WGU C214 OA EXAM LATEST 2023-2024 ACTUAL
EXAM 300 QUESTIONS AND CORRECT
ANSWERS WITH RATIONALES (VERIFIED
ANSWERS) |AGRADE
What is the accrual based accounting system? – ANSWER- It’s the terminology
that we use in financial accounting for revenue recognition and expense
recognition principle.
What is included in the income statement and NOT included in the statement of
Cash Flows? – ANSWER- Depreciation Expense
(the only expense for which cash will never be paid)
What is the Statement of Retained Earnings? – ANSWER- A company earns
money/earnings every year. Some of those earnings are paid back to the
shareholders (dividends) and the rest is retained by the company to grow the
company and benefit the shareholders.
Net Income Equation if you know the sales revenue and the margin: – ANSWERSales * Net Margin
List and summarize the 4 financial statements: – ANSWER- Income Statement:
Prepared for a period of time
Retained Earnings Statement: Prepared for a period of time
Balance Sheet: Prepared for a POINT in time
Statement of Cash Flows: Prepared for a period of time
Basic Equation for the Balance Sheet: – ANSWER- Equity = Assets – Liabilities
OR
Assets = Liabilities + Equity
What is the statement of cash flows? – ANSWER- It shows the change in cash
balance for a period of time.
What are the 3 types of cash flows? – ANSWER- CFO: Cash flow from Operations
CFI: Cash flow from Investing
CFF: Cash flow from Financing
What is increase in networking capital? – ANSWER- Change in current assets –
change in current liabilities
List some current assets – ANSWER- Accounts receivable, Inventory, Prepaid
Expenses
List some Current Liabilities – ANSWER- Accounts Payable, Salaries Payable,
Accrued Expenses
What’s another word for Current Assets? – ANSWER- Operating Assets
What’s another word for Current Liabilities – ANSWER- Operating Liabilities
What is change in current assets (formula) – ANSWER- Increase in current assets –
Decrease in current assets
What is change in current liability (formula) – ANSWER- Increase in current
liability – Decrease in current liability
What’s the formula for change in Net PPE? – ANSWER- change in net PPE = PPE
at the END of the year – PPE at the Beginning of the year.
What’s the formula for net change in debt or stock? – ANSWER- Increase in
Debt/stock – Decrease in Debt/stock
Debt is also known as… – ANSWER- Long Term Liabilities
Stock is also known as… – ANSWER- Equities
What is CFF – ANSWER- Cash flow from financing. Things like issuance of
equity, repayment of equity, payment of dividends, Issuance of debt, repayment of
debt, capital/finance lease payments.
What is CFO – ANSWER- Cash flow from operations. Things like Salaries paid to
employees, cash paid to vendors and suppliers, cash collected from customers.
What is CFI? – ANSWER- Cash flow from Investing. Things like making and
collecting loans, acquisition and disposition of debt or equity instruments
If you see the word “simple interest” in a problem, do you use the calculator to
calculate the formula? – ANSWER- No. Your calculator automatically assumes
compound interest. You have to do simple interest by hand.
PV on a calculator should be a negative number: T/F – ANSWER- True. Because
PV is money paid out, and an outflow should always be a negative number.
What is the Gordon Growth Model? – ANSWER- The Gordon Growth Model
(GGM) values equity, based on the growth rate of the dividend. It is used to
determine the intrinsic value of a stock based on a future series of dividends that
GROW at a constant rate. The GGM assumes that dividends grow at a constant
rate in perpetuity and solves for the present value of the infinite series of future
dividends. Because the model assumes a constant growth rate, it is generally only
used for companies with stable growth rates in dividends per share.
Gordon Growth Model (GGM) assumes that a company exists forever and that
there is a constant growth in dividends when valuing a company’s stock.
What do you do if the question says that the dividend was paid RECENTLY or the
dividend was JUST paid? – ANSWER- First you must calculate the expected
dividend.
How do you know when to use the Gordon Growth model to answer a question? –
ANSWER- If you see the word GROW or GROWTH in the question, then it’s a
GGM question.
What is the CAPM model? – ANSWER- Capital Asset Pricing Model. Considered
superior to GGM because it incorporates RISK.
Uses concept of “Efficient Frontier”.
What is the concept of Efficient Frontier? – ANSWER- Efficient Frontier
maximizes expected return for a given level of risk.
In a probability question, what should the chance of recession and the chance of
expansion equal in percentage? – ANSWER- They should total 100%
What are some implications of Efficient Market Hypothesis (EMH) – ANSWEROne important implication of EMH is that no one can time the market.
In any market to survive in an efficient financial market, they have to consistently
make profitable decisions.