WGU C214 Financial Management
Exam Questions With 100% Complete
And Correct Answers/A+ Grade
Cash accounting offers a superior method of analyzing a company
- Correct answer is: False
Income Statement is the most easily interpreted of the basic financial statements
- Correct answer is: False - The income statement is usually regarded as the most difficult to
analyze and interpret.
The basic equation of an income statement is:
- Correct answer is: Revenues - expenses = net income
Income statement equation: Revenues - expenses = net income
Revenues minus cost of goods sold is:
- Correct answer is: Gross Profit.
Revenues
- COGS
= Gross Profit
- Operating Expenses
= EBIT/Operating Profit
- Interest Expenses
= EBT
- Tax Expenses
= Net Income/Earnings
, WGU C214 Financial Management
Exam Questions With 100% Complete
And Correct Answers/A+ Grade
On the income statement, Cost of Goods Sold includes
- Correct answer is: Direct materials and direct labor associated with production
Which of the following best describes the guiding principle for revenue recognition within
accrual accounting system
- Correct answer is: Revenue is reported when the earnings process is complete
With accrual accounting, revenue is recognized when the earnings process is complete.
Indicators that the earnings process is complete include the transfer of the risk of ownership and
assurance of payment.
A high-quality customer just purchased $500,000 worth of product from your company. The
contract calls for immediate delivery of the product with a cash payment of $300,000 today and
$200,000 to be paid 60 days. The expense associated with the product is $300,000, of which
$100,000 has not been paid to your supplier. Under accrual based accounting system, you will
most likely report:
- Correct answer is: Revenues of $500,000 and expenses of $300,000.
Solution: Under accrual accounting system, you record the revenues when the earnings process is
complete and match the expense with the revenues. In this case, we delivered the product and
have a contract for payment with a high-quality firm. Hence, the earnings process is complete
(including reasonable assurance of payment) so the firm will recognize $500,000 in revenue. The
matching principle requires expense recognition for revenues recognized. The fact that our firm
hasn't paid the supplier doesn't impact the expenses incurred to generate the $500,000 in revenue.
Hence, the firm will recognize $300,000 in expense associated with the sale.
The basic equation for the balance sheet is:
- Correct answer is: Equity = Assets - Liabilities
The equation is usually introduced as Assets = Liabilities + Equity. Commonly, we solve for
Equity as is the case for this questions (E=A-L).
, WGU C214 Financial Management
Exam Questions With 100% Complete
And Correct Answers/A+ Grade
Thirty years ago, your firm purchased a parcel of land for $100,000. You still own the land. The
current market price of the land is $1,000,000. Under accrual accounting, which of the following
adjustment should be made to recognize the current value of the land?
- Correct answer is: There is no adjustment to be made.
Solution: Under the historical cost principle, the book value of the land is not changed.
A firm purchased equipment three years ago for $500,000. The equipment is the only fixed asset
the firm has ever owned. If the firm claimed depreciation of $20,000 the first year, $35,000 the
second year and $32,500 the third year, the Gross Fixed Assets should be equal to:
- Correct answer is: $500,000
Solution: GROSS fixed assets represent the original cost of the firm's fixed assets before
accumulated depreciation.
Inventory is the most liquid component of current assets.
- Correct answer is: False
Of the major components comprising current assets (i.e., cash, marketable securities, accounts
receivable, and inventory), inventory is usually the least liquid.
On the balance sheet, Gross Fixed Assets represent:
- Correct answer is: The original cost of the fixed assets currently owned by the firm.
Solution: Gross fixed assets represent the original cost of the fixed assets currently owned by the
firm. In general, market values are not relevant to fixed assets (note: there are times when market
values are reported on the balance sheet; these exceptions are not included in the discussion for
this learning resource).
, WGU C214 Financial Management
Exam Questions With 100% Complete
And Correct Answers/A+ Grade
Current liabilities are reported in order of:
- Correct answer is: Maturity (shortest first)
Current liabilities are reported in order of shortest to longest maturity.
Retained earnings represent the accumulated net income of the firm less dividends paid. -
Correct answer is: True
Current liabilities represent money owed by a firm that requires payment within one year. -
Correct answer is: True
Net Income = - Correct answer is: Dividends + Change in RE
New RE = - Correct answer is: Old RE + Change in RE
New RE = - Correct answer is: Old RE + Net Income - Dividends
TellAll reports retained earnings of $1122 and $1402 for 20x1 and 20x2, respectively.
Additionally, the firm paid dividends of $200 and $225 in 20x1 and 20x2, respectively. What
was TellAll's net income for 20x2? - Correct answer is: $505
Solution: New RE = Old RE + NI - Div; 1402 = 1122 + NI - 225; NI = 505
Which of the following represent potential uses of net income under the accrual accounting
system:
Exam Questions With 100% Complete
And Correct Answers/A+ Grade
Cash accounting offers a superior method of analyzing a company
- Correct answer is: False
Income Statement is the most easily interpreted of the basic financial statements
- Correct answer is: False - The income statement is usually regarded as the most difficult to
analyze and interpret.
The basic equation of an income statement is:
- Correct answer is: Revenues - expenses = net income
Income statement equation: Revenues - expenses = net income
Revenues minus cost of goods sold is:
- Correct answer is: Gross Profit.
Revenues
- COGS
= Gross Profit
- Operating Expenses
= EBIT/Operating Profit
- Interest Expenses
= EBT
- Tax Expenses
= Net Income/Earnings
, WGU C214 Financial Management
Exam Questions With 100% Complete
And Correct Answers/A+ Grade
On the income statement, Cost of Goods Sold includes
- Correct answer is: Direct materials and direct labor associated with production
Which of the following best describes the guiding principle for revenue recognition within
accrual accounting system
- Correct answer is: Revenue is reported when the earnings process is complete
With accrual accounting, revenue is recognized when the earnings process is complete.
Indicators that the earnings process is complete include the transfer of the risk of ownership and
assurance of payment.
A high-quality customer just purchased $500,000 worth of product from your company. The
contract calls for immediate delivery of the product with a cash payment of $300,000 today and
$200,000 to be paid 60 days. The expense associated with the product is $300,000, of which
$100,000 has not been paid to your supplier. Under accrual based accounting system, you will
most likely report:
- Correct answer is: Revenues of $500,000 and expenses of $300,000.
Solution: Under accrual accounting system, you record the revenues when the earnings process is
complete and match the expense with the revenues. In this case, we delivered the product and
have a contract for payment with a high-quality firm. Hence, the earnings process is complete
(including reasonable assurance of payment) so the firm will recognize $500,000 in revenue. The
matching principle requires expense recognition for revenues recognized. The fact that our firm
hasn't paid the supplier doesn't impact the expenses incurred to generate the $500,000 in revenue.
Hence, the firm will recognize $300,000 in expense associated with the sale.
The basic equation for the balance sheet is:
- Correct answer is: Equity = Assets - Liabilities
The equation is usually introduced as Assets = Liabilities + Equity. Commonly, we solve for
Equity as is the case for this questions (E=A-L).
, WGU C214 Financial Management
Exam Questions With 100% Complete
And Correct Answers/A+ Grade
Thirty years ago, your firm purchased a parcel of land for $100,000. You still own the land. The
current market price of the land is $1,000,000. Under accrual accounting, which of the following
adjustment should be made to recognize the current value of the land?
- Correct answer is: There is no adjustment to be made.
Solution: Under the historical cost principle, the book value of the land is not changed.
A firm purchased equipment three years ago for $500,000. The equipment is the only fixed asset
the firm has ever owned. If the firm claimed depreciation of $20,000 the first year, $35,000 the
second year and $32,500 the third year, the Gross Fixed Assets should be equal to:
- Correct answer is: $500,000
Solution: GROSS fixed assets represent the original cost of the firm's fixed assets before
accumulated depreciation.
Inventory is the most liquid component of current assets.
- Correct answer is: False
Of the major components comprising current assets (i.e., cash, marketable securities, accounts
receivable, and inventory), inventory is usually the least liquid.
On the balance sheet, Gross Fixed Assets represent:
- Correct answer is: The original cost of the fixed assets currently owned by the firm.
Solution: Gross fixed assets represent the original cost of the fixed assets currently owned by the
firm. In general, market values are not relevant to fixed assets (note: there are times when market
values are reported on the balance sheet; these exceptions are not included in the discussion for
this learning resource).
, WGU C214 Financial Management
Exam Questions With 100% Complete
And Correct Answers/A+ Grade
Current liabilities are reported in order of:
- Correct answer is: Maturity (shortest first)
Current liabilities are reported in order of shortest to longest maturity.
Retained earnings represent the accumulated net income of the firm less dividends paid. -
Correct answer is: True
Current liabilities represent money owed by a firm that requires payment within one year. -
Correct answer is: True
Net Income = - Correct answer is: Dividends + Change in RE
New RE = - Correct answer is: Old RE + Change in RE
New RE = - Correct answer is: Old RE + Net Income - Dividends
TellAll reports retained earnings of $1122 and $1402 for 20x1 and 20x2, respectively.
Additionally, the firm paid dividends of $200 and $225 in 20x1 and 20x2, respectively. What
was TellAll's net income for 20x2? - Correct answer is: $505
Solution: New RE = Old RE + NI - Div; 1402 = 1122 + NI - 225; NI = 505
Which of the following represent potential uses of net income under the accrual accounting
system:
