Latest WGU Accounting-for-Decision-Makers C213 Practice Questions By Harrison

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 C. Increase in assets by $750 and increase in liability by $750. When a company purchases supplies on credit, it receives an asset now and promises to pay later. The supplies increase the company's assets, and the amount owed to the seller increases liabilities, usually as accounts payable. This keeps the accounting equation balanced:

Assets = Liabilities + Equity

Here, assets rise by $750 and liabilities also rise by $750, while equity is unchanged at the time of purchase. OpenStax explains that buying items on account increases the related asset and increases accounts payable.

Option A is incorrect because liabilities do not decrease. Option B is incorrect because assets do not decrease when the company receives supplies. Option D is incorrect because neither side decreases at the moment of purchase. The expense is not recognized immediately unless the supplies are consumed; initially, the company records the asset and the obligation. This is a common transaction used to show how dual effects maintain balance in the accounting equation. Therefore, the correct impact is an increase in assets and an equal increase in liabilities, which is Option C.