ACCOUNTING INFORMATION SYSTEMS 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 necessary to get specific authorization authorization for each individual individual routine transaction. transaction. 2. Routine transactions transactions refer to common business transactions transactions such as payroll and fixed asset asset transactions. 3. Accounting for a fixed asset over the life of the the asset would have have features of non-routine transactions only. 4. The payroll process process starts when an employee is hired hired by the organization. 5. Members of management management are not required required to specifically approve an an employee hired by the the company when the new employee has been screened by an employment office. 6. The hiring of employees is considered considered to be a routine process. 7. A hiring decision normally occurs occurs as the result result of an interview or interviews and is documented documented on a signed letter and / or signed employment contract. contract. 8. Amounts withheld withheld from an employee paycheck paycheck will ultimately be paid to another another vendor. 9. Most of the records found found in an employee’s employee’s personnel file are are accounting related. related. 10. A unique feature of the the information contained contained in an individual individual personnel file is that that it is accessed infrequently but is changed relatively frequently. 11. It is common that personnel related related expenses are one of the largest expenses reported reported on the company’s income statement. 12. A challenging area of payroll payroll computation is computing computing the amount amount of deductions related related to each employee’s pay. 13. Accounting software is available to assist with with payroll but it is not not very efficient because of all the changes that occur to all payroll variables during the period. 14. Preparing payroll manually manually is extremely time consuming consuming due to the the process of extracting extracting all these inputs from the records and performing the mathematical computations. 15. Overtime hours are are paid at a rate different from the regular regular hours, usually usually one and one-half one-half times the standard rate.
16. Before the paychecks paychecks are sent to to management for authorization, the the human resources resources department should compare the hours reported on the time sheets with the hours shown on the payroll register. 17. Although it is uncommon, uncommon, some companies companies maintain separate separate checking accounts that are used for payroll transactions. 18. When an organization organization uses a separate separate checking account account to handle payroll 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 responsibility of the payroll department department to make certain certain that all time sheets sheets represent actual time worked by currently active employees. 20. Payroll disbursements disbursements are to be authorized authorized by the accounts accounts payable department department on the basis of the company’s need to satisfy its obligation to its employees. 21. The human resources resources department should be responsible responsible for the record keeping keeping function related to payroll. 22. The cash disbursements disbursements department department should have the the responsibility of signing, signing, essentially approving all paychecks. 23. The paymaster should should be independent from the departmental departmental supervision responsibilities, 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 such as their pay rate rate and performance, and must be kept confidential. 25. Strong internal controls controls are just as as important for small small organizations with few employees paid once per month as it is for large organizations with numerous numerous employees being paid weekly. 26. Because of the infrequency of payroll processing processing and the sequential sequential nature of the payroll process, many companies find that real-time processing is well-suited for payroll activities. 27. An alternative to batch batch processing is the use use of electronic timekeeping timekeeping devices, such such as time clocks or badge readers. 28. The electronic timekeeping timekeeping devices accumulated accumulated data throughout throughout the period and and automatically calculate batch totals. At this time, the data batches batches are not able to prepare the paychecks paychecks or the payroll register. 29. Payroll outsourcing has become popular (and prevalent) because because it offers increased convenience and confidentiality. 30. The investment in fixed assets is often often the largest asset reported on the income statement. statement.
31. The acquisition of fixed assets assets is normally normally initiated by a user department 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 asset is requested, requested, and the cost is below a pre-established pre-established amount, it is necessary for specific authorization of the purchase. 33. Many companies use use a tracking system system for their fixed assets assets that would would include applying a fixed asset tag, number, or label to the asset. 34. Organizations should should have written procedures in place to identify identify when the costs related to fixed assets are capitalized (recorded to repair and maintenance expense). 35. If a new cost is incurred incurred related to an asset that is considered considered to enhance enhance that, either 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 f ixed asset subsidiary ledger. 36. Accounting for fixed assets assets requires the use of estimates estimates - specifically the cost and and the salvage value. 37. The use of estimates estimates when accounting accounting for fixed assets assets requires that the estimates estimates may need to be changed as time passes and new information is discovered. 38. For any company, and any any asset, the the method of depreciation depreciation and the related 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, asset, start with with the cost of the the asset and add add the accumulated depreciation. 40. In the case of high-dollar high-dollar assets, there should be a strict strict approval process that that requires the authorization of top management or the initiation of the capital budgeting procedures. 41. For most companies, companies, fixed asset asset acquisitions are considered to be routine processes. 42. One area where where earnings management management may be prevalent due to the the judgmental nature nature of the underlying data is with fixed f ixed assets. 43. Earnings management management related to fixed assets assets would occur when when reducing expenses expenses by decreasing the useful life of the fixed assets. 44. A method of earnings management management is to misclassify capitalized capitalized costs as repair and and maintenance expenses. 45. Although there is no no direct benefit, in terms terms of cash received, received, when a fraudster fraudster engages in earnings management, management, it is still unethical because it results in the falsification of the company’s financial statements. statements. 46. Historically, there have been a large number number of cases of fraud, fraud, theft, manipulation, manipulation, and misuse misuse of funds in the areas of payroll and fixed assets.
47. Corporate governance governance policies and procedures must be in place to ensure that that funds are expended to benefit managers and employees. 48. The controls discussed discussed in the chapter, chapter, related to safeguarding safeguarding assets within within the expenditures expenditures process and ensuring the accuracy and completeness of expenditure processes, help to enhance corporate governance structure. ANSWERS TO TEST BANK – CHAPTER 10 10 – TRUE / FALSE: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
T F F T F F T F F F
11. 12. 13. 14. 15. 16. 17. 18. 19. 20.
T T F T T F F T F T
21. 22. 23. 24. 25. 26. 27. 28. 29. 30.
F F T T F F T F T F
31. 32. 33. 34. 35. 36. 37. 38. 39. 40.
T F T F T F T F F T
41. 42. 43. 44. 45. 46. 47. 48.
F T F F T T F T
TEST BANK - CHAPTER 10 - MULTIPLE CHOICE 49. Routine business business transactions transactions would include include which of the following? A. Purchase of merchandise merchandise inventory. B. Payment of principal on a note. C. Purchase of fixed asset. D. Paying wages and salaries salaries to employees. employees. 50. This type of transaction is one that a business encounters on a regular, recurring recurring basis. The volume of the transactions is so large that transactions and the related accounting activities become second nature nature to the employees responsible for handling handling them. Specific authorization for each of these transactions transactions is not necessary. The type of transaction referred referred to is: A. Non-routine transaction transaction B. Payroll transaction C. Fixed asset transaction D. Routine transaction 51. Which of the following is a characteristic characteristic of a non-routine transaction? A. A business encounters encounters this type of transaction on a regular, recurring recurring basis. B. Required to have have specific authorization. C. Volume of transactions transactions becomes becomes second nature to the the employees responsible. D. Specific authorization authorization for the specific transaction is not necessary.
52. A company must have have systems in place to take care of all activities related to to both routine and non-routine processes. processes. The activities would would include all of the following, except: except: A. Record B. Summarize C. Review D. Report 53. The policies and procedures procedures that employees employees following in acquiring and and maintaining human human resources, capturing and maintaining employee data, paying employees for time worked, and recorded the related cash payroll liabilities and expenses are collectively referred to as: A. Payroll processes B. Human resources C. Salary administration D. Administrative procedures 54. The policies and procedures procedures involved in purchasing purchasing property; capturing capturing and maintaining maintaining relevant data about the assets; paying for and recording the related assets; depreciation and other expenses; and gains or losses are collectively referred to as: A. Capital resources B. Fixed asset processes C. Property administration D. Capital procedures 55. There are many risks that may may affect the payroll and fixed asset transactions. Which of the following is not one of those risks? A. Recorded transactions transactions may not be valid. B. Expenditure transactions transactions may may be recorded recorded in the wrong wrong account. C. Valid expenditures expenditures recorded properly by the wrong employee. D. Transactions may not be recorded in a timely timely manner. manner. 56. This department is responsible for maintaining maintaining records for each each job and each employee employee within the organization, as well as tracking job vacancies and supporting the company’s recruitment efforts. A. Salary and Wage Administration Administration Department Department B. Vice President for Employees 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 relationships within an organization. This may include only only top branches of an organization or may include all positions within the company. A. Employee List B. Organization Chart C. Hierarchy Tree D. Human Resources Listing
58. This item would include include explanations concerning concerning the qualifications qualifications and responsibilities responsibilities of each position shown on organization organization chart. The item is also also supported by policies and 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 records will typically typically include all of the the following, except: A. Documentation related related to the initial hiring hiring B. Personal information, information, such such as the employee employee address C. Medical history subsequent to hiring D. Social security number 60. Each of the following items items would likely be found in in an employee’s personnel personnel records related 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 maintain adequate records records of the hours worked worked and the projects worked on. The record of hours worked 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 would be a correct way to compute compute the gross gross pay for an employee? employee? A. Hours Worked times Authorized Authorized Pay Rate B. Hours Worked times Authorized Authorized Pay Rate minus Withholding Withholding Taxes C. Net Pay minus Authorized Authorized Deductions D. Net Pay times Withholding Withholding Taxes 63. Which of the following would would be a correct way to compute compute the net net pay for an employee? employee? A. Hours Worked times Authorized Authorized Pay Rate B. Gross Pay minus Withholding Withholding Taxes C. Gross Pay minus Authorized Authorized Deductions D. Hours Worked times Withholding Withholding Tax Rate 64. This record, prepared by the the payroll department, department, is a complete listing listing of salary or wage detail detail for all employees for a given time. A. Payroll journal B. General ledger C. Employee record D. Payroll register
65. When accounting software 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 authorizes the transfer transfer of cash from the company’s main operating account account into the payroll cash account. A. Payroll register B. Payroll disbursements journal C. Payroll voucher D. Paycheck 67. This record, prepared by the the cash disbursements disbursements department, department, provides a listing listing of al paychecks written, in check-number sequence, with the total supporting the amount of payroll funds to transfer to the payroll bank account. A. Payroll Disbursements Journal B. Payroll Register C. Payroll Journal D. Cash Disbursements Journal 68. This A. B. C. D.
individual is responsible responsible for distributing the signed paychecks on the designated pay pay day. Human Resources Resources Director Department Supervisor Payroll Department Manager Paymaster
69. Types of fraud that may occur in the payroll function include all of the following, except: A. Overstated hours hours B. Incorrectly computed tax withholdings C. False claims of sick leave D. Pay claims claims made made by ghost employees 70. Which of the following correctly states states a reconciliation reconciliation process to be completed completed related to payroll? A. Time sheets reconciled reconciled to the payroll register. register. B. Payroll register register to the general ledger. C. Time sheets to the the production production reports. reports. D. Production reports to the the general general ledger. 71. The internal internal control activity requiring that the manager manager approves payroll payroll prior to signing signing paycheck is intended to minimize the risk of: A. Omitted paychecks B. Incorrect amounts C. Fictitious employee D. Stolen paychecks
72. The of: A. B. C. D.
internal control control process of requiring an an independent paymaster paymaster will help to minimize minimize the risk Fictitious employees Incorrect amounts Omitted paychecks Timing issues
73. The internal control 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 control activities within within the payroll process, process, identified as adequate 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 prepared on prenumbered checks 75. Internal control control activities within within the payroll process, process, identified as authorization, authorization, would include which of the following? A. Preparation of a bank 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 activities within the payroll payroll process, identified as segregation segregation of duties, would include which of the following? A. Payroll preparation, authorization authorization of new hiring and pay rates, rates, information systems, systems, and general accounting should all be performed by different departments and / or different people. B. IT controls over computer records records and physical physical controls in records storage areas. C. The payroll register is checked for mathematical mathematical accuracy and and agreement with authorized authorized pay rates and deductions. D. Supervisor approval of time sheets sheets prior to preparation of payroll payroll documents. 77. Internal control activities activities within the payroll payroll process, identified as independent checks and reconciliations, would include which of the following? A. IT controls over computer computer records and physical physical controls in records storage storage area. B. Time sheets sheets reconciled reconciled with the payroll payroll register. C. The payroll register is checked for mathematical mathematical accuracy and and agreement with authorized authorized pay rates and deductions. D. Supervisor approves time sheets prior to preparation preparation of payroll documents. documents.
78. When payroll is processed processed using batch processing, processing, which of the following would not be part of the payroll process? A. Human resources resources department would would be responsible for keying employee information into the master file. B. The timekeeper will accumulate accumulate all time sheets sheets and enter enter them into into the computer system system in batches. C. The timekeeper should should prepare control totals totals and hash totals totals in order to check check the system before the paychecks are generated. D. Human resources should prepare control control totals and has has totals in order to check check the system before the paychecks are generated. 79. An electronic payroll time keeping keeping device that collects collects time and attendance attendance data when when employees enter their time sheets is called: A. Timekeeper B. Paymaster C. Electronic time clock D. Badge readers 80. An electronic payroll time keeping keeping device that collects collects data when employee employee identification badges badges are swiped through an electronic reader are called: A. Timekeeper B. Badge reader C. Paymaster D. Electronic time clock 81. In order to smooth out the payroll process process and avoid the heavy 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 and payroll functions. This system makes 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 Systems B. Batch Processing C. Electronic Timekeeping D. Outsourcing of Payroll Services 82. Many companies use independent, independent, internet-based service service providers to handle handle their payroll processing. These payroll providers specialize specialize in offering solutions solutions and constant access to payroll information. A. Online Software Systems Systems B. Batch Processing C. Electronic Timekeeping D. Outsourcing of Payroll Services
83. There are many uses uses of electronic funds transfer related related to the payroll process. Which of the the following is not one of those uses? A. Payments to the employees. B. Payments to the the federal federal taxing taxing agencies. agencies. C. Transfers to the the payroll checking account. D. All of the above are uses of electronic funds funds transfer. transfer. 84. Assets to be included in the fixed asset asset pool would include all of the the following, except: A. Vehicles B. Furniture C. Office Supplies D. Real Estate 85. The A. B. C. D.
fixed assets assets owned by a company are considered to be long-term long-term because: The high cost of the fixed assets demands demands that they not be considered considered short term. They are purchased purchased with the intent intent of benefitting the company for a long period period of time. The assets assets will last last for a long period of time. time. All of the above above are reasons reasons the fixed fixed assets are are considered to to be long-term.
86. The three phases phases of fixed assets processes, processes, that span the entire entire useful life of the assets, assets, include all of the following, except: A. Depreciation B. Acquisition C. Disposal D. Continuance 87. Notable differences between between the acquisition acquisition of fixed assets and and the acquisition of inventory include: A. The placement of the the acquired assets assets - user department department for fixed assets, assets, warehouse for inventory. B. The inclusion of a fixed fixed asset department department instead of the inventory control department. 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 and other investments. A. Investment Analysis Analysis B. Feasibility Study C. Operating Budget D. Capital Budget 89. A detailed listing of the company’s fixed assets, assets, divided into categories categories consistent with the general ledger accounts is called a: 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 processes relates to those required to maintain maintain accurate and and upto-date records regarding all fixed assets throughout their useful lives. A. Depreciation B. Acquisition C. Disposal D. Continuance 91. Activities involved with the fixed assets continuance continuance phase of the the fixed assets processes processes include all of the following, except: A. Updating depreciation prior to the disposal of fixed assets B. Updating cost data for improvements to assets assets C. Adjusting for periodic depreciation D. Keeping track of the physical location location of the the assets assets 92. The record detailing the the amounts and timing of depreciation depreciation for all fixed asset categories, categories, except land, is called: A. Fixed asset subsidiary ledger B. Capital budget C. Depreciation schedule D. Depreciation method 93. This phase of the the fixed asset processes processes relates to discarding discarding fixed assets when when they become old, outdated, inefficient, or damaged. A. Depreciation B. Acquisition C. Disposal D. Continuance 94. Activities involved with the fixed assets disposal disposal phase of the fixed assets processes processes include all of the following, except: A. Adjusting periodic depreciation depreciation B. Disposed assets assets are removed removed from the fixed asset subsidiary ledger C. Gains or losses resulting resulting from disposal disposal are computed D. The depreciation amounts related related to the the disposed assets assets are removed from the the depreciation schedule and the fixed asset subsidiary ledger 95. Disposing of a fixed asset could include all all of the following methods, except: except: A. Throwing it away B. Sending it to to another another department C. Exchanging it for another asset D. Donating it to another party 96. When high-dollar fixed assets assets are purchased, purchased, there should should be a strict approval approval process which would include three three formal steps. Which of the following is not one of those steps? steps? A. Review of the proposal and and specific approval by the the appropriate level of management. 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 assets is the investment investment analysis. Which of the following is part of that analysis? analysis? A. Capital budget comparison comparison B. Review of the proposal C. Financial justification D. Written requisition 98. Which of the following is a correct statement statement related to segregation segregation of duties related related to fixed assets? A. Custody of fixed assets assets is to be separate separate from the related related record keeping B. Custody of fixed assets assets need not be separate from the the purchasing of fixed fixed assets C. The IT function of programming programming need not not be separated from the accounting accounting for fixed assets. D. All of the above above are correct statements related to the the segregation of duties. 99. The security of assets and documents documents would include include all of the following, except: A. Supervisors need to to make certain that that the assets assets are being used used for their intended purpose. B. Designated members members of management management should should be assigned assigned responsibility for the disposal of any assets C. Maintaining adequate insurance coverage D. Electronic controls are needed to control access access to automated automated records 100. Which of the following independent checks would be part of the internal controls for fixed assets? A. Comparing actual actual fixed asset expenditures expenditures with the capital capital budget. B. Periodic counts of fixed assets assets should be made made by someone not otherwise responsible responsible for fixed asset related activities. C. Physical counts should be reconciled reconciled with the accounting accounting records. D. Book value of the assets should be compared compared to the 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: A. Incorrect amounts amounts B. Lost or stolen assets C. Duplicate transactions D. Omitted transactions 102. The internal control process of requiring physical controls in place in areas where fixed assets are held will help to minimize the risk of: A. Incorrect amounts amounts B. Lost or stolen assets C. Duplicate transactions D. Omitted transactions
103. The internal control process of requiring the check of the fixed asset subsidiary ledger and depreciation schedule for mathematical accuracy and agreement with authorized documentation will help to minimize the risk of: A. Incorrect amounts amounts B. Lost or stolen assets C. Duplicate transactions D. Omitted transactions 104. Factors that indicate the need for internal controls over fixed assets processes include all of the following, except: A. General nature of fixed fixed assets makes the susceptible susceptible to theft because because they are distributed distributed throughout the business and are in the hands of many B. Large quantities of fixed assets C. High likelihood of obsolescence due to technological changes changes D. The high cost of assets 105. Most companies can justify the use of specialized asset management software programs instead of the spreadsheets or traditional manual systems for all of the following reasons, except: A. The abundance of fixed asset data B. The time-consuming time-consuming and tedious requirements requirements for tracking tracking changes C. The number number of different different methods of accounting accounting for depreciation depreciation D. The intricacy of the tax laws 106. The shortcomings of a spreadsheet-based system include all of the following, except: A. The design of spreadsheets spreadsheets is very time time consuming B. The abundance of fixed asset data C. It is difficult to apply varying depreciation depreciation policies within within spreadsheets spreadsheets D. It is difficult difficult to establish establish an audit trail with spreadsheets spreadsheets 107. The control environment related to the fixed asset processes can be enhanced through the implementation of various access controls, such as: A. Passwords B. Number of employees who who have access to the system system C. Limits on the the number of computer workstations workstations where information may be entered D. All of the above 108. An entity who receives a paycheck, but who does not actually work for the company is called: A. Ghost employee B. Shell employee C. Abundant employee D. Absent employee 109. There are a number of ways that frauds may be carried out to try to receive excess compensation. Which of the following is not one of those methods? methods? A. Exaggeration of hours worked B. Falsification of overtime overtime or holiday time time worked, payable payable at a higher rate C. Understatement Understatement of job related expenses D. Falsification of sales in order to increase commission commission payouts payouts
110. Clues that a ghost employee may exist in the company would include all of the following, except: A. Payroll register identifies paychecks paychecks without adequate tax withholdings withholdings B. The personnel personnel file contains no duplicate addresses C. Payroll expenses are over budget D. Paychecks were not claimed when when the paymaster distributed distributed them
ANSWERS TO TEST TEST BANK – CHAPTER 10 10 – MULTIPLE CHOICE: CHOICE: 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61.
A D B C A B C D B A C D B
62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74.
A C D B C A D B D C A B D
75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87.
C A B D C B A D D C B A C
88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100.
D B D A C C A B D C A B D
101. 102. 103. 104. 105. 106. 107. 108. 109. 110.
C B A D C B D A C B
TEST BANK – CHAPTER 10 – END OF CHAPTER QUESTIONS: 111. Which of the following foll owing statements about payroll and fixed asset processes is true? A. Both have only routine routine processes B. Both have only non-routine processes C. Both have have routine routine and and non-routine non-routine processes processes D. Payroll has only only routine processes, processes, while fixed assets has only non-routine non-routine processes processes 112. For a given pay period, the complete listing of paychecks for the pay period is a: A. Payroll register B. Payroll ledger C. Payroll journal D. Paymaster 113. A payroll voucher A. Authorizes an employee employee paycheck to be written written B. Authorizes the transfer transfer of cash from a main operating account account to a payroll account account C. authorizes the transfer of cash from a payroll account to a main operating account account D. Authorizes the paymaster paymaster to distribute distribute paychecks paychecks
114. For proper segregation of duties, the department that should authorize new employees for payroll would be: A. Payroll. B. Human resources. C. Cash disbursements. D. General ledger. 115. Which of the following is not an independent check within payroll processes? A. Time sheets are are reconciled with production production records. B. Time sheets sheets are reconciled with the payroll register. C. Paychecks are prepared prepared on prenumbered checks. D. The payroll register is reconciled with the general general ledger. 116. An integrated IT system of payroll and human resources may have extra risks above those of a manual system. system. Passwords and access access logs are controls that should be used in these these integrated systems to lessen the risk of: A. Hardware failures. B. Erroneous data input. C. Payroll data that does not reconcile to time cards. D. Unauthorized access to payroll data. 117. Internal control problems would be likely to result if a company’s payroll department supervisor was also responsible for: A. Reviewing authorization authorization forms for new employees. employees. B. Comparing the the payroll register register with the batch transmittal. C. Authorizing changes in employee employee pay rates. D. Hiring subordinates subordinates to work in the payroll payroll department. department. 118. Which of the following procedures would be most useful in determining the effectiveness of a company’s internal controls regarding the existence or occurrence of payroll transactions? A. Observe the segregation segregation of duties concerning concerning personnel personnel responsibilities and payroll payroll disbursement. B. Inspect evidence evidence of accounting accounting for prenumbered payroll checks. C. Recompute the payroll deductions for employee fringe benefits. D. Verify the preparation preparation of the monthly payroll account bank reconciliation. 119. In meeting the control objective of safeguarding of assets, which department should be responsible for distribution of paychecks ad custody of unclaimed paychecks, respectively?
A. B. C. D.
Distribution of Paychecks Treasurer Payroll Treasurer Payroll
Custody of Unclaimed Paychecks Treasurer Treasurer Payroll Payroll
120. A company’s internal controls policies may mandate the distribution of paychecks by an independent paymaster paymaster in order to determine that: A. Payroll deductions are properly properly authorized and and computed. B. Pay rates are are properly authorized authorized and separate from the operating functions. C. Each employee’s paycheck is supported supported by an approved time sheet. D. Employees included included in the period’s payroll register register actually exist exist and are are currently employed. 121. The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the: A. Authorization of transactions transactions from the custody of related assets. assets. B. Operational responsibility from from the record keeping keeping responsibility. responsibility. C. Human resources resources function function from the controllership controllership function. D. Administrative controls controls from the internal internal accounting accounting controls. 122. Which of the following departments or positions most likely would approve changes in pay rates and deductions from employee salaries? A. Personnel B. Treasurer C. Controller D. Payroll 123. The purchaser of fixed assets is likely to require different authorization processes than the purchase of inventory. Which of the following is not likely to be part of the authorization of fixed assets? A. Specific authorization. authorization. B. Inclusion in the capital budget. C. An investment investment analysis or feasibility analysis of the purchase. purchase. D. Approval of the the depreciation schedule. 124. Which of the following is not a part of “adequate documents and records” for fixed assets? A. Fixed asset journal B. Fixed asset subsidiary ledger C. Purchase order D. Fixed asset tags 125. Which of the following questions would be least likely to appear on an internal control questionnaire regarding the initiation and execution of new property, plant, and equipment purchases? A. Are requests for repairs repairs approved by someone someone higher than the the department initiating the request? B. Are prenumbered prenumbered purchase purchase orders used and accounted for? C. Are purchase requisitions reviewed reviewed for consideration consideration of soliciting competitive bids? D. Is access to the assets restricted and and monitored?
126. Which of the following reviews would be most likely to indicate that a company’s property, plant, and equipment accounts are not understated? A. Review of the company’s repairs and maintenance maintenance expense expense accounts. B. Review of supporting supporting documentation documentation for recent equipment equipment purchases. purchases. C. Review and recompilation recompilation of the the company’s depreciation expense expense accounts. accounts. D. Review of the the company’s company’s miscellaneous miscellaneous revenue revenue account. account. 127. Which of the following is not an advantage of fixed fi xed asset software systems when when compared with spreadsheets? A. Better ability to handle handle non-financial data data such as asset asset location. B. Easier to apply different depreciation policies to different assets. assets. C. Manual processes to link to the the general general ledger. D. Expanded opportunities for customized customized reporting. 128. The term “ghost employee” means that: A. Hours worked has been been exaggerated by an an employee. B. False sales have been claimed to boost commission commission earned. C. Overtime hours have been inflated. D. Someone who does not work for the company company receives a paycheck. ANSWERS TO TEST BANK – CHAPTER 10 10 – END OF CHAPTER CHAPTER QUESTIONS 111. 112. 113. 114.
C A B B
115. 116. 117. 118.
C D C A
119. 120. 121. 122.
A D A A
123. 124. 125. 126.
D A D A
127. C 128. D
TEST BANK – CHAPTER 10 – SHORT ANSWER QUESTIONS 129. Sales and inventory purchases are routine processes that occur nearly every day in a business. How are these routine processes different from payroll or fixed asset processes? Answer: The major difference difference is the frequency frequency of occurrence. As stated in the the question, sales sales and purchases are often often undertaken daily. daily. Payroll occurs on a fixed schedule such as every week, biweekly, or at month-end. month-end. Payroll transaction transaction volume might be large, but only at these these time intervals. Some payroll events occur occur only when when employees employees are hired or fired. Fixed asset asset processes occur on an “as needed” needed” basis. The volume of fixed asset transactions transactions is relatively small compared to sales or purchase transaction transaction volume. Depreciation of fixed assets occurs on a fixed interval, such as at year-end. 130. Even though payroll and fixed asset processes may not be as routine as revenue processes, why are they just as important? Answer: They are important important because payroll and fixed asset transactions are related to two very critical resources. An organization must have employees employees and facilities (fixed assets) assets) to operate. operate.
131. Why do you think management should specifically approve all employees hired? Answer: It is a nonroutine nonroutine process, and therefore, the volume volume of hiring is usually usually small enough to allow specific approval of each hire. hire. Specific approval is important important because hiring the right people is one of the most important keys to success success in an organization. Also, hiring unethical people, or people with criminal backgrounds can be very detrimental to the company. 132. Why is it important that the human resources department maintain records authorizing the various deductions from an employee’s paycheck? Answer: First, state or federal laws require that that employees authorize authorize (allow) deductions deductions from their salary or wages. Secondly, without adequate records, it would would be difficult to ensure ensure the correct deductions have been taken from employee wages. 133. Explain why an employee’s individual record is accessed frequently, but changed relatively infrequently. Answer: Typically, an employee’s employee’s basic information information does not change frequently. For example, name, birth date, SSN, either either never change, or rarely change. change. Other employee information such as address, pay rate, or deductions change change infrequently. However, some of this information, such as pay rate and deductions must be accessed every time payroll checks are prepared. 134. Explain two things that should occur to ensure that hours worked on a time card are accurate and complete. Answer: Each employee should update their their time card daily and and a supervisor should should check the time card and sign or initial initial it before it is forwarded forwarded to payroll for processing. If an employee does not update it daily, they are more likely to put inaccurate information on it simply because it will be harder to remember remember the specific start start and end times of work. The supervisory supervisory approval serves as an independent check of the accuracy of the time card. 135. Explain the reasons that an organization would have a separate bank account established for payroll. Answer: A separate bank account for payroll payroll makes it easier to to account for payroll transactions transactions and to distinguish these transactions from other cash disbursements. 136. What is the purpose of supervisory review of employee time cards? Answer: The supervisory supervisory approval serves as an independent check of the accuracy accuracy of the time card. 137. Why is it important to use an independent paymaster to distribute paychecks? Answer: It is the best best segregation of duties duties to have a separate separate paymaster paymaster to distribute any paper paper checks. A separate paymaster paymaster segregates the custody custody from authorization, preparation, preparation, and recording of paychecks. If these duties were combined, a person could commit payroll fraud fraud such as creating a fictitious fictitious employee. A separate paymaster paymaster helps ensure ensure only active employees employees receive paychecks. 138. Why do payroll processes result in sensitive information and what is the sensitive information? Answer: The amount amount of salary or wages wages is sensitive, as well as the types and amounts of deductions. Also, personal information such as SSN, dependents, dependents, addresses addresses and phone numbers numbers are sensitive.
139. Why is batch processing well-suited to payroll processes? Answer: Because it involves transactions that that can be grouped and processed processed at a particular time. time. For example, all hourly workers might be required to turn in all time cards on Friday afternoon and be paid the next Tuesday. Tuesday. All of these time cards can be processed as a group on Monday. Monday. 140. What are the advantages of automated time keeping such as bar code readers or ID badges that are swiped through a reader? Answer: Using these these automated methods methods eliminates human steps that that are error prone. prone. Thus, timekeeping becomes more efficient and more accurate. 141. What are the advantages of outsourcing payroll? Answer: Outsourcing payroll provides increased convenience, convenience, confidentiality, confidentiality, and protection from risk of liability for f or failure to submit tax withholdings and reports. 142. Fixed assets are purchased purchased and retired frequently. frequently. Given this frequent change, change, why are clear accounting records of fixed assets necessary? Answer: Not only must the the cost and resale resale value be accounted accounted for properly, but depreciation depreciation can only be calculated accurately with proper records, and any gain or loss on sale is computed based on accurate records. 143. Why is it important to conduct an investment analysis prior to the purchase of fixed assets? Answer: Since the dollar investment can can be large, and there there is usually a limited limited capital budget, there must be an orderly process to determine the best use of capital funds. 144. Explain why categorizing fixed asset expenditures as expenses or capital assets are important. Answer: Miscategorization Miscategorization can have a dramatic dramatic impact on financial statements statements and therefore, therefore, can mislead users of these statements. statements. These amounts are usually usually large and therefore, have a larger impact than would other transactions transactions such as sales or inventory inventory purchases. If a fixed asset expenditure is classified as an expense, it will understate understate the balances sheet assets and understate net income. 145. What are some of the practical characteristics of fixed assets that complicate the calculation of depreciation? Answer: For many companies, companies, there is a large number and and type of fixed assets. assets. These different asset types may have different service lives and different methods of depreciation. In addition, there are offer additions additions or retirements of fixed fixed assets. Finally, the tax methods of depreciation depreciation for fixed assets may require two different sets of asset and depreciation records; one for financial statement purposes, and one for tax purposes. 146. What is different about the nature of fixed asset purchasing that makes authorization controls important? Answer: Fixed asset purchases purchases can be very large amounts amounts of money and in addition, addition, choosing the right fixed assets is very important. Management should should be purchasing the fixed assets assets that have a good return on investment. For these reasons, fixed asset asset authorization usually requires requires a higher level of management approval, and usually requires an investment analysis such as net present value.
147. Explain the necessity of supervision over fixed assets. Answer: Fixed assets must must be located throughout throughout the company company where employees employees have direct access to them. Employees could not do their their jobs without these fixed assets. Since fixed assets are readily accessible to many employees, supervision is necessary to ensure that the assets are used for their intended purpose, and that they are not stolen. 148. Why are some fixed fi xed assets susceptible to theft? Answer: In some cases, cases, fixed assets are are small or very portable. portable. Examples would be laptop laptop computers, hand hand tools, or vehicles. vehicles. These would be easy to steal. steal. Conversely, a large fixed asset asset such as a manufacturing robot would not be easy to steal. 149. Explain why a real-time update of fixed asset records might be preferable to batch processing of fixed asset changes. Answer: Often, fixed asset asset changes are are non-routine transactions. transactions. Since the volume of these transactions could be small, and any one transaction might affect only a single asset record, realtime updates may be more appropriate. 150. Why is the beginning of a fiscal year the best time to implement a fixed asset software system? Answer: Because it eliminates any mid-year mid-year adjustments adjustments for depreciation that that would be necessary. 151. What negative things might occur if fixed asset software systems lack appropriate access controls? Answer: It would be much much easier for an employee employee to steal a fixed fixed asset and alter alter the records to hide this theft. 152. Why might a supervisor collude with an employee to falsify time cards? Answer: In some cases, cases, the supervisor might might agree to the the fraud so as to to share in the extra extra money that results from the fraudulent pay. 153. How does the misclassification of fixed asset expenditures result in misstatement of financial statements? Answer: If something something should have been been recorded as a fixed asset gets recorded recorded as expenditure, expenditure, it will understate assets and and understate income. income. The opposite is true if an expenditure expenditure is misclassified as a capital asset. Assets are overstated overstated and income is overstated. TEST BANK – CHAPTER 10 – SHORT ESSAY 154. Describe the type of information that a human resources department should maintain for each employee. Answer: They should maintain maintain personnel personnel records that include include employee application, contract, resume, recommendation letters, interview reports, wage authorization, and background investigation report. The records should should also include employee address, address, SSN, employment employment history, information about authorized deductions, vacation and sick time accrued, attendance and performance evaluation records, work schedule, and promotion or termination records.
155. The calculation of gross and net net pay can be a complicated process. Explain the items that that complicate payroll calculations. Answer: Each employee’s employee’s deductions are likely to be different. In addition, the payroll payroll formulas must be applied applied to every employee in the company, one one at a time. The process is further complicated the fact that that the inputs tend to change change constantly. Each payroll period will include some changes in the number of hours worked, pay rates or withholdings. 156. Explain how duties are segregated segregated in payroll. Specifically, who or which departments departments conduct the authorization, timekeeping, recording, and custody functions? Answer: Authorizing, timekeeping, record keeping, keeping, and custody of the the paychecks should all all be separated. Namely, the human resources resources department, which is responsible responsible for authorizing new employee hiring and maintaining personnel files, should be separate from the payroll time reporting and record keeping functions, performed primarily by the payroll, cash disbursements, and general ledger departments. departments. In addition, employees in each of these departments departments should should not have check-signing authority and should not have access to the signed checks or cash account. The person, who distributes paychecks to employees, often referred to as a paymaster, should not have responsibility for any of the related payroll accounting functions and should not have custody of cash. The paymaster should should also be independent independent of the departmental departmental supervision supervision responsibilities, so that it can be determined that paychecks are being distributed to active employees. Finally, information systems systems operations and programming related related to the payroll processing should be separate from those responsible for custody of payroll cash and record keeping for these processes. 157. Explain the various reconciliation procedures that should occur in payroll. Answer: The number number of hours reported on time sheets sheets should be reconciled to the payroll register, and time sheets should should be reconciled with production reports. Each of these reconciliations reconciliations should be performed before paychecks are signed in order to ensure the accuracy of the underlying payroll information. In addition, the payroll payroll register should be reconciled to the general general ledger on a regular basis. Someone separate separate from the payroll processing functions should should reconcile the bank statement for the payroll cash account on a monthly basis. 158. Explain the ways in which electronic transfer of funds can improve payroll processes. Answer: EFT can be used used to directly deposit deposit pay to employee bank bank accounts. This eliminates the printing and distribution of pay checks. The company can also use EFT to deposit deposit taxes withheld and other employee withholdings. withholdings. Finally, wage attachments attachments that result from court proceedings proceedings can be transmitted via EFT. All of these EFT processes are faster and and more efficient than the use of printed checks and mailing of checks. 159. Explain the kinds of information that must be maintained in fixed asset records during the asset continuance phase. Answer: For each fixed assets, assets, there must must be records of the asset cost, cost, estimated life and salvage values, depreciation, maintenance records, and repair or improvement costs.
160. The authorization authorization to purchase fixed assets assets should include investment investment analysis. Explain the two parts of investment analysis. Answer: The first part part is financial justification justification using a model such such as net present value, payback payback period, or internal rate of return. The use of these models requires that dollar estimates be determined for costs and benefits benefits of the fixed asset. The second part would be a written written narrative of the benefits; especially especially any benefits that are difficult to quantify quantify in dollars. A written narrative narrative of the need for investment can help justify the expenditure when financial benefits do not immediately exceed costs. 161. Explain the types of unethical behavior that may occur in the fixed fi xed assets area. Answer: The use of estimates for useful lives and salvage salvage values are an an area that unethical unethical managers can use to manipulate manipulate income statement statement or balance sheet amounts. amounts. Showing lower depreciation amounts can can increase income and asset asset values above what they should should be. In addition, misclassification of expenses as fixed asset expenditures can be used to show higher income and asset values. TEST BANK – CHAPTER 10 – PROBLEMS 162. Question not available. 163. The text text book Web site has a Microsoft Excel spreadsheet spreadsheet titled payroll_problem.xls. payroll_problem.xls. This spreadsheet is used by Neltner Company to calculate its bi-weekly payroll. Using the information in that spreadsheet, spreadsheet, calculate all details for the February February 22, 2008 payroll. Hours worked by each employee employee are contained in the first worksheet. worksheet. The following four worksheets worksheets contain details for each of the three employees and a total of the three employees. The last worksheet contains contains federal tax withholding withholding tables to calculate calculate federal tax to withhold. withhold. You will calculate gross pay and and deductions for all all three employees. See the excel file payroll_problem_solution.xls. After students have have completed the the spreadsheet exercise, it might be a good discussion question to ask how a payroll software program would improve the efficiency and accuracy of the payroll process.
164. The text book Web site has a Microsoft Microsoft Excel spreadsheet titled fixed_asset.xls. fixed_asset.xls. The spreadsheet represents represents a fixed asset subsidiary ledger for Brazos Brazos Corporation. On July 3, 2008, Brazos purchased for the office a multifunction printer/fax/copier from Brereton Office Supplies for $2,000. $2,000. The machine machine has no salvage value and a four year life. Add a new ledger record for this machine and calculate and record the 2008 depreciation expense for all fixed assets. Brazos uses straight-line depreciation depreciation with a half-year convention. See the Excel file fixed_asset_solution.xls. fixed_asset_solution.xls. After students have completed completed the spreadsheet spreadsheet exercise, it might be a good discussion question to ask how a fixed asset software program would improve the efficiency and accuracy of the fixed asset processes.
165. Explain the process of approval of purchases purchases for fixed assets. How does this process differ from that of purchasing raw materials? Answer: When a request request to purchase purchase a fixed asset is initiated by a manager, manager, a formal investment investment analysis should occur. This would include a cost- benefit analysis analysis such as net present present value, and a written justification of the benefits and costs, as well as any benefits and costs that are not easily quantifiable. There should also be an established established capital budget and any fixed asset asset purchase request should be analyzed in comparison to other requests within that budget, and a determination made of the best use use of the limited capital budget funds. Since fixed asset expenditures can involve large dollar amounts, there should also be specific authorization by a manager for the purchase. purchase. The company should have have an established policy that identifies the level of managerial approval needed for various levels of expenditure. The processes mentioned above are most of the different processes for fixed asset purchases when compared to raw material material purchases. One other difference is that requests requests to purchase raw materials generally originate in inventory control or production scheduling, the requests for fixed asset purchases would would come from various managers of operating operating units within the enterprise. enterprise. The other processes of the purchase, such as POs, document matching, and cash disbursements are similar to those processes for raw material purchases. 166. Using an Internet search engine, search for the phrase “biometric time recording” (be sure to include the quotation marks). marks). Based on your search results, results, describe a biometric time recording system and its advantages. Answer: A biometric time recording system uses uses unique physical physical characteristics of human human beings to identify and record time for employees. Such biometric characteristics characteristics are are finger print, hand print, face, retina, or voice pattern. The most commonly commonly used biometric characteristic characteristic is the finger print. In a biometric time recording system, a company company installs a scanner that that reads the fingerprint and records the arrival and departure departure times. The advantage to the employee employee is the ease of use. The employee does not need need to record times on a time card and does not have to use or keep track of an employee ID badge. badge. The employer sees many advantages. Time keeping is more accurate and complete, payroll accuracy is increased, employees are identified with certainty and building security is increased. increased. In addition, it eliminates “buddy punching” punching” where one employee “punches” the time clock for his buddy who is actually absent.
167. Using an Internet search engine, search for the phrase “fixed asset software” (be sure to include the quotation marks). Examine the results to find companies that sell fixed fixed asset software. software. List and explain some of the features of fixed asset software that these companies use as selling points for their software. Answer: One software vendor (http://www.realass http://www.realassetmgt.com/rsd/ass etmgt.com/rsd/asset_accounting/fixed_ et_accounting/fixed_asset_manage asset_management.htm ment.htm)) lists the following benefits: Easily access a complete audit trail with history/actions performed by all users. Calculate depreciation for one book or multiple books (state, federal and corporate). Compute and retain depreciation figures for past, current and future periods. Create ‘Parent/Child’ asset relationships to establish key dependencies and hierarchies. Produce a full range of standard and customized reports and forecasts. Set user-defined data and description fields (up to 30 levels of analysis). Conduct full and partial asset disposals, transfers, relifes, revaluations and splits. Generate Section 179 charges and bonus depreciation for applicable assets. Upload asset images for images for identification purposes. Adapt quickly to the familiar familiar Windows® inspired interface. interface. Comply with corporate governance regulations such as Sarbanes-Oxley Sarbanes-Oxley (SOX), (SOX), GAAP, US Tax and Tax and GASB 34. Utilize seamless links to Project4000 Project4000,, RAMI’s project cost control module. Take advantage of fixed asset tracking capabilities available with Track4000 Track4000.. Directly import raw data, in a range of formats, using the Data Import Wizard. Employ Asset4000i Employ Asset4000i for for remote access to your fixed asset register. Login with a valid username and password combination prior to accessing the database. Establish individual or group access rights for security purposes. Quickly add new asset details in a single input screen. A simple process for depreciation depreciation calculations whether whether for individual assets assets or groups of assets. assets. Several methods of depreciation including Straight Line, Double Straight Line, Reducing Balance, Variable Rate, Adjusted Declining, Declining, Digressive, MACRS, MACRS, ACRS, adjustments adjustments and Residual, Multiple Units of Production (MUOP) and Non Depreciating The ability to forecast depreciation as far into the future as desired. The ability to recalculate the current period’s depreciation to reflect updates in the asset register. A powerful, built-in report engine engine that provides more more than 100 standard reports and thousands thousands of customizable reports. A full audit history for events events including disposals, transfers, transfers, asset asset splits, relifes and revaluations revaluations can be accessed in seconds. The ability to physically and financially move an asset from one cost center to another without rekeying information. The software can display asset images i mages and associated documents such as emails, invoices, purchase orders and contracts.
168. Read the article at this link: http://www.fixedassetin http://www.fixedassetinfo.com/articles/adventure fo.com/articles/adventures1.asp. s1.asp. Describe why the scenario described described is unethical. Also, list controls or other steps that management management could have taken to prevent or detect this scenario. Answer: Yes, it is unethical. unethical. Even if the company company had no specific policy about the use use of cars by family members, the employee should should have known this is unethical. unethical. There are many reasons reasons for the use by a family member to be unethical. unethical. First, the asset is not being being used for a business related purpose. Second, this forces the company company to pay expenses (gasoline and and maintenance) that should be personal personal expenses. Also, the company is not likely to have insurance insurance coverage that would cover a driver other than the employee. There are very few controls that would be effective effective in this situation. This is true because the asset (car) is not located on company property and therefore, proper supervision cannot be applied to ensure the the asset is not misused. misused. The best controls are setting good policies and and enforcing those policies. Two important policies would would be a specific policy limiting limiting company car use to employees only, only, and a good code of ethics ethics for employees. These policies alone cannot prevent such misuse, but may make employees less likely to try such misuse. There is one new technology solution the the company could consider. consider. A GPS unit could be installed installed in each car and this unit could be monitored to track the location, speed, and stops of each car. Since this would be an expensive system, the company would have to determine whether it is cost effective. 169. Using an Internet search engine, search for the terms “Patti Dale” and theft (be sure to include the quotation quotation marks around the the name). name). Explain the unethical behavior that that occurred. Also, explain any internal controls that you believe were missing or not followed in this case. Answer: Patti Dale was was a 20 year employee employee of the University University of North Texas who who organized a payroll fraud scheme that resulted resulted in the theft of $255,185 $255,185 from UNT. She allowed students and and friends of her son to to falsify payroll time sheets. sheets. She issued paychecks for work not done done and received a kickback from these students. students. She also fraudulently hired friends of her son and and paid them for work they did not do. It appears the most important important internal control missing is segregation segregation of duties. No single person should authorize hiring and and approve time cards. It appears her supervisor, the the Dean, should have been approving time cards. An automated system system of time keeping such as ID badge swiping or biometric record keeping systems would have reduced the falsified time records. Ms. Dale also had submitted over $65,000 in falsified travel expenditures.
