CHAPTER 1: the general model for AIS are to collect data

1. Which of the following is NOT a financial that are

transaction? a. relevant and redundant.

a. purchase of products b. efficient and objective.

b. cash receipts c. efficient and redundant.

c. update valid vendor file d. efficient and relevant.

d. sale of inventory 5. Which of the following is NOT a

characteristic
2. The following are subsystems of the
Accounting of effective information?

Information System, EXCEPT a. relevance

a. Transaction Processing System. b. accuracy

b. Human Resources System. c. summarization

c. General Ledger/Financial Reporting System.

d. Management Reporting System. 6. Which of the following is NOT a database

3. Which of the following is NOT a purpose of management task?

the Transaction Processing System? a. retrieval

a. managing and reporting on the status of b. storage d. precision

financial investments c. summarization

b. converting economic events into financial d. deletion

transactions Multiple-Choice Questions

c. distributing essential information to 40 Chapter 1 The Information System: An

operations Accountant’s Perspective

personnel to support their daily operations 7. When viewed from the highest to most
elemental
d. recording financial transactions in the
level, the data hierarchy is
accounting records
a. attribute, record, file.
4. The objectives of the data collection activity
of b. record, attribute, key.
c. file, record, attribute. d. purchasing, receiving, and storage

d. file, record, key. e. purchasing, storage, and distribution

e. key, record, file. 11. Which of the following best describes the
activities of the production function?
8. Which is NOT an accountant’s primary role in
a. maintenance, inventory control, and
information systems? production planning
a. system user b. production planning, quality control,
b. system auditor manufacturing, and cost accounting
c. system designer c. quality control, production planning,
d. system programmer manufacturing, and payroll
9. Which of the following is NOT an objective of d. maintenance, production planning, storage,
all information systems? and quality control
a. support for the stewardship function of e. manufacturing, quality control, and
management maintenance
b. support for management decision making 12. Which of the following best describes the
c. support for the day-to-day operations of activities of the accounting function?
the firm a. inventory control, accounts payable, fixed
d. all of the above are objectives assets, and payroll
10. Which of the following best describes the b. fixed assets, accounts payable, cash
activities of the materials management disbursements, and cost accounting

function? c. purchasing, cash receipts, accounts payable,

a. purchasing, receiving, and inventory cash disbursements, and payroll

control d. inventory control, cash receipts, accounts

b. receiving, sales, distribution, and purchasing payable, cash disbursements, and payroll

c. receiving, storage, purchasing, and accounts e. inventory control, cost accounting, accounts

payable payable, cash disbursements, and payroll

13. Which statement best describes the issue of

distributed data processing (DDP)? increased.

a. The centralized and DDP approaches are c. The potential for hardware and software

mutually exclusive; an organization must incompatibility across the organization is

choose one approach or the other. increased.

b. The philosophy and objective of the d. The time between project request and
organization’s management will determine the
completion is increased.
extent of DDP in the firm.
e. All of the above are disadvantages.
c. In a minimum DDP arrangement, only data

input and output are distributed, leaving

Classify the following users of information as
the tasks of data control, data conversion,
either:
database management, and data processing
a. Internal Revenue Service- S
to be centrally managed.
b. Inventory control manager- I
d. The greatest disadvantage of a totally
c. Board of directors- S
distributed environment is that the distributed

IPU locations are unable to communicate d. Customers- T

e. Lending institutions- S
and coordinate their activities.

e. Although hardware (such as computers, f. Securities and Exchange Commission- S

g. Stockholders- S
database storage, and input/output terminals)

can be effectively distributed, the systems h. Chief executive officer- I

development and maintenance tasks must i. Suppliers- T
remain
j. Bondholders- S
centralized for better control and efficiency.

14. Which of the following is a disadvantage of

Classify the following items as either:
distributed data processing?
a. Variance reports
a. End-user involvement in systems operation
b. Sales order capture
is decreased.
c. Balance sheet
b. Disruptions due to mainframe failures are
d. Budgets a. document flowchart.

e. Purchase order preparation b. program flowchart.

f. Tax returns c. decision table.

g. Sales summary by product line d. work distribution analysis.

h. Cash disbursements preparation e. systems survey.

i. Annual report preparation 3. Sequential file processing will not permit

j. Invoice preparation a. data to be edited on a separate computer

run.
k. Cost-volume-profit analysis
b. the use of a database structure.
a. MRS b. TPS c. FRS d. MRS e. TPS f. FRS g.
MRS h. TPS i. FRS j. TPS k. MRS c. data to be edited in an offline mode.

CHAPTER 2: d. batch processing to be initiated from a

1. Which statement is not true? terminal.

a. Business activities begin with the acquisition e. data to be edited on a real-time basis.
of materials, property, and labor in exchange
for cash. 4. The production subsystem of the conversion

cycle includes all of the following EXCEPT

b. The conversion cycle includes the task of

determining raw materials requirements. a. determining raw materials requirements.

b. make or buy decisions on component parts.

c. Manufacturing firms have a conversion

cycle but retail firms do not. c. release of raw materials into production.

d. scheduling the goods to be produced.

d. A payroll check is an example of a product

document of the payroll system. 5. Which of the following files is a temporary

file?
e. A journal voucher is actually a special source
a. transaction file
document.
b. master file
2. A documentation tool that depicts the
physical flow of information relating to a c. reference file
particular d. none of the above
transaction through an organization is a 6. A documentation tool used to represent the
logical elements of a system is a(n) efficiently.

a. programming flowchart. c. Indexed random files are efficient when

processing a large portion of a file at one time.
b. entity relationship diagram.
d. Indexed random files are easy to maintain
c. document flowchart.
in terms of adding records.
d. data flow diagram.
10. Which statement is NOT correct? The
7. Which of the following is NOT an advantage indexed
of real-time processing files over batch
sequential access method
processing?
a. is used for very large files that need both
a. shorter transaction processing time
direct access and batch processing.
b. reduction of inventory stocks
b. may use an overflow area for records.
c. improved customer service
c. provides an exact physical address for each
d. all are advantages
record.
8. Which statement is NOT correct?
d. is appropriate for files that require few
a. Legacy systems may process financially
significant transactions. insertions or deletions.

b. Some legacy systems use database 11. Which statement is true about a hashing

technology. structure?

c. Mainframes are exclusive to legacy systems, a. The same address could be calculated for

while modern systems use only the clientserver two records.

model.
b. Storage space is used efficiently.
d. All the above are true.
c. Records cannot be accessed rapidly.
9. Which statement is NOT correct?
d. A separate index is required.
a. Indexed random files are dispersed
12. In a hashing structure
throughout the storage device without regard
for physical proximity with related a. two records can be stored at the same

address.
records.

b. Indexed random files use disk storage space b. pointers are used to indicate the location of
all records. a. Transactions are recorded on source
documents and are posted to journals.
c. pointers are used to indicate location of a
b. Transactions are recorded in journals and
record with the same address as another
are posted to ledgers.
record.
c. Infrequent transactions are recorded in the
d. all locations on the disk are used for record
general journal.
storage.
d. Frequent transactions are recorded in special
13. An advantage of a physical address pointer journals.
is
16. Which of the following is true of the
that
relationship between subsidiary ledgers and
a. it points directly to the actual disk storage general

location. ledger accounts?

b. it is easily recovered if it is inadvertently a. The two contain different and unrelated

data.
lost.
b. All general ledger accounts have subsidiaries.
c. it remains unchanged when disks are
c. The relationship between the two provides
reorganized.
an audit trail from the financial statements
d. all of the above are advantages of the
physical address pointer. to the source documents.

14. Which of the following is NOT true of a d. The total of subsidiary ledger accounts
turnaround document? usually exceeds the total in the related general

a. They may reduce the number of errors ledger account.

made by external parties. 17. Real-time systems might be appropriate for

all
b. They are commonly used by utility
companies (gas, power, water). of the following EXCEPT

c. They are documents used by internal parties a. airline reservations.

only. b. payroll.
d. They are both input and output documents. c. point-of-sale transactions.
15. Which of the following is NOT a true d. air traffic control systems.
statement?
e. all of these applications typically utilize
REVENUE CYCLE:
real-time processing. 1. Which document is NOT prepared by the
sales
18. is the document flowchart symbol for:
department?
a. on-page connector.
a. packing slip
b. off-page connector.
b. shipping notice
c. home base.
c. bill of lading
d. manual operation.
d. stock release
e. document.
2. Which document triggers the update of the

inventory subsidiary ledger?

Categorize each of the following activities
a. bill of lading
into the expenditure, conversion, or revenue
b. stock release
cycles and identify the applicable subsystem.
c. sales order
a. preparing the weekly payroll for
manufacturing personnel d. shipping notice

b. releasing raw materials for use in the 3. Which function should the billing
manufacturing cycle department

c. recording the receipt of payment for goods NOT perform?

sold a. record the sales in the sales journal

d. recording the order placed by a customer b. send the ledger copy of the sales order to

e. ordering raw materials accounts receivable

f. determining the amount of raw materials c. send the stock release document and the

to order shipping notice to the billing department as

a. Expenditure cycle-payroll subsystem. proof of shipment

b. Conversion cycle-production system
subsystem. d. send the stock release document to
c. Revenue cycle-cash receipts subsystem inventory control
. d. Revenue cycle-sales order processing
subsystem. 4. When will a credit check approval most likely
e. Expenditure cycle-purchases subsystem.
f. Conversion cycle-production subsystem. require specific authorization by the credit
department? 7. Which function or department below records

a. when verifying that the current transaction the decrease in inventory due to a sale?

does not exceed the customer’s credit limit a. warehouse

b. when verifying that the current transaction b. sales department

is with a valid customer c. billing department

c. when a valid customer places a materially d. inventory control

large order 8. Which situation indicates a weak internal

control structure?
d. when a valid customer returns goods
a. the AR clerk authorizes the write off of bad
5. Which type of control is considered a
compensating control? debts

a. segregation of duties b. the record-keeping clerk maintains both AR

b. access control and AP subsidiary ledgers

c. supervision c. the inventory control clerk authorizes

d. accounting records inventory purchases

6. Which of the following is NOT an d. the AR clerk prepares customer statements

independent verification control?
every month
a. The shipping department verifies that the
9. The bill of lading is prepared by the
goods sent from the warehouse are correct
a. sales clerk.
in type and quantity.
b. warehouse clerk.
b. General ledger clerks reconcile journal
c. shipping clerk.
vouchers that were independently prepared
d. billing clerk.
in various departments.
10. Which of following functions should be
c. The use of prenumbered sales orders.
segregated?
d. The billing department reconciles the
shipping notice with the sales invoice to ensure a. opening the mail and recording cash
receipts
that customers are billed for only the quantities
shipped. in the journal
b. authorizing credit and determining reorder register.

quantities b. AP maintains the AP subsidiary ledger.

c. shipping goods and preparing the bill of c. AP is responsible for paying invoices.

lading d. AP is responsible for authorizing invoices.

d. providing information on inventory levels 4. Which duties should be segregated?

and reconciling the bank statement a. matching purchase requisitions, receiving

reports, and invoices and authorizing

EXPENDITURE CYCLE PART 1:
payment
1. Which document helps to ensure that the
receiving clerks actually count the number of b. authorizing payment and maintaining the

goods received? check register

a. packing list c. writing checks and maintaining the check

b. blind copy of purchase order register

c. shipping notice d. authorizing payment and maintaining the

d. invoice AP subsidiary ledger

2. When the goods are received and the 5. Which documents would an auditor most
receiving likely

report has been prepared, which ledger may be choose to examine closely to ascertain that all

updated? expenditures incurred during the accounting

a. standard cost inventory ledger period have been recorded as a liability?

b. inventory subsidiary ledger a. invoices

c. general ledger b. purchase orders

d. AP subsidiary ledger c. purchase requisitions

3. Which statement is NOT correct for an d. receiving reports

expenditure system with proper internal
6. Which task must still require human
controls?
intervention in an automated purchases/cash
a. Cash disbursements maintain the check disbursements system?

a. determination of inventory requirements

b. preparation of a purchase order b. Cash disbursements is an independent

c. preparation of a receiving report accounting function.

d. preparation of a check register c. Cash disbursements is a treasury function.

7. Which one of the following departments d. The cash disbursement function is part of
does
the general ledger department.
not have a copy of the purchase order?

a. the purchasing department

Indicate which department—accounts payable,
b. the receiving department cash disbursements, data processing,

c. accounts payable purchasing, inventory, or receiving—has

ownership over the following files and
d. general ledger registers:
8. Which document typically triggers the a. open purchase order file- P
process
b. purchase requisition file- I
of recording a liability?
c. open purchase requisition file- I
a. purchase requisition
d. closed purchase requisition file- I
b. purchase order
e. inventory- I
c. receiving report
f. closed purchase order file- P
d. supplier’s invoice
g. valid vendor file- AP
9. Which of the following tasks should the cash
h. voucher register- AP
disbursement clerk NOT perform?
i. open vouchers payable file- AP
a. review the supporting documents for
completeness and accuracy j. receiving report file- R

b. prepare checks k. closed voucher file- AP

c. approve the liability l. check register (cash disbursements journal)-

CD
d. mark the supporting documents paid

10. Which of the following is true?

a. The cash disbursement function is part of

accounts payable.
 a. supervisors verify the accuracy of employee

EXPENDITURE CYCLE PART 2: time cards

1. The document that captures the total 312 Chapter 6 The Expenditure Cycle Part II:
amount Payroll Processing and Fixed Asset Procedures

of time that individual workers spend on each b. paychecks are distributed by an independent
paymaster
production job is called a
c. the AP department verifies the accuracy of
a. time card.
the payroll register before transferring payroll
b. job ticket. funds to the general checking account
c. personnel action form.
d. the general ledger department reconciles
d. labor distribution form. the

2. An important reconciliation in the payroll labor distribution summary and the payroll
system is when disbursement voucher
a. the general ledger department compares 4. The department responsible for approving
the labor distribution summary from cost pay

accounting to the disbursement voucher rate changes is

from AP. a. payroll

b. the personnel department compares the b. treasurer

number of employees authorized to receive a c. personnel
paycheck to the number of paychecks prepared.
d. cash disbursements
c. the production department compares the
5. Which function should distribute paychecks?
number of hours reported on job tickets to
a. personnel
the number of hours reported on time cards.
b. timekeeping
d. the payroll department compares the labor
c. paymaster
distribution summary to the hours reported
d. payroll
on time cards.
6. Which transaction is not processed in the
3. Which internal control is not an important fixed
part of the payroll system? asset system?
a. purchase of building 10. Objectives of the fixed asset system do NOT

b. repair of equipment include

c. purchase of raw materials a. authorizing the acquisition of fixed assets.

d. sale of company van b. recording depreciation expense.

7. Depreciation c. computing gain and/or loss on the disposal

a. is calculated by the department that uses of fixed assets.

the fixed asset. d. maintaining a record of the fair market

b. allocates the cost of the asset over its useful value of all fixed assets.

life. 11. Which of the following is NOT a

characteristic of the fixed asset system?
c. is recorded weekly.
a. acquisitions are routine transactions
d. results in book value approximating fair requiring general authorization
market value. b. retirements are reported on an authorized
8. Depreciation records include all of the disposal report form
following information about fixed assets EXCEPT
the c. acquisition cost is allocated over the
expected
a. economic benefit of purchasing the asset.
life of the asset
b. cost of the asset.
d. transfer of fixed assets among departments
c. depreciation method being used. is
d. location of the asset. recorded in the fixed asset subsidiary ledger
9. Which control is not a part of the fixed asset

system?

a. formal analysis of the purchase request

b. review of the assumptions used in the capital

budgeting model

c. development of an economic order quantity

model

d. estimates of anticipated cost savings

 company prefers to order as few SUVs as is

CONVERSION CYCLE economically feasible. However, each time an

1. Which of the following is not an order is placed, the company incurs total costs
advantageous
of $300—$240 of which is fixed and $60 is
reason to reduce inventories?
variable. Determine the company’s EOQ.
a. Inventories provide a competitive
a. 8
advantage.
b. 16
b. Inventories can invite overproduction.
c. 18
c. Inventories are expensive to maintain.
d. 56
d. Inventories may conceal problems.
e. 62
e. All of these are good reasons to reduce
Questions 4 though 6 are based on the diagram
inventories.
above, which represents the EOQ model.
2. The fundamental EOQ model
4. Which line segment represents the reorder
a. provides for fluctuating lead times during lead

reorder cycles. time?

b. is relatively insensitive to errors in demand, a. AB

procurement costs, and carrying costs. b. AE

c. focuses on the trade-off between c. AF

production costs and carrying costs.
d. BC
d. is stochastic in nature.
e. AC
e. is best used in conjunction with a periodic
5. Which line segment identifies the quantity of
inventory system.
safety stock maintained?
3. Refer to the equation for the EOQ in the text.
a. AB
Car Country, a local Ford dealer, sells 1,280
b. AE
small SUVs each year. Keeping a car on the
c. AC
lot costs Car Country $200 per month, so the
d. BC
e. EF standards other than money.

6. Which line segment represents the length of c. Variance analysis may yield insignificant

time to consume the total quantity of materials values.

ordered? d. The overhead component in a manufacturing

company is usually very large.
a. DE
e. All of these are problems associated with
b. BC
traditional accounting information.
c. AC
9. Which of the following is NOT a problem
d. AE
associated with standard cost accounting?
e. AD
a. Standard costing motivates management to
7. Which of the following is NOT a principle of
produce large batches of products and build
lean manufacturing?
inventory.
a. Products are pushed from the production
b. Applying standard costing leads to product
end to the customer.
cost distortions in a lean environment.
b. All activities that do not add value and
c. Standard costing data are associated
maximize the use of scarce resources must
with excessive time lags that reduce its
be eliminated.
usefulness.
c. Achieve high inventory turnover rate.
d. The financial orientation of standard costing
d. A lean manufacturing firm must have
established and cooperative relationships with may promote bad decisions.

vendors. e. All of the above are problems with standard

e. All of the above are lean manufacturing costing.

principles. 10. Which one of the following statements is

true?
8. All of the following are problems with
traditional accounting information EXCEPT: a. ERP evolved directly from MRP.

a. Managers in a JIT setting require immediate b. ERP evolved into MRP and MRP evolved
information.
into MRP II.
b. The measurement principle tends to ignore
c. MRP II evolved from MRP and MRP II than sorting numeric sequences.

evolved into ERP. b. Mnemonic coding requires the user to

d. None of the above is true. memorize codes.

FRS: c. Sequential codes carry no information

content beyond their order in the sequence.
1. Sequential access means that
d. Mnemonic codes are limited in their ability
a. data are stored on magnetic tape.
to represent items within a class.
b. the address of the location of data is found
4. Which file has as its primary purpose to
through the use of either an algorithm or an present comparative financial reports on a
index. historic

c. to read any record on the file, all of the basis?

preceding records must first be read. a. journal voucher history file
d. each record can be accessed in the same b. budget master file
amount of time. c. responsibility file
2. A chart of accounts would best be coded d. general ledger history file
using
5. Which of the following statements is true?
a(n) coding scheme.
a. Journal vouchers detailing transaction
a. alphabetic
activity flow from various operational
b. mnemonic
departments into the GLS, where they are
Multiple-Choice Questions
independently reconciled and posted to the
416 Chapter 8 Financial Reporting and
Management Reporting Systems journal voucher history file.

c. block b. Journal vouchers summarizing transaction

d. sequential activity flow from the accounting department

into the GLS, where they are independently
3. Which of the following statements is NOT reconciled and posted to the general
true? ledger accounts.
a. Sorting records that are coded alphabetically c. Journal vouchers summarizing transaction
tends to be more difficult for users activity flow from various operational
departments into the GLS, where they are 8. Which of the following is NOT a potential

independently reconciled and posted to the exposure of the FRS?

general ledger accounts. a. a defective audit trail

d. Journal vouchers summarizing transaction b. general ledger accounts that are out of
activity flow from various operational balance with subsidiary accounts

departments into the GLS, where they are c. unauthorized access to the check register

independently reconciled and posted to the d. unauthorized access to the general ledger

journal voucher history file. 9. Which task should the general ledger
perform?
6. Which of the following statements best
describes a computer-based GL/FRS? a. update the general ledger

a. Most firms derive little additional benefit b. prepare journal vouchers

from a real-time FRS. c. have custody of physical assets

b. Batch processing is typically not appropriate d. have record-keeping responsibility for

for transaction processing of GLS. special journals of subsidiary ledgers

c. The sequential file approach is an inefficient 10. The Ozment corporation uses a
performance
use of technology.
reporting system that shows one line of data
d. A batch system with direct access files
recreates the entire database each time the file for each subordinate who reports to a
supervisor. The data presented show the actual
is updated. costs
7. A coding scheme in the form of acronyms incurred during the period, the budgeted costs,
and
and all variances from budget for that
other combinations that convey meaning is subordinate’s department. The name of this
a(n) system of

a. sequential code. reporting is

b. block code. a. contribution accounting.

c. alphabetic code. b. responsibility accounting.

d. mnemonic code. c. flexible budgeting.

d. program budgeting.
e. cost-benefit accounting. e. having top management set budget levels

11. Which of the following is not a characteristic 14. Which of the following would normally be

of the strategic planning process? considered in a strategic plan?

a. emphasis on both the short and long run a. setting a target of 12 percent return on

b. analysis of external economic factors sales

Part II Transaction Cycles and Business b. maintaining the image of the company as
Processes 417
the industry leader
c. review of the attributes and behavior of the
c. setting a market price per share of stock
organization’s competition
outstanding
d. analysis and review of departmental process
d. distributing monthly reports for
e. analysis of consumer demand departmental variance analysis

12. The following are all output reports of the e. tightening credit terms for customers to

financial reporting system, EXCEPT 2/10, n/30

a. variance analysis report. 15. At what level of management is the long-

range
b. statement of cash flows.
planning function most important?
c. tax return.
a. at top management levels
d. comparative balance sheet.
b. at middle management levels
13. Which of the following budgeting processes
c. at lower management levels
is LEAST likely to motivate managers toward
d. for staff functions
organizational goals?
e. for line functions
a. setting budget targets at attainable levels
16. Which of the following is the basic purpose
b. participation by subordinates in the of
budgetary process
a responsibility accounting?
c. use of management by exception
a. variance analysis
d. holding subordinates accountable for the
b. motivation
items they control
c. authority
d. budgeting power to choose its markets and sources of

e. pricing supply.

17. Which statement below best describes a b. The authority to make decisions affecting
profit
the major determinants of profit, including
center?
the power to choose its markets and sources
a. The authority to make decisions affecting
of supply, and significant control over the
the major determinants of profit, including
amount of invested capital.
the power to choose its markets and sources
c. The authority to make decisions over the
of supply.
most significant costs of operations, including
b. The authority to make decisions affecting
the power to choose the sources of supply.
the major determinants of profit, including
d. The authority to provide specialized support
the power to choose its markets, sources to other units within the organization.

of supply, and significant control over the e. The responsibility for developing markets for

amount of invested capital. and selling of the output of the organization.

c. The authority to make decisions over the

most significant costs of operations, including

the power to choose the sources of

supply.

d. The authority to provide specialized support

to other units within the organization.

e. The responsibility for combining the raw

materials, direct labor, and other factors of

production into a final product.

18. Which statement below best describes an

investment center?

a. The authority to make decisions affecting

the major determinants of profit, including the

2. Financial Reporting Process

The following contains the various steps of the

financial reporting process. Place these steps

in the proper order and indicate whether each

step is a function of the TPS, GLS, or FRS.

• Record transaction in special journal 2

• Make adjusting entries 6

• Capture the transaction 1

• Prepare the post-closing trial balance 11

• Prepare the adjusted trial balance 8

• Prepare the financial statements 9

• Journalize and post the adjusting entries 7

• Post to the subsidiary ledger 3

• Post to the general ledger 4

• Journalize and post the closing entries 10

• Prepare the unadjusted trial balance 5