Exam 2

Question 1

1. Accountants refer to an economic event as a…

a. purchase.
b. sale.
c. transaction.
d. change in ownership.

Answer 1

c. transaction.

Question 2

2. The starting point of the accounting process is…

a. communicating information to users.
b. identifying economic events.
c. recording economic events.
d. None of these answers are correct.

Answer 2

b. identifying economic events.

Question 3

3. Communication of economic events is the part of the accounting process that involves…

a. identifying economic events.
b. quantifying transactions into dollars and cents.
c. preparing accounting reports.
d. recording and classifying information.

Answer 3

c. preparing accounting reports.

Question 4

4. Which of the following events cannot be quantified into dollars and cents and recorded as an accounting transaction?

a. The appointment of a new CPA firm to perform an audit.
b. The purchase of a new computer.
c. The sale of store equipment.
d. Payment of income taxes.

Answer 4

a. The appointment of a new CPA firm to perform an audit.

Question 5

5. Interpretation of reported information involves each of the following except…

a. limitations of reported data.
b. meaning of reported data.
c. uses of reported data.
d. All of these choices are correct.

Answer 5

d. All of these choices are correct.

Question 6

6. The accounting process involves all of the following except…

a. identifying economic transactions that are relevant to the business.
b. communicating financial information to users by preparing financial reports.
c. recording nonquantifiable economic events.
d. analyzing and interpreting financial reports.

Answer 6

c. recording nonquantifiable economic events.

Question 7

7. The accounting process is correctly sequenced as…

a. identification, communication, recording.
b. recording, communication, identification.
c. identification, recording, communication.
d. communication, recording, identification.

Answer 7

c. identification, recording, communication.

Question 8

8. Which of the following techniques are not used by accountants to interpret and report financial information?

a. Graphs.
b. Special memos for each class of external users.
c. Charts.
d. Ratios.

Answer 8

b. Special memos for each class of external users.

Question 9

9. Which of the following would not be considered an internal user of accounting data for the LMN Company?

a. President of the company.
b. Production manager.
c. Merchandise inventory clerk.
d. President of the employees’ labor union.

Answer 9

d. President of the employees’ labor union.

Question 10

10. Which of the following would not be considered an external user of accounting data for the LMN Company?

a. Internal Revenue Service Agent.
b. Management.
c. Creditors.
d. Customers.

Answer 10

b. Management.

Question 11

For each of the following, indicate whether the transaction affects revenue (R), expense
(E), owner’s drawing (D), owner’s investment (I), or no effect on owner’s equity (NOE).

1. Made an investment to start the business.
2. Billed customers for services performed.
3. Purchased equipment on account.
4. Paid monthly rent.
5. Withdrew cash for personal use.

Answer 11

1. Investment (I)
2. Revenue (R)
3. No effect (NOE)
4. Expense (E)
5. Drawing (D)