WGU Accounting for Decision Makers Exam Questions

The correct answer is D. The control designed to prevent payment for goods not actually received is the receiving function's preparation of a receiving report, which is then sent to accounts payable and matched against the supplier invoice and purchase order. This is the essence of a three-way match: purchase order, receiving report, and vendor invoice. AccountingTools explains that payables staff should match the supplier invoice to the related purchase order and proof of receipt before authorizing payment.

Option A is helpful for controlling check completeness and sequence, but it does not verify quantities received. Option B adds authorization control over disbursements, but it also does not confirm whether the shipment matched the invoice. Option C helps ensure purchases are approved before ordering, but it still does not prove what was actually delivered. The receiving department's counting and inspection of goods, followed by forwarding the receiving documentation to accounts payable, directly addresses the risk that a supplier invoice includes more items than were received. Therefore, the best internal control is Option D.

The best answer is B. Liability deferral. Among the choices provided, this is the only option that relates to a liability-based arrangement in which an obligation is incurred and then settled over time. In accounting, debt that is taken on and repaid through scheduled installments is generally treated as a liability until it is extinguished through repayment. Repaying principal over time is commonly described in finance as amortization of debt principal, meaning the borrower fully pays the debt in installments over a period of time.

The other options do not fit this meaning. Income smoothing refers to managing the pattern of reported earnings to reduce fluctuations between periods, not simply borrowing and repaying debt. ''Profit control'' and ''accounting management'' are not standard terms for the repayment of debt over time in basic accounting frameworks. Because the question asks for the option that best matches the idea of incurring debt and then paying it off over time, Liability deferral is the most appropriate answer from the choices given, even though ''debt amortization'' would be the more standard term in practice.

The correct answer is A. $20,000. First, calculate net profit before the commission:

Net profit = Sales - Total expenses = $500,000 - $300,000 = $200,000

The manager's commission is 10% of net profit, so:

Commission = 10% $200,000 = $20,000

Therefore, the amount to recognize at year-end is $20,000. Under accrual accounting, expenses are recognized in the period in which they are incurred, even if they have not yet been paid. Since the company earned the profit during the year and the manager became entitled to the commission based on that profit, the commission expense should be recorded at year-end in the same reporting period. This follows the matching concept, which aligns expenses with the revenues they helped generate.

Option B is incorrect because it represents 10% of sales, not net profit. Option C and Option D do not match the 10% commission calculation based on the stated profit amount. Since the problem clearly says the commission is based on net profit, the correct recognized amount is $20,000, making Option A correct. Accounting texts describe net profit as revenues minus expenses.

The correct answer is B. The cash times interest earned ratio measures a company's ability to cover its cash interest payments from cash generated before interest and taxes. The formula is:

Cash times interest earned = Cash from operations before interest and taxes / Cash paid for interest

If the ratio is 11, then the numerator must be 11 times the denominator. Using the amounts in the answer choices, $11,000 divided by $1,000 = 11, which matches the required result exactly. The Journal of Accountancy describes cash interest coverage using cash flow from operations adjusted for interest and taxes in the numerator and interest paid in the denominator.

Option A is incorrect because acquisitions relate to investing activities, not interest coverage. Option C is incorrect because dividing by cash from operations does not produce the interest coverage ratio. Option D is incorrect because income taxes are not the denominator in this ratio. This ratio is useful in solvency analysis because it shows how many times a firm can pay its interest obligations using cash-based operating performance. Therefore, Option B is the correct formula.

The correct answer is B. The company has 1.5% more total liabilities than total assets. The debt ratio is calculated as:

Debt ratio = Total liabilities / Total assets

If the debt ratio is 101.5%, or 1.015, that means total liabilities are 101.5% of total assets. In other words, liabilities are slightly greater than assets. Specifically, the company has 1.5% more liabilities than assets.

This is an important financial warning sign because it suggests the company may have negative equity. Since the accounting equation is:

Assets = Liabilities + Owners' equity

if liabilities exceed assets, then owners' equity must be negative. That can indicate financial distress, accumulated losses, or a highly leveraged position.

Option A is incorrect because the debt ratio does not compare liabilities to sales. Option C is incorrect because it does not compare liabilities to net income. Option D is incorrect because the debt ratio uses total liabilities and total assets, not current liabilities and current assets. Therefore, the only correct interpretation of a 101.5% debt ratio is that total liabilities exceed total assets by 1.5%, making Option B correct.