WGU Accounting-for-Decision-Makers Exam Questions

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.

The correct answers are C. Interest expense and D. Cost of goods sold. Net income is determined by starting with revenues and then subtracting expenses and other costs. Because interest expense is an expense, increasing it reduces earnings before tax and therefore lowers net income. Likewise, cost of goods sold (COGS) is a major expense directly tied to the goods sold by the business. When COGS increases, gross profit falls, which then reduces net income. OpenStax summarizes the income statement as including revenues, expenses, gains, and losses in arriving at net income or net loss.

Options A. Gains and B. Revenues are incorrect because increases in either of those items generally increase net income rather than decrease it. Gains arise from peripheral transactions and still improve profitability, while revenues represent inflows from the company's main operations. In contrast, both interest expense and cost of goods sold are deductions in the income statement. Therefore, the two items that decrease net income when increased are Interest expense and Cost of goods sold.

The correct answer is A. The company was able to generate $0.95 in sales for each dollar in assets. The asset turnover ratio is calculated as:

Asset turnover = Total sales / Total assets

This ratio measures how efficiently a company uses its assets to produce revenue. If a company has an asset turnover of 0.95, it means that for every $1.00 invested in assets, the company generated $0.95 in sales during the period.

This ratio is especially useful in comparing operating efficiency across time or between similar companies. A higher asset turnover usually indicates more efficient use of assets in generating sales, while a lower ratio may suggest underused resources or a more asset-intensive business model.

Option B is incorrect because asset turnover does not measure equity generation. Option C is incorrect because it does not compare liabilities to assets. Option D is incorrect because profit per dollar of assets is more closely related to return on assets, not asset turnover. Since the formula directly links sales with assets, the only correct interpretation of a 0.95 asset turnover is $0.95 in sales per $1.00 of assets, which is Option A.

The correct answer is A. Use an objective advisor confidentially. The IMA Statement of Ethical Professional Practice includes guidance for resolving ethical conflict and notes that management accountants may wish to discuss the matter with an objective advisor to obtain a better understanding of possible courses of action. This step is intended to help the accountant evaluate the issue carefully while preserving confidentiality and professionalism.

Option B is not the best answer because going directly to the chief executive officer is not always the first or most appropriate step. Ethical conflict guidance usually recommends following the organization's established chain of command unless the issue involves that level of management. Option C is incorrect because discussing the issue with ''any stakeholder'' could violate confidentiality. Option D is also weaker because consulting a coworker is not the same as seeking advice from an objective and appropriate advisor. The emphasis in professional ethics guidance is on confidentiality, sound judgment, and proper escalation. Therefore, the most suitable action among the options given is to use an objective advisor confidentially, making Option A correct.