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WGU D102 Practice Exam Questions – Set 3 – Part 1

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  • WGU D102 Practice Exam Questions – Set 3 – Part 1
  • web.groovymark@gmail.com
  • December 8, 2024

Question 01

Which of the following is an example of a current liability?

  1. A) Accounts payable
  2. B) Long-term debt
  3. C) Equipment
  4. D) Prepaid expenses

Answer: A) Accounts payable

Explanation: Accounts payable is a short-term obligation due within the year, classifying it as a current liability.

Question 02

How is interest expense classified on the income statement?

  1. A) Operating expense
  2. B) Financing expense
  3. C) Investing expense
  4. D) Administrative expense

Answer: B) Financing expense

Explanation: Interest expense is related to borrowing money, which is a financing activity.

Question 03

Which of the following accounts normally has a debit balance?

  1. A) Revenue
  2. B) Accounts payable
  3. C) Cash
  4. D) Accumulated depreciation

Answer: C) Cash

Explanation: Assets like cash have debit balances because debits increase asset accounts.

Question 04

Which of the following is an intangible asset?

  1. A) Land
  2. B) Inventory
  3. C) Patent
  4. D) Equipment

Answer: C) Patent

Explanation: A patent is an intangible asset because it lacks physical substance but provides economic benefits.

Question 05

What is the journal entry when a company declares dividends but has not yet paid them?

  1. A) Debit cash, credit dividends
  2. B) Debit dividends payable, credit cash
  3. C) Debit dividends, credit dividends payable
  4. D) Debit retained earnings, credit dividends

Answer: C) Debit dividends, credit dividends payable

Explanation: Declaring dividends creates a liability (dividends payable) and reduces equity through dividends.

Question 06

How is depreciation expense typically reported?

  1. A) As a current asset
  2. B) As a liability
  3. C) As an expense on the income statement
  4. D) As a reduction in equity

Answer: C) As an expense on the income statement

Explanation: Depreciation is an expense reflecting the allocation of an asset's cost over its useful life.

Question 07

Which of the following would be classified as a financing activity?

  1. A) Purchasing equipment
  2. B) Paying interest on a loan
  3. C) Issuing stock to investors
  4. D) Selling land

Answer: C) Issuing stock to investors

Explanation: Financing activities involve raising funds through issuing stock or borrowing.

Question 08

What is the correct journal entry to record accrued wages?

  1. A) Debit wages expense, credit cash
  2. B) Debit cash, credit wages payable
  3. C) Debit wages expense, credit wages payable
  4. D) Debit wages payable, credit cash

Answer: C) Debit wages expense, credit wages payable

Explanation: Accrued wages increase the wage expense and create a liability (wages payable).

Question 09

How is goodwill typically created?

  1. A) Through the normal course of business operations
  2. B) By purchasing assets at a premium
  3. C) By issuing dividends
  4. D) Through advertising

Answer: B) By purchasing assets at a premium

Explanation: Goodwill arises when a company purchases another entity for more than the fair value of its net assets.

Question 10

 Which financial statement provides details of cash inflows and outflows?

  1. A) Balance sheet
  2. B) Income statement
  3. C) Statement of retained earnings
  4. D) Statement of cash flows

Answer: D) Statement of cash flows

Explanation: The statement of cash flows reports how cash moves in and out of a business.

Question 11

What does the term “FOB shipping point” mean?

  1. A) The seller bears all transportation costs
  2. B) The buyer owns the goods once they reach their destination
  3. C) The buyer owns the goods once they leave the seller’s warehouse
  4. D) The seller is responsible for the goods until delivery is complete

Answer: C) The buyer owns the goods once they leave the seller’s warehouse

Explanation: With FOB shipping point, the buyer takes ownership and responsibility for the goods when they leave the seller’s location.

Question 12

Which of the following is a contra-asset account?

  1. A) Accumulated depreciation
  2. B) Accounts receivable
  3. C) Inventory
  4. D) Prepaid expenses

Answer: A) Accumulated depreciation

Explanation: Accumulated depreciation offsets the value of the related asset (like equipment).

Question 13

What is the impact on the accounting equation when a company pays off a loan?

  1. A) Assets increase, liabilities decrease
  2. B) Assets decrease, liabilities decrease
  3. C) Assets increase, equity decreases
  4. D) Liabilities increase, assets decrease

Answer: B) Assets decrease, liabilities decrease

Explanation: Cash (an asset) is used to pay down a loan (liability), reducing both.

Question 14

What is the correct journal entry when a customer returns goods?

  1. A) Debit sales returns, credit accounts receivable
  2. B) Debit accounts payable, credit sales
  3. C) Debit sales revenue, credit inventory
  4. D) Debit cost of goods sold, credit sales returns

Answer: A) Debit sales returns, credit accounts receivable

Explanation: When a customer returns goods, sales returns reduce revenue, and accounts receivable is credited.

Question 15

What is the purpose of adjusting entries in accounting?

  1. A) To correct errors in the trial balance
  2. B) To record revenues and expenses in the correct period
  3. C) To close nominal accounts
  4. D) To record cash transactions

Answer: B) To record revenues and expenses in the correct period

Explanation: Adjusting entries ensure that revenues and expenses are recorded in the period they are earned or incurred.

Question 16

When a company purchases inventory on credit, what is the impact on the financial statements?

  1. A) Increases assets and increases liabilities
  2. B) Increases assets and decreases equity
  3. C) Decreases assets and decreases liabilities
  4. D) Increases liabilities and decreases assets

Answer: A) Increases assets and increases liabilities

Explanation: Inventory (an asset) increases, and accounts payable (a liability) also increases.

Question 17

What does the matching principle require?

  1. A) Expenses should be recorded when cash is paid
  2. B) Revenues and expenses should be matched in the same period
  3. C) Expenses should be recognized in the following period
  4. D) Revenues should be recognized when cash is received

Answer: B) Revenues and expenses should be matched in the same period

Explanation: The matching principle dictates that expenses be recorded in the period in which the related revenue is earned.

Question 18

How is unearned revenue classified on the balance sheet?

  1. A) Asset
  2. B) Liability
  3. C) Revenue
  4. D) Equity

Answer: B) Liability

Explanation: Unearned revenue is recorded as a liability because it represents cash received before services or goods are provided.

Question 19

Which of the following is considered an operating activity?

  1. A) Issuing stock
  2. B) Repaying a loan
  3. C) Purchasing equipment
  4. D) Paying wages to employees

Answer: D) Paying wages to employees

Explanation: Operating activities are day-to-day activities such as paying wages, buying supplies, or selling goods.

Question 20

What is the impact of a credit to a revenue account?

  1. A) Increases revenue
  2. B) Decreases revenue
  3. C) Increases liabilities
  4. D) Decreases equity

Answer: A) Increases revenue

Explanation: Revenues are increased with a credit, as they are part of equity.

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