WGU Accounting for Decision Makers (C213) Exam Questions

Answer : A, C

The correct answers are A and C. A financial statement error is an unintentional misstatement in the amount, classification, presentation, or disclosure of financial statement information. PCAOB standards explain that misstatements can arise from either error or fraud, and errors are unintentional. A miscalculated payroll tax liability is a classic accounting error because it produces an incorrect liability amount without intent to deceive. Likewise, unintentionally recording unearned customer prepayments as revenue is an error in revenue recognition and financial statement classification.

Option B is not an error; it is fraud or misappropriation of assets because it involves deliberate overpayment and a kickback. PCAOB fraud guidance distinguishes intentional misconduct from accidental mistakes. Option D is not necessarily an error merely because an auditor disagrees with management's estimate. Allowance for uncollectible accounts is an area of judgment, and disagreement alone does not prove a financial statement error exists. Therefore, the two choices that best represent unintentional financial statement errors are A and C.

Answer : C

The correct answer is C. Gross profit percentage increased by 4.2%. Gross profit percentage and cost of goods sold percentage are directly related because together they normally total 100% of sales.

Originally:

Gross profit percentage = 100% - 76.8% = 23.2%

After the change:

Gross profit percentage = 100% - 72.6% = 27.4%

Now calculate the increase:

27.4% - 23.2% = 4.2%

So when the cost of goods sold percentage decreased from 76.8% to 72.6%, the gross profit percentage increased by 4.2%.

Option A is incorrect because the question does not provide enough information to determine the change in net profit percentage, which depends on more than cost of goods sold. Operating expenses, interest, and taxes would also affect net profit. Option B is incorrect for the same reason. Option D is the opposite of what actually happened. Since a lower COGS percentage leaves a larger portion of sales as gross profit, the correct conclusion is that gross profit percentage increased by 4.2%, making Option C correct.

Answer : C

The correct answer is C. IFRS are commonly required to be used in Asia. IFRS is widely used around the world, and the IFRS Foundation states that companies in more than 140 jurisdictions are required to use IFRS Accounting Standards when reporting their financial health. That broad global adoption includes many Asian jurisdictions, so saying IFRS are commonly required in Asia is accurate.

Option A is incorrect because U.S. domestic issuers are generally required under SEC rules to file financial statements prepared in accordance with U.S. GAAP, not simply choose IFRS instead. Option B is false because IFRS are not seldom used by non-U.S. companies; in fact, they are extensively used internationally. Option D is incorrect because the SEC does not require IFRS for all issuers; rather, SEC rules generally require U.S. GAAP for domestic registrants, while certain foreign private issuers may use IFRS as issued by the IASB. Therefore, among the listed choices, Option C is the only statement that is broadly correct and consistent with current international reporting practice.

Answer : C

The correct answer is C. Raw materials cost. A cost incurred as part of the production process is a product cost, and raw materials are one of the most direct examples. In manufacturing, raw materials are inputs physically used to create finished goods, so they are clearly part of production. Manufacturing cost guidance consistently identifies direct materials, direct labor, and manufacturing overhead as production-related costs.

Option A, sunk cost, refers to a past cost that has already been incurred and cannot be changed, so it is a decision-making concept rather than a specific production input. Option B, opportunity cost, represents the benefit forgone by choosing one alternative over another, not an actual recorded production cost. Option D, period cost, refers to costs such as selling and administrative expenses that are expensed in the period incurred and are not part of the manufacturing process. Because raw materials are directly consumed in producing goods, they are the clearest example of a cost incurred as part of production. Therefore, the correct answer is Raw materials cost, making Option C correct.

Answer : A, B

The correct answers are A. Gross profit and B. Income from operations. A multi-step income statement separates operating and nonoperating activities and includes intermediate subtotals that help users analyze profitability in stages. Two of the most important subtotals are gross profit and income from operations. Gross profit is calculated as net sales minus cost of goods sold, while income from operations is determined after subtracting operating expenses from gross profit. OpenStax explains that a multi-step income statement includes these subtotals to give users more insight into business performance.

Options C. Current liabilities and D. Total assets are incorrect because those belong on the balance sheet, not the income statement. A multi-step income statement focuses on revenues, costs, and expenses for a period of time, not financial position at a point in time. By providing subtotals such as gross profit and income from operations, the statement helps managers, investors, and creditors evaluate how well the company performs in its core operations before considering nonoperating items. Therefore, the correct choices are A and B.

Answer : B

The correct answer is B. Cash payments for administration expenses. Under U.S. GAAP, operating activities include cash effects of transactions that enter into the determination of net income, such as cash paid to employees, suppliers, and for other routine operating expenses. FASB's statement on cash flows requires cash receipts and payments to be classified as operating, investing, or financing and defines operating activities as the residual category for the entity's normal revenue-producing activities. OpenStax also describes operating activities as the day-to-day cash flows of the business.

Option A is incorrect because selling a business segment is generally an investing activity, not an operating one. Option C is incorrect because purchasing plant assets is also an investing cash outflow. Option D is incorrect because cash received from selling plant assets is an investing cash inflow. Administrative expenses are part of normal operations, so cash paid for them belongs in operating activities. Therefore, among the options provided, Cash payments for administration expenses is the only item properly classified as an operating activity under U.S. GAAP.

Answer : D

The correct answer is D. The Public Company Accounting Oversight Board (PCAOB). The PCAOB was created to oversee the audits of public companies and SEC-registered brokers and dealers in order to protect investors and support the public interest in accurate, independent audit reports. Its responsibilities include registration of audit firms, inspections, enforcement, and audit-related standard-setting. Because the question refers to a CPA firm auditing a large, publicly traded company, PCAOB oversight is the correct regulatory answer.

Option A is incorrect because FASB sets accounting standards, not audit practice regulation for public company auditors. Option B, FASAC, is an advisory council to FASB and does not regulate audit firms. Option C, the IRS, administers tax laws and does not oversee external audit practices for public companies. In accounting and auditing, it is essential to distinguish between those who set accounting rules and those who supervise auditors. For publicly traded companies, that audit oversight role belongs to the PCAOB, making Option D the only accurate choice.