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Test bank of accounting information systems by hall ch08

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Each account in the chart of accounts has a separate record in the general ledger master file.. record the transaction, post to the ledger, prepare the adjusted trial balance, enter adju

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Chapter 8—General Ledger, Financial Reporting, and Management Reporting

Systems

TRUE/FALSE

1 The most common means of making entries in the general ledger is via the journal voucher

ANS: T

2 Individuals with access authority to general ledger accounts should not prepare journal vouchers ANS: T

3 The journal voucher is the document that authorizes entries to be made to the general ledger

ANS: T

4 Each account in the chart of accounts has a separate record in the general ledger master file

ANS: T

5 The responsibility center file is primarily used by the Financial Reporting System

ANS: F

6 Management reporting is often called discretionary reporting because it is not mandated as is financial reporting

ANS: T

7 Primary recipients of financial statement information are internal management

ANS: F

8 The Management Reporting System is a nondiscretionary system

ANS: F

9 When evaluating decision alternatives, one option is to take no action

ANS: T

10 In most cases intangible decision criteria can be quantified

ANS: F

11 One benefit of the Management Reporting System is that it can alert management to delays in project implementation

ANS: T

12 Responsibility refers to an individual’s obligation to achieve desired results

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ANS: T

13 A firm with a wide span of control tends to have relatively more layers of management

ANS: F

14 The control function entails evaluating a process against a standard and, if necessary, taking corrective action

ANS: T

15 Standards are the basis for evaluating actual performance

ANS: T

16 A report is said to have information content if it eliminates uncertainty associated with a problem facing the decision maker

ANS: F

17 An inventory out-of-stock report is an example of a programmed, on-demand report

ANS: T

18 A principle of responsibility accounting is that managers are responsible for controllable and

uncontrollable costs

ANS: F

19 The manager of a cost center is responsible for cost control and revenue generation

ANS: F

20 Designing an effective management reporting system does not require an understanding of the

information managers need to deal with the problems they face

ANS: F

21 The formalization of tasks principle suggests that management should structure the firm around the

unique skills sets of key individuals

ANS: F

22 If a manager delegates responsibility to a subordinate, he or she must also grant the subordinate authority to make decisions

ANS: T

23 Operational control involves motivating managers at all levels to use resources, including materials, personnel, and financial assets, as productively as possible

ANS: F

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24 The block code is the coding scheme most appropriate for a chart of accounts.

ANS: T

MULTIPLE CHOICE

1 The coding scheme most appropriate for a chart of accounts is

a sequential code

b block code

c group code

d mnemonic code

ANS: B

2 A common use for sequential coding is

a creating the chart of accounts

b identifying inventory items

c identifying documents

d identifying fixed assets

ANS: C

3 The most important advantage of sequential coding is that

a missing or unrecorded documents can be identified

b the code itself lacks informational content

c items cannot be inserted

d deletions affect the sequence

ANS: A

4 When a firm wants its coding system to convey meaning without reference to any other document, it would choose

a an alphabetic code

b a mnemonic code

c a group code

d a block code

ANS: B

5 The most important advantage of an alphabetic code is that

a meaning is readily conveyed to users

b sorting is simplified

c the capacity to represent items is increased

d missing documents can be identified

ANS: C

6 Entries into the General Ledger System (GLS) can be made using information from

a the general journal

b a journal voucher which represents a summary of similar transactions

c a journal voucher which represents a single, unusual transaction

d all of the above

ANS: D

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7 Which statement is not correct? The general ledger master file

a is based on the firm’s chart of account

b contains a record for control accounts

c is an output of the Financial Reporting System (FRS)

d supplies information for management decision making

ANS: C

8 What type of data is found in the general ledger master file?

a a chronological record of all transactions

b the balance of each account in the chart of accounts

c budget records for each account in the chart of accounts

d subsidiary details supporting a control account

ANS: B

9 Which report is not an output of the Financial Reporting System (FRS)?

a variance analysis report

b statement of cash flows

c tax return

d comparative balance sheet

ANS: A

10 Which steps in the Financial Accounting Process are in the correct sequence?

a record the transaction, post to the ledger, prepare the adjusted trial balance, enter adjusting entries, prepare financial statements

b record the transaction, prepare the unadjusted trial balance, record adjusting journal entries, record closing entries, prepare financial statements

c record the transaction, post to the ledger, record adjusting entries, prepare the unadjusted trial balance, prepare financial statements

d record the transaction, post to the ledger, prepare the adjusted trial balance, prepare financial statements, record closing entries

ANS: D

11 Which statement is not correct?

a the post-closing trial balance reports the ending balance of each account in the general ledger

b one purpose of preparing the unadjusted trial balance is to ensure that debits equal credits

c financial statements are prepared based on the unadjusted trial balance

d the unadjusted trial balance reports control account balances but omits subsidiary ledger detail

ANS: C

12 What account appears on the postclosing trial balance?

a income summary

b machinery

c rent expense

d interest income

ANS: B

13 Financial statements are prepared from the

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a trial balance

b adjusted trial balance

c general ledger

d general journal

ANS: B

14 Risk exposures in the General Ledger and Financial Reporting Systems include all of the following except

a loss of the audit trail

b unauthorized access to the general ledger

c loss of physical assets

d general ledger account out of balance with the subsidiary account

ANS: C

15 Which situation indicates an internal control risk in the General Ledger/Financial Reporting Systems (GL/FRS)?

a the employee who maintains the cash journal computes depreciation expense

b the cash receipts journal voucher is approved by the Treasurer

c the cash receipts journal vouchers are prenumbered and stored in a locked safe

d the employee who maintains the cash receipts journal records transactions in the accounts

receivable subsidiary ledger

ANS: D

16 With a limited work force and a desire to maintain strong internal control, which combination of duties performed by a single individual presents the least risk exposure?

a maintaining the inventory ledger and recording the inventory journal voucher in the

general ledger

b recording the inventory journal voucher in the general ledger and maintaining custody of

inventory

c maintaining the cash disbursements journal and recording direct labor costs applied to

specific jobs

d preparing the accounts payable journal voucher and recording it in the general ledger

ANS: C

17 The audit trail fulfills all of the following purposes except

a provides the ability to answer inquiries

b ensures the accuracy of the application software

c fulfills governmental regulations

d offers a means for preventing, detecting, and correcting errors

ANS: B

18 Which best describes a batch process General Ledger System (GLS)

a paper documents are eliminated

b the general ledger master file is updated each night

c there is a time lag between transaction processing and posting to the general ledger

d no direct access or querying of the General Ledger is possible

ANS: C

19 An advantage of a batch General Ledger System (GLS) is that

a separation between authorization and transaction processing is strictly enforced

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b the general ledger master file is recreated with each update

c updates and reconciliation of transactions occur as a step within the transaction cycle

d errors and out-of-balance conditions are identified at the end of the month

ANS: C

20 A characteristic of the Management Reporting System (MRS) is

a the MRS operates in conformity with generally accepted accounting principles

b it is a legal requirement that the MRS be installed and functioning properly

c the MRS is developed by implementing SEC requirements

d the MRS focuses on internal decision-making information

ANS: D

21 Which statement is not true?

a authority refers to an individual’s obligation to achieve desired results

b if an employee is given the responsibility for a task, that employee should be given authority to make decisions within the limits of that task

c the level of detail provided to an employee is a function of the employee’s position with the firm

d all of the above are true

ANS: A

22 Which statement is not true? The manager’s span of control

a is narrow for routine and repetitive tasks

b is related to the number of layers of management

c affects the amount of detail provided to a manager

d can affect employee morale and motivation

ANS: A

23 Short-range planning involves

a setting goals and objectives of the firm

b planning the production schedule for the next quarter

c planning the growth of the firm

d deciding on the degree of diversification among the firm’s products

ANS: B

24 Long-range planning involves

a planning the marketing and promotion for a product

b presenting department heads with budgetary goals for the next year

c preparing a work force utilization budget for the next quarter

d deciding the optimum size of the firm

ANS: D

25 The level of management that makes tactical planning decisions is

a top management

b middle management

c operations management

d front-line management

ANS: B

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26 The decision to enter a new market is an example of

a strategic planning

b tactical planning

c management control

d operational control

ANS: A

27 All of the following are elements of operational control decisions except

a determining the scope of the activity

b setting operating standards

c evaluating performance

d taking corrective action when necessary

ANS: A

28 In contrast to tactical planning decisions, management control decisions, and operational control decisions, strategic planning decisions usually

a are more focused

b have a shorter time frame

c are unstructured

d have a high degree of certainty

ANS: C

29 Which of the following management principles affects the management reporting system?

a formalization of tasks

b authorization

c span of control

d all of the above

ANS: D

30 All of the following are elements of problem structure except

a certainty

b data

c procedures

d objectives

ANS: A

31 All of the following are examples of programmed reports except

a cash flow reports for Division B

b year-to-date local income tax payments made by all employees living in City X and

working in City Y

c inventory exception reports for Division G

d equipment utilization reports for Plant M

ANS: B

32 A fundamental principle of responsibility accounting is that

a managers are accountable only for items they control

b a manager’s span of control should not exceed eight people

c structured reports should be prepared weekly

d the information flow is in one direction, top-down

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ANS: A

33 Which statement is not true? Responsibility accounting

a involves both a top-down and bottom-up flow of information

b acknowledges that some economic events cannot be traced to any manager

c creates a budget

d compares actual performance with budget

ANS: B

34 What mechanism is used to convey to managers the standards by which their performance will be measured?

a the responsibility report

b the scheduled report

c the budget

d all of the above

ANS: C

35 All of the following concepts encourage goal congruence except

a detailed information reporting at all management levels

b authority and responsibility

c formalization of tasks

d responsibility accounting

ANS: A

36 Which of the following statements is NOT true?

a Sorting records that are coded alphabetically tends to be more difficult for users than

sorting numeric sequences

b Mnemonic coding requires the user to memorize codes

c Sequential codes carry no information content beyond their order in the sequence

d Mnemonic codes are limited in their ability to represent items within a class

ANS: B

37 Which file has as its primary purpose to present comparative financial reports on a historic basis?

a journal voucher history file

b budget master file

c responsibility file

d general ledger history file

ANS: D

38 All of the following are characteristics of the strategic planning process except the

a emphasis on both the short and long run

b review of the attributes and behavior of the organization’s competition

c analysis of external economic factors

d analysis of consumer demand

ANS: A

39 Which of the following performance measures can not result in dysfunctional behavior?

a price variance

b quotas

c ROI

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d net income

e all of the above can result in dysfunctional behavior

ANS: E

40 Which of the following best describes a profit center:

a authority to make decisions affecting the major determinants of profit, including the power

to choose its markets and sources of supply

b authority to make decisions affecting the major determinants of profit, including the power

to choose its markets and sources of supply, and significant control over the amount of invested capital

c authority to make decisions over the most significant costs of operations, including the power to choose the sources of supply

d authority to provide specialized support to other units within the organization

e responsibility for combining the raw materials, direct labor, and other factors of

production into a final product

ANS: A

SHORT ANSWER

1 List, in order, the steps in the Financial Accounting Process

1

2

3

4

5

6

7

8

9

10

11

ANS:

1 Capture the transaction on source documents

2 Record in special journals

3 Post to subsidiary ledger

4 Post to general ledger (using journal vouchers)

5 Prepare the unadjusted trial balance

6 Make adjusting entries

7 Journalize and post adjusting entries

8 Prepare adjusted trial balance

9 Prepare financial statements

10 Journalize and post closing entries

11 Prepare the post-closing trial balance

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2 List two duties that the general ledger clerk should not perform.

ANS:

make entries in special journals or subsidiary ledgers;

prepare journal vouchers; maintain custody of physical assets

3 Explain the purpose and contents of the general ledger master file

ANS:

The general ledger master file is the main file on the general ledger database It is based on the firm’s chart of accounts Each record is either a general ledger account (e.g., sales) or a control account (e.g., the accounts payable control) for one of the subsidiary ledgers The general ledger master file contains the following for each account: the account number, description, account class (e.g., asset), the normal balance (debit or credit), beginning balance, total debits for period, total credits for period, and current balance

4 Explain two types of coding schemes and give examples of their use

ANS:

Sequential codes represent items in some sequential order Prenumbered checks are one example

Block codes use sequential numbering in specific parts of the total code–all current assets begin with

‘1,’ fixed asset ‘2,’ etc Traditional charts of accounts use block codes and start assets with 1, liabilities with 2, etc

Alphabetic codes are similar to numeric codes with increased options A two character code AA has

Mnemonic codes use letters with meaning The postal state abbreviations are mnemonic

5 Why do many firms no longer use a general journal? What has taken its place?

ANS:

Many firms have replaced a traditional general journal with a journal voucher system Each entry is documented on a prenumbered journal voucher which contains additional information, such as

authorization, which enhances control A voucher may contain information on a number of related transactions

6 What are the major exposures in the general ledger/financial reporting system?

ANS:

The primary exposures are: a defective or lost audit trail, unauthorized access, GL accounts out of balance with subsidiary ledger accounts, and incorrect account balances due to unauthorized or

incorrect entries

7 Why is the audit trail necessary?

ANS:

The audit trail is needed for several reasons: to provide the ability to answer inquiries from customers and suppliers, to reconstruct files if lost, to provide historical data to auditors, to satisfy government regulations, and for error control

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