WGU Accounting-for-Decision-Makers Exam Questions

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.

The correct answer is A. Stockholders' equity will increase by $900,000. On January 1, the corporation received cash in exchange for issuing stock. That means the company's assets increase because cash increases, and stockholders' equity also increases because ownership shares were issued. OpenStax explains that when a company issues stock for cash or other assets, the asset account increases and the related equity accounts are credited.

Option B is incorrect because no borrowing occurred on January 1, so loan payable does not increase from that event. Option C is incorrect because ''investments'' is not the proper classification for the corporation's own issuance of stock in this context. Option D is incorrect because retained earnings increase from profitable operations over time, not from owner contributions or stock issuances. This transaction is a classic example of the accounting equation staying balanced: Assets increase by $900,000 and Stockholders' Equity increases by $900,000. Therefore, the correct balance sheet effect, along with the rise in cash, is an equal increase in stockholders' equity.

The correct answer is B. $126,500. Under activity-based costing (ABC), each cost pool gets its own activity rate, and then overhead is applied to the product based on that product's actual use of each activity. OpenStax and ACCA both describe ABC as assigning overhead through multiple activity pools and cost drivers rather than one broad rate.

First compute the rate for each pool:

Pool 1 rate = $300,000 / 20,000 hours = $15 per hour

Pool 2 rate = $20,000 / 500 pounds = $40 per pound

Pool 3 rate = $10,000 / 100 moves = $100 per move

Now apply those rates to Product B:

Hours: 7,500 $15 = $112,500

Pounds: 250 $40 = $10,000

Moves: 40 $100 = $4,000

Total overhead for Product B = $112,500 + $10,000 + $4,000 = $126,500

Option C, $158,000, is actually the overhead for Product A, which is a classic trap in this question. Because ABC assigns overhead based on each product's own activity consumption, Product B's correct total overhead is $126,500.