Test bank accounting information system by turner 10 chapter

ACCOUNTING INFORMATION SYSTEMS CONTROLS AND PROCESSES TURNER / WEICKGENANNT CHAPTER 10: Expenditures Processes and Controls – Payroll and Fixed Assets TEST BANK - CHAPTER 10 - TRUE / FAL

ACCOUNTING INFORMATION SYSTEMS

CONTROLS AND PROCESSES

TURNER / WEICKGENANNT

CHAPTER 10: Expenditures Processes and Controls – Payroll and Fixed Assets

TEST BANK - CHAPTER 10 - TRUE / FALSE

1 It is not necessary to get specific authorization for each individual routine transaction

2 Routine transactions refer to common business transactions such as payroll and fixed asset

transactions

3 Accounting for a fixed asset over the life of the asset would have features of non-routine

transactions only

4 The payroll process starts when an employee is hired by the organization

5 Members of management are not required to specifically approve an employee hired by the

company when the new employee has been screened by an employment office

6 The hiring of employees is considered to be a routine process

7 A hiring decision normally occurs as the result of an interview or interviews and is documented

on a signed letter and / or signed employment contract

8 Amounts withheld from an employee paycheck will ultimately be paid to another vendor

9 Most of the records found in an employee’s personnel file are accounting related

10 A unique feature of the information contained in an individual personnel file is that it is

accessed infrequently but is changed relatively frequently

11 It is common that personnel related expenses are one of the largest expenses reported on the

company’s income statement

12 A challenging area of payroll computation is computing the amount of deductions related to

each employee’s pay

13 Accounting software is available to assist with payroll but it is not very efficient because of all

the changes that occur to all payroll variables during the period

14 Preparing payroll manually is extremely time consuming due to the process of extracting all

these inputs from the records and performing the mathematical computations

15 Overtime hours are paid at a rate different from the regular hours, usually one and one-half

times the standard rate

16 Before the paychecks are sent to management for authorization, the human resources

department should compare the hours reported on the time sheets with the hours shown on the payroll register

17 Although it is uncommon, some companies maintain separate checking accounts that are used

for payroll transactions

18 When an organization uses a separate checking account to handle payroll transactions, it is

easier to account for the payroll transactions and to distinguish them from cash disbursements for other business purposes

19 It is the responsibility of the payroll department to make certain that all time sheets represent

actual time worked by currently active employees

20 Payroll disbursements are to be authorized by the accounts payable department on the basis

of the company’s need to satisfy its obligation to its employees

21 The human resources department should be responsible for the record keeping function

related to payroll

22 The cash disbursements department should have the responsibility of signing, essentially

approving all paychecks

23 The paymaster should be independent from the departmental supervision responsibilities, so

that it can be determined that the paychecks are being distributed to active employees

24 Payroll information includes personal information about employees, such as their pay rate and

performance, and must be kept confidential

25 Strong internal controls are just as important for small organizations with few employees paid

once per month as it is for large organizations with numerous employees being paid weekly

26 Because of the infrequency of payroll processing and the sequential nature of the payroll

process, many companies find that real-time processing is well-suited for payroll activities

27 An alternative to batch processing is the use of electronic timekeeping devices, such as time

clocks or badge readers

28 The electronic timekeeping devices accumulated data throughout the period and automatically

calculate batch totals At this time, the data batches are not able to prepare the paychecks or the payroll register

29 Payroll outsourcing has become popular (and prevalent) because it offers increased

convenience and confidentiality

30 The investment in fixed assets is often the largest asset reported on the income statement

31 The acquisition of fixed assets is normally initiated by a user department when they identify a

need for a new asset, either to replace an existing asset or to enhance its current pool

32 When a new asset is requested, and the cost is below a pre-established amount, it is

necessary for specific authorization of the purchase

33 Many companies use a tracking system for their fixed assets that would include applying a

fixed asset tag, number, or label to the asset

34 Organizations should have written procedures in place to identify when the costs related to

fixed assets are capitalized (recorded to repair and maintenance expense)

35 If a new cost is incurred related to an asset that is considered to enhance that, either by

extending the useful life or increasing the efficiency, the fixed asset accountant must make sure the appropriate adjustments are made to the fixed asset subsidiary ledger

36 Accounting for fixed assets requires the use of estimates - specifically the cost and the salvage

value

37 The use of estimates when accounting for fixed assets requires that the estimates may need

to be changed as time passes and new information is discovered

38 For any company, and any asset, the method of depreciation and the related estimates

(salvage value and useful life) are the same for financial statements and income taxes

39 In order to compute the book value of any asset, start with the cost of the asset and add the

accumulated depreciation

40 In the case of high-dollar assets, there should be a strict approval process that requires the

authorization of top management or the initiation of the capital budgeting procedures

41 For most companies, fixed asset acquisitions are considered to be routine processes

42 One area where earnings management may be prevalent due to the judgmental nature of the

underlying data is with fixed assets

43 Earnings management related to fixed assets would occur when reducing expenses by

decreasing the useful life of the fixed assets

44 A method of earnings management is to misclassify capitalized costs as repair and

maintenance expenses

45 Although there is no direct benefit, in terms of cash received, when a fraudster engages in

earnings management, it is still unethical because it results in the falsification of the

company’s financial statements

46 Historically, there have been a large number of cases of fraud, theft, manipulation, and misuse

of funds in the areas of payroll and fixed assets

47 Corporate governance policies and procedures must be in place to ensure that funds are

expended to benefit managers and employees

48 The controls discussed in the chapter, related to safeguarding assets within the expenditures

process and ensuring the accuracy and completeness of expenditure processes, help to enhance corporate governance structure

ANSWERS TO TEST BANK – CHAPTER 10 – TRUE / FALSE:

TEST BANK - CHAPTER 10 - MULTIPLE CHOICE

49 Routine business transactions would include which of the following?

A Purchase of merchandise inventory

B Payment of principal on a note

C Purchase of fixed asset

D Paying wages and salaries to employees

50 This type of transaction is one that a business encounters on a regular, recurring basis The volume of the transactions is so large that transactions and the related accounting activities become second nature to the employees responsible for handling them Specific authorization for each of these transactions is not necessary The type of transaction referred to is:

A Non-routine transaction

B Payroll transaction

C Fixed asset transaction

D Routine transaction

51 Which of the following is a characteristic of a non-routine transaction?

A A business encounters this type of transaction on a regular, recurring basis

B Required to have specific authorization

C Volume of transactions becomes second nature to the employees responsible

D Specific authorization for the specific transaction is not necessary

52 A company must have systems in place to take care of all activities related to both routine and non-routine processes The activities would include all of the following, except:

A Recorded transactions may not be valid

B Expenditure transactions may be recorded in the wrong account

C Valid expenditures recorded properly by the wrong employee

D Transactions may not be recorded in a timely manner

56 This department is responsible for maintaining records for each job and each employee within the organization, as well as tracking job vacancies and supporting the company’s recruitment efforts

A Salary and Wage Administration Department

B Vice President for Employees Department

C Employee Services Department

D Human Resources Department

57 The document is prepared in order to map out the jobs and reporting relationships within an organization This may include only top branches of an organization or may include all positions within the company

58 This item would include explanations concerning the qualifications and responsibilities of each position shown on organization chart The item is also supported by policies and procedures manuals that outline specific activities performed by each position

A Job profile

B Human resources listing

C Organization chart description

D Position description

59 Personnel records will typically include all of the following, except:

A Documentation related to the initial hiring

B Personal information, such as the employee address

C Medical history subsequent to hiring

D Social security number

60 Each of the following items would likely be found in an employee’s personnel records related to the initial hiring, except:

A Employment application

B Recommendation letters

C Background investigation results

D Overtime and commission rates

61 It is necessary for employees to maintain adequate records of the hours worked and the

projects worked on The record of hours worked by an employee for a specific payroll period is reported on a document called:

A Time ticket

B Time sheet

C Salary document

D Wage report

62 Which of the following would be a correct way to compute the gross pay for an employee?

A Hours Worked times Authorized Pay Rate

B Hours Worked times Authorized Pay Rate minus Withholding Taxes

C Net Pay minus Authorized Deductions

D Net Pay times Withholding Taxes

63 Which of the following would be a correct way to compute the net pay for an employee?

A Hours Worked times Authorized Pay Rate

B Gross Pay minus Withholding Taxes

C Gross Pay minus Authorized Deductions

D Hours Worked times Withholding Tax Rate

64 This record, prepared by the payroll department, is a complete listing of salary or wage detail for all employees for a given time

A Payroll journal

B General ledger

C Employee record

D Payroll register

65 When accounting software is used to prepare the periodic payroll, which of the following items

is necessary to input for each employee?

A Employee Name

B Hours Worked

C Pay Rate

D Social Security Number

66 This document authorizes the transfer of cash from the company’s main operating account into the payroll cash account

A Payroll Disbursements Journal

B Payroll Register

C Payroll Journal

D Cash Disbursements Journal

68 This individual is responsible for distributing the signed paychecks on the designated pay day

A Human Resources Director

B Incorrectly computed tax withholdings

C False claims of sick leave

D Pay claims made by ghost employees

70 Which of the following correctly states a reconciliation process to be completed related to payroll?

A Time sheets reconciled to the payroll register

B Payroll register to the general ledger

C Time sheets to the production reports

D Production reports to the general ledger

71 The internal control activity requiring that the manager approves payroll prior to signing

paycheck is intended to minimize the risk of:

A Omitted paychecks

B Incorrect amounts

C Fictitious employee

D Stolen paychecks

72 The internal control process of requiring an independent paymaster will help to minimize the risk of:

A Fictitious employees

B Incorrect amounts

C Omitted paychecks

D Timing issues

73 The internal control process of requiring the payroll register to be reconciled with the time

sheets will help to minimize the risk of:

A Invalid payroll transactions

B Omitted paychecks

C Duplicate paychecks

D Fictitious employees

74 Internal control activities within the payroll process, identified as adequate records and

documents, would include which of the following?

A Manager approval of payroll prior to signing checks

B Independent paymaster

C Physical controls in areas where cash and paychecks are held

D Paychecks are prepared on prenumbered checks

75 Internal control activities within the payroll process, identified as authorization, would include which of the following?

A Preparation of a bank reconciliation

B Independent paymaster

C Manager approval of payroll prior to signing checks

D Physical controls in areas where cash and paychecks are held

76 Internal control activities within the payroll process, identified as segregation of duties, would include which of the following?

A Payroll preparation, authorization of new hiring and pay rates, information systems, and

general accounting should all be performed by different departments and / or different people

B IT controls over computer records and physical controls in records storage areas

C The payroll register is checked for mathematical accuracy and agreement with authorized

pay rates and deductions

D Supervisor approval of time sheets prior to preparation of payroll documents

77 Internal control activities within the payroll process, identified as independent checks and

reconciliations, would include which of the following?

A IT controls over computer records and physical controls in records storage area

B Time sheets reconciled with the payroll register

C The payroll register is checked for mathematical accuracy and agreement with authorized

pay rates and deductions

D Supervisor approves time sheets prior to preparation of payroll documents

78 When payroll is processed using batch processing, which of the following would not be part of the payroll process?

A Human resources department would be responsible for keying employee information into

the master file

B The timekeeper will accumulate all time sheets and enter them into the computer system in

batches

C The timekeeper should prepare control totals and hash totals in order to check the system

before the paychecks are generated

D Human resources should prepare control totals and has totals in order to check the system

before the paychecks are generated

79 An electronic payroll time keeping device that collects time and attendance data when

employees enter their time sheets is called:

D Electronic time clock

81 In order to smooth out the payroll process and avoid the heavy workload that falls at the end of the payroll period, many companies will use this type of system – one that integrates their human resources and payroll functions This system makes real-time personnel data available and the general ledger and production system can be automatically updated at the end of the payroll period

A Online Software Systems

B Batch Processing

C Electronic Timekeeping

D Outsourcing of Payroll Services

82 Many companies use independent, internet-based service providers to handle their payroll

processing These payroll providers specialize in offering solutions and constant access to

83 There are many uses of electronic funds transfer related to the payroll process Which of the following is not one of those uses?

A Payments to the employees

B Payments to the federal taxing agencies

C Transfers to the payroll checking account

D All of the above are uses of electronic funds transfer

84 Assets to be included in the fixed asset pool would include all of the following, except:

A Vehicles

B Furniture

C Office Supplies

D Real Estate

85 The fixed assets owned by a company are considered to be long-term because:

A The high cost of the fixed assets demands that they not be considered short term

B They are purchased with the intent of benefitting the company for a long period of time

C The assets will last for a long period of time

D All of the above are reasons the fixed assets are considered to be long-term

86 The three phases of fixed assets processes, that span the entire useful life of the assets, include all of the following, except:

B The inclusion of a fixed asset department instead of the inventory control department

C Both of the above

D None of the above

88 This document is a financial plan detailing all of the company’s investments in fixed assets and other investments

A Fixed Asset Journal

B Fixed Asset Subsidiary Ledger

C Fixed Asset Schedule

D Fixed Asset Budget

90 This phase of the fixed asset processes relates to those required to maintain accurate and to-date records regarding all fixed assets throughout their useful lives

A Updating depreciation prior to the disposal of fixed assets

B Updating cost data for improvements to assets

C Adjusting for periodic depreciation

D Keeping track of the physical location of the assets

92 The record detailing the amounts and timing of depreciation for all fixed asset categories, except land, is called:

A Fixed asset subsidiary ledger

94 Activities involved with the fixed assets disposal phase of the fixed assets processes include all

of the following, except:

A Adjusting periodic depreciation

B Disposed assets are removed from the fixed asset subsidiary ledger

C Gains or losses resulting from disposal are computed

D The depreciation amounts related to the disposed assets are removed from the

depreciation schedule and the fixed asset subsidiary ledger

95 Disposing of a fixed asset could include all of the following methods, except:

A Throwing it away

B Sending it to another department

C Exchanging it for another asset

D Donating it to another party

96 When high-dollar fixed assets are purchased, there should be a strict approval process which would include three formal steps Which of the following is not one of those steps?

A Review of the proposal and specific approval by the appropriate level of management

B Investment analysis

C Comparison with the capital budget

D Feasibility study

97 The first part of the strict approval process for high-dollar fixed assets is the investment

analysis Which of the following is part of that analysis?

A Capital budget comparison

B Review of the proposal

C Financial justification

D Written requisition

98 Which of the following is a correct statement related to segregation of duties related to fixed assets?

A Custody of fixed assets is to be separate from the related record keeping

B Custody of fixed assets need not be separate from the purchasing of fixed assets

C The IT function of programming need not be separated from the accounting for fixed

assets

D All of the above are correct statements related to the segregation of duties

99 The security of assets and documents would include all of the following, except:

A Supervisors need to make certain that the assets are being used for their intended

purpose

B Designated members of management should be assigned responsibility for the disposal of

any assets

C Maintaining adequate insurance coverage

D Electronic controls are needed to control access to automated records

100 Which of the following independent checks would be part of the internal controls for fixed assets?

A Comparing actual fixed asset expenditures with the capital budget

B Periodic counts of fixed assets should be made by someone not otherwise responsible for

fixed asset related activities

C Physical counts should be reconciled with the accounting records

D Book value of the assets should be compared to the insurance records

101 The internal control process of requiring management approval of fixed asset changes prior to recording the transaction will help to minimize the risk of: