset at the end of the fiscal year.
C. Because it is printed out and archived.
D. Because it persists in the minds of the shareholders.
CORRECT ANSWER B — Because the other statements are reset at the end of the fiscal year
RATIONALE The balance sheet is considered "permanent" because account balances carry forward from one accounting
period to the next. In contrast, the income statement and statement of cash flows are "temporary" — they are
reset to zero at the beginning of each new fiscal year and record activity only for that period. The balance
sheet shows cumulative balances for assets, liabilities, and equity that have accumulated over the entire life
of the business. For example, Retained Earnings on the balance sheet represents ALL net income retained
since the company's inception, not just the current year.
6. How do you calculate the change in Retained Earnings?
A. Ending Retained Earnings − Change in Cash
B. EBIT divided by Total Assets + Dividends
C. EBIT − Change in Cash − Dividends
D. Net Income − Dividends
CORRECT ANSWER D — Net Income − Dividends
RATIONALE The change in Retained Earnings from one period to the next equals Net Income (what the company earned)
minus Dividends (what was paid out to shareholders). This is the fundamental link between the income
statement and the balance sheet. Net Income increases Retained Earnings; paying dividends decreases
Retained Earnings. Ending Retained Earnings = Beginning Retained Earnings + Net Income − Dividends. This
reflects the portion of profits that have been reinvested in the business rather than distributed to owners.
7. Which of the following is generally true?
A. Gross Profit and Operating Income are the same
B. Cost of Goods Sold + Operating Expenses = Net Income
C. Operating Income and EBIT are the same
D. EBIT + Income Taxes = Net income
CORRECT ANSWER C — Operating Income and EBIT are the same
RATIONALE Operating Income and EBIT (Earnings Before Interest and Taxes) are generally the same thing — both
represent the profit a company generates from its core operations before accounting for interest expenses
and income taxes. Gross Profit (A) is Sales minus Cost of Goods Sold — Operating Income is Gross Profit minus
Operating Expenses, so they are not the same. COGS + Operating Expenses (B) equals Operating Expenses
total, not Net Income (which also subtracts interest and taxes). EBIT − Interest − Taxes = Net Income (D is
incorrect because it adds taxes instead of subtracting them).
