Tag Archives: final exam

Accounting Information System Exam and Quizzes – New

Accounting Information System Exam and Quizzes – Strayer

Click On The Link Below To Purchase
Instant Download

http://www.budapp.net/Accounting-Information-System-Exam-and-Quizzes-New-AISTB.htm

 

ACC 564 Quiz 1, Quiz 2, Quiz 3, Quiz 4, Final Exam, Midterm Exam

This Test bank can also be use for other classes, if your assigned Textbook is AIS 12e by Romney

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 1 Accounting Information Systems: An Overview

1) Which of the following statements below shows the contrast between data and information?
A) Data is the output of an AIS.
B) Information is the primary output of an AIS.
C) Data is more useful in decision-making than information.
D) Data and information are the same.
Answer:
Page Ref: 4
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

2) Information is
A) basically the same as data.
B) raw facts about transactions.
C) potentially useful facts when processed in a timely manner.
D) data that has been organized and processed so that it’s meaningful.
Answer:
Page Ref: 4
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

3) The value of information can best be defined as
A) how useful it is to decision makers.
B) the benefits produced by possessing and using the information minus the cost of producing it.
C) how relevant it is.
D) the extent to which it maximizes the value chain.
Answer:
Page Ref: 4
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
4) An accounting information system (AIS) processes ________ to provide users with ________.
A) data; information
B) data; transactions
C) information; data
D) data; benefits
Answer:
Page Ref: 10
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

5) Information that reduces uncertainty, improves decision makers’ ability to make predictions, or confirms or corrects their prior expectations, is said to be
A) complete.
B) relevant.
C) reliable.
D) timely.
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

6) Information that is free from error or bias and accurately represents the events or activities of the organization is
A) relevant.
B) reliable.
C) verifiable.
D) timely.
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
7) Information that does not omit important aspects of the underlying events or activities that it measures is
A) complete.
B) accessible.
C) relevant.
D) timely.
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

8) When two knowledgeable people acting independently each produce the same information, this information is said to be
A) complete.
B) relevant.
C) reliable.
D) verifiable.
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

9) Data must be converted into information to be considered useful and meaningful for decision-making. There are six characteristics that make information both useful and meaningful. If information is free from error or bias and accurately represents the events or activities of the organization, it is representative of the characteristic of
A) relevancy.
B) timeliness.
C) understandability.
D) reliability.
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
10) An accounting information system must be able to perform which of the following tasks?
A) collect transaction data
B) process transaction data
C) provide adequate controls
D) all of the above
Answer:
Page Ref: 10
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

11) Which of the following is not an example of a common activity in an AIS?
A) buy and pay for goods and services
B) sell goods and services and collect cash
C) summarize and report results to interested parties
D) recording of sales calls for marketing purposes
Answer:
Page Ref: 8
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

12) Which of the following is not one of the components of an AIS?
A) Internal controls and security measures
B) People
C) Procedures and instructions
D) Hardware
Answer:
Page Ref: 10
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

13) One group that relies on both the adequate collection and transformation of data for decision-making purposes for an organization is
A) management.
B) interested outsiders.
C) competitors.
D) the government.
Answer:
Page Ref: 12
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
14) The primary objective of accounting is to
A) implement strong internal controls.
B) provide useful information to decision makers.
C) prepare financial statements.
D) ensure the profitability of an organization.
Answer:
Page Ref: 12
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Analytic

15) The American Institute of Certified Public Accountants (AICPA) has recognized the importance of AIS and the major impact information technology has on the area of accounting. To recognize individual CPAs who have met educational and experiential requirements in this area, the group formally created the designation known as
A) the Certified Management Accountant.
B) the Certified Information Technology Professional.
C) the Certified Internal Auditor.
D) the Certified Data Processing Professional.
Answer:
Page Ref: 11
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic

16) The AIS must include controls to ensure
A) safety and availability of data.
B) marketing initiatives match corporate goals.
C) information produced from data is accurate.
D) both A and C
Answer:
Page Ref: 10
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic
17) A change in the AIS that makes information more easily accessible and widely available within an organization is most likely to first influence the
A) organizational culture.
B) customer base.
C) external financial statement users.
D) production activity.
Answer:
Page Ref: 13
Objective: Learning Objective 7
Difficulty : Easy
AACSB: Analytic

18) The process of creating value for customers is the result of nine activities that form a
A) value chain.
B) profitable operation.
C) successful business.
D) support system.
Answer:
Page Ref: 13
Objective: Learning Objective 8
Difficulty : Easy
AACSB: Analytic

19) The value chain concept is composed of two types of activities known as
A) primary and support.
B) primary and secondary.
C) support and value.
D) technology and support.
Answer:
Page Ref: 13-14
Objective: Learning Objective 8
Difficulty : Moderate
AACSB: Analytic

20) Which of the following is a primary activity in the value chain?
A) infrastructure
B) technology
C) purchasing
D) marketing and sales
Answer:
Page Ref: 14
Objective: Learning Objective 8
Difficulty : Easy
AACSB: Analytic
21) In value chain analysis, what is the activity of arranging the delivery of products to customers called?
A) outbound logistics
B) inbound logistics
C) shipping
D) delivery
Answer:
Page Ref: 14
Objective: Learning Objective 8
Difficulty : Moderate
AACSB: Analytic

22) An AIS provides value by
A) improving products or services through information that increases quality and reduces costs.
B) providing timely and reliable information to decision makers.
C) creating new products.
D) both A and B
Answer:
Page Ref: 11
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

23) In Chapter 1, Figure 1-4 shows the factors that influence the design of AIS. The diagram shows a bi-directional arrow between the organizational culture and the AIS. The reason for this two-way interchange between organizational culture and AIS is
A) that the AIS should not influence the values of the organizational culture.
B) because the organization’s culture influences the AIS, and likewise the AIS influences the organization’s culture by controlling the flow of information within the organization.
C) due to the transfer of managers between the two corporate elements.
D) the AIS impacts the organization’s key strategies.
Answer:
Page Ref: 13
Objective: Learning Objective 7
Difficulty : Easy
AACSB: Analytic
24) An example of inbound logistics would consist of
A) the activities that transform inputs into final products or services.
B) the activities that help customers to buy the organization’s products or services.
C) the activities that provide post-sale support to customers.
D) the activities that consist of receiving, storing, and distributing the materials used as inputs by the organization to create goods and/or services it sells.
Answer:
Page Ref: 13
Objective: Learning Objective 8
Difficulty : Easy
AACSB: Analytic

25) A good example of how an AIS is used to share knowledge within an organization is
A) the use of a corporate database to help staff identify the relevant experts who can help with a particular client.
B) the use of laptop computers to access a network for messaging worldwide.
C) the monitoring of production equipment to watch for defects.
D) the use of point-of-sale data to determine hot-selling items.
Answer:
Page Ref: 11
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic

26) One activity within the value chain is research and development. This activity can be identified as a
A) firm infrastructure activity.
B) human resources activity.
C) technology activity.
D) purchasing activity.
Answer:
Page Ref: 14
Objective: Learning Objective 8
Difficulty : Moderate
AACSB: Analytic
27) When the AIS provides information in a timely and accurate manner, it stands as an example of
A) improved decision making.
B) improving the quality and reducing the costs of products or services.
C) improving efficiency.
D) all of the above
Answer:
Page Ref: 11
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

28) Accounting information plays major roles in managerial decision making by
A) identifying situations requiring management action.
B) reducing uncertainty.
C) providing a basis for choosing among alternative actions.
D) all of the above
Answer:
Page Ref: 12
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

29) A well-designed AIS can improve the decision-making function within the organization. Which statement below would describe a limitation, rather than a benefit, of an efficient AIS?
A) An AIS reduces uncertainty, and therefore accounting information can provide a basis for choosing among alternative courses of action.
B) An AIS identifies situations requiring management action.
C) An AIS provides to its users an abundance of information without any filtering or condensing of such information.
D) An AIS provides information about the results of previous decisions which provides decision makers with feedback that can be used in future decision making.
Answer:
Page Ref: 12
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic
30) Jill Fredson is in charge of the mail room at Gammon University. Every Friday morning she receives a report via email that summarizes the number of outgoing and incoming pieces of mail by source and destination department. Every Friday afternoon, Jill deletes the report without reading it because it has no bearing on mail room operations. Which of the following characteristics of useful information is absent in the situation described above?
A) Relevant
B) Reliable
C) Complete
D) Timely
E) Understandable
F) Verifiable
G) Accessible
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

31) Inventory information is provided in real time by a firm’s accounting information system. The accuracy of this information is questionable, however, since the production manager often reports stock outs of components that the system indicates are in stock. Which of the following characteristics of useful information is absent in the situation described above?
A) Relevant
B) Reliable
C) Complete
D) Timely
E) Understandable
F) Verifiable
G) Accessible
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

32) Joe Marzetti has been the controller of Fairview Tires for 25 years. Ownership of the firm recently changed hands and the new owners are conducting an audit of the financial records. The audit has been unable to reproduce financial reports that were prepared by Marzetti. While there is no evidence of wrongdoing, the auditors are concerned that the discrepancies might contribute to poor decisions. Which of the following characteristics of useful information is absent in the situation described above?
A) Relevant
B) Reliable
C) Complete
D) Timely
E) Understandable
F) Verifiable
G) Accessible
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

33) In 2003, Custer Manufacturing implemented a Web-based information system that allows all employees to access mission-critical information. The intention was to increase production efficiency. Unfortunately, it had the opposite effect, as deliveries fell behind schedule and costs increased. Jeff Akspen, the director of information technology services, asked Joyce Jenkins to come in and talk with him about the system. Joyce is a long-time employee of Custer, and her opinion is valued by her peers and by her supervisor. “So Joyce, how’s it going down there in the shop?””Not so good, Jeff. Used to be we got a weekly pick list so we knew how to plan production. Now, we got that computer system. Most of us can’t figure out how to use it to do our jobs. Is there some way to print out a pick list?”Jeff thought for a while before responding. “Well, Joyce, to tell you the truth, I’m not so sure how to do it myself, but there must be a way. We’ll bring in the consultants that helped us build the system. Maybe they can help.” Which of the following characteristics of useful information is absent in the situation described above?
A) Relevant
B) Reliable
C) Complete
D) Timely
E) Understandable
F) Verifiable
G) Accessible
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
34) Razzmataz, Wisconsin, is a popular tourist destination. During the winter months, the population dwindles to a meager few, but when summer comes, the size of the town surges. Chuck Hewitt is the town sanitation engineer. When the size of the town surges, so do his responsibilities. Among them is management of the sewage processing volume.In an interview with the local paper, Chuck complained that a report on tourist population that he uses to adjust processing volume refers to data that was collected five days ago and it takes him a week to make adjustments.Which of the following characteristics of useful information is absent in the situation described above?
A) Relevant
B) Reliable
C) Complete
D) Timely
E) Understandable
F) Verifiable
G) Accessible
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

35) A frantic Stro Frinzel called the home office from Des Moines.”You have got to help me. I am about to close a great sale, but I have to be able to guarantee delivery by the fourteenth. I can’t get through to the company Web site to verify delivery!””Thank you for calling. Your call is very important to us. However, all of our lines are currently in use. Please try again later.”Which of the following characteristics of useful information is absent in the situation described above?
A) Relevant
B) Reliable
C) Complete
D) Timely
E) Understandable
F) Verifiable
G) Accessible
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

36) Message left on an answering machine: “Hi Bob! Just got into town. How about dinner this evening if you’re available. Call me!”Which of the following characteristics of useful information is absent in the situation described above?
A) Relevant
B) Reliable
C) Complete
D) Timely
E) Understandable
F) Verifiable
G) Accessible
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

37) Robinson Crusoe has formed a business that sells carved gourmet coconuts. He has hired five employees. The most senior is Friday, who manages the carving process. Monday is the newest employee. She collects the coconuts. Tuesday, as you might expect, takes calls from curstomers, oops, I mean customers, who are unhappy with their coconuts. Wednesday tosses finished coconuts into the sea, whereupon they drift to the wholesaler. Thursday sends smoke signals to the wholesaler extolling the virtues of the latest production run of nuts that are drifting across the bay.Which of the following functions in the value chain is Monday performing?
A) Inbound logistics
B) Operations
C) Outbound logistics
D) Marketing and sales
E) Service
Answer:
Page Ref: 13
Objective: Learning Objective 8
Difficulty : Moderate
AACSB: Analytic

38) Robinson Crusoe has formed a business that sells carved gourmet coconuts. He has hired five employees. The most senior is Friday, who manages the carving process. Monday is the newest employee. She collects the coconuts. Tuesday, as you might expect, takes calls from curstomers, oops, I mean customers, who are unhappy with their coconuts. Wednesday tosses finished coconuts into the sea, whereupon they drift to the wholesaler. Thursday sends smoke signals to the wholesaler extolling the virtues of the latest production run of nuts that are drifting across the bay.Which of the following functions in the value chain is Friday performing?
A) Inbound logistics
B) Operations
C) Outbound logistics
D) Marketing and sales
E) Service
Answer:
Page Ref: 13
Objective: Learning Objective 8
Difficulty : Moderate
AACSB: Analytic

39) Robinson Crusoe has formed a business that sells carved gourmet coconuts. He has hired five employees. The most senior is Friday, who manages the carving process. Monday is the newest employee. She collects the coconuts. Tuesday, as you might expect, takes calls from curstomers, oops, I mean customers, who are unhappy with their coconuts. Wednesday tosses finished coconuts into the sea, whereupon they drift to the wholesaler. Thursday sends smoke signals to the wholesaler extolling the virtues of the latest production run of nuts that are drifting across the bay.Which of the following functions in the value chain is Wednesday performing?
A) Inbound logistics
B) Operations
C) Outbound logistics
D) Marketing and sales
E) Service
Answer:
Page Ref: 14
Objective: Learning Objective 8
Difficulty : Moderate
AACSB: Analytic

40) Robinson Crusoe has formed a business that sells carved gourmet coconuts. He has hired five employees. The most senior is Friday, who manages the carving process. Monday is the newest employee. She collects the coconuts. Tuesday, as you might expect, takes calls from curstomers, oops, I mean customers, who are unhappy with their coconuts. Wednesday tosses finished coconuts into the sea, whereupon they drift to the wholesaler. Thursday sends smoke signals to the wholesaler extolling the virtues of the latest production run of nuts that are drifting across the bay.Which of the following functions in the value chain is Thursday performing?
A) Inbound logistics
B) Operations
C) Outbound logistics
D) Marketing and sales
E) Service
Answer:
Page Ref: 14
Objective: Learning Objective 8
Difficulty : Easy
AACSB: Analytic

41) Robinson Crusoe has formed a business that sells carved gourmet coconuts. He has hired five employees. The most senior is Friday, who manages the carving process. Monday is the newest employee. She collects the coconuts. Tuesday, as you might expect, takes calls from curstomers, oops, I mean customers, who are unhappy with their coconuts. Wednesday tosses finished coconuts into the sea, whereupon they drift to the wholesaler. Thursday sends smoke signals to the wholesaler extolling the virtues of the latest production run of nuts that are drifting across the bay.Which of the following functions in the value chain is Tuesday performing?
A) Inbound logistics
B) Operations
C) Outbound logistics
D) Marketing and sales
E) Service
Answer:
Page Ref: 14
Objective: Learning Objective 8
Difficulty : Moderate
AACSB: Analytic

42)

Refer to the chart above. At what point, measured in terms of the net cost of information, does information overload begin?
A) 0
B) 5
C) 10
D) 12
Answer:
Page Ref: 4
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
43) Tri-Anything, Limited, is a British company operating in New York state. It offers stylized, boutique public relations services to upscale retailers in quaint New England towns. A major source of revenue is a weekly newsletter that reports on current and projected tourist travel and spending patterns. Preparation of the newsletter requires study and analysis of weather conditions, economic activity, and travel costs. It is available at an annual subscription rate of $299.99. There are currently 190 subscribers. Preparation and distribution of the newsletter costs $12,000 annually. The value of information to subscribers is:
A) $236.83
B) $44,998.10
C) Less than $63.16
D) At least $300.00
Answer:
Page Ref: 4
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

44) Many modern accounting software packages offer separate transaction cycle modules. What is the reason for this?
A) Every organization does not need to implement all of the available transaction cycle modules.
B) Most businesses do not need the revenue cycle module as part of their AIS.
C) The nature of a given transaction cycle is the same irrespective of the type of organization.
D) A properly designed AIS does not use the concept of separate business transaction cycles to process transactions.
Answer:
Page Ref: 9
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Analytic

45) The business owners obtain financing from outside investors, which results in an inflow of cash into the company. This transaction is considered to be part of which cycle?
A) the revenue cycle
B) the payroll cycle
C) the production cycle
D) the financing cycle
Answer:
Page Ref: 7-8
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic
46) Which of the following is not a transaction cycle?
A) revenue
B) expenditure
C) human resources
D) general ledger and reporting
Answer:
Page Ref: 7-9
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Analytic

47) Which of the following statements is false?
A) Retail stores do not have a production cycle.
B) Financial institutions have installment-loan cycles.
C) A service company does not have an inventory system.
D) Every organization should implement every transaction cycle module.
Answer:
Page Ref: 9
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

48) Transaction cycles can be summarized on a high level as “give-get” transactions. An example of “give-get” in the expenditure cycle would be
A) give cash, get cash.
B) give cash, get goods.
C) give cash, get labor.
D) give goods, get cash.
Answer:
Page Ref: 7
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

49) Transaction cycles can be summarized on a high level as “give-get” transactions. An example of “give-get” in the revenue cycle would be
A) give cash, get goods.
B) give goods, get cash.
C) give cash, get labor.
D) give cash, get cash.
Answer:
Page Ref: 7
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic
50) Groups of related business activities such as the acquisition of merchandise and payment of vendors are called
A) transaction cycles.
B) economic cycles.
C) business events.
D) transactions.
Answer:
Page Ref: 6-7
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

51) Which of the following is a true statement?
A) Business strategy directly influences AIS, but not information technology.
B) Information technology directly influences organizational culture, but not business strategy.
C) Organizational culture directly influences business strategy, but not AIS.
D) AIS directly influences information technology, but not business strategy.
Answer:
Page Ref: 13
Objective: Learning Objective 7
Difficulty : Difficult
AACSB: Analytic

52) The transaction cycle that includes the events of hiring employees and paying them is known as the
A) revenue cycle.
B) expenditure cycle.
C) human resources cycle.
D) financing cycle.
Answer:
Page Ref: 7-8
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic
53) The transaction cycle approach leads to efficient processing of a large number of transactions because
A) transaction cycles are easier to computerize.
B) a large number of transactions within a given cycle can be categorized into a relatively small number of distinct types.
C) the transaction cycle approach represents the natural order of business.
D) transaction cycles are easy to understand.
Answer:
Page Ref: 7
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Analytic

54) Which of the following is not an example of how an AIS adds value to an organization?
A) All employees at a hospital can access and update patient records from any computer terminal in the hospital.
B) A customer service representative can find a customer’s account data, purchase history, payment history, and salesperson’s name while on the phone with the customer, to resolve issues quickly.
C) Suppliers are able to access sales data directly from the point-of-sale system of a retailer and deliver inventory automatically when needed.
D) Client tax files are encrypted and made available on the CPA firm’s network to any employee with an access code.
Answer:
Page Ref: 11
Objective: Learning Objective 6
Difficulty : Difficult
AACSB: Analytic

55) Rolleigh Corp. identifies growth by new product development and product improvement as the number one corporate goal. An employee at Wrigley’s, one of Rolleigh’s wholly-owned subsidiaries, developed an innovation to an existing product that would directly address a shortcoming in the similar product offered by Rolleigh’s closest competitor. Wrigley’s current Return on Investment (ROI) is 15%, but the product innovation is expected to generate ROI of only 12%. Awarding bonuses to subsidiary managers based on ROI could result in:
A) goal conflict
B) information overload
C) goal congruence
D) decreased value of information
Answer:
Page Ref: 4
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Analytic
56) Which of the following tradeoffs between characteristics of useful information is least objectionable?
A) Incomplete information received on a timely basis
B) Irrelevant information received in an understandable format
C) Unreliable information easily accessible
D) Verifiable information received in unreadable format
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

57) Paid time-off policies, job descriptions, and procedures manuals are examples of information needed to support key decisions in what business process?
A) Hire and train employees
B) Acquire inventory
C) Sell merchandise
D) Collect payment from customers
Answer:
Page Ref: 6
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

58) Which of the following is not a key decision to be made when starting a business?
A) How to estimate the allowance for uncollectible accounts
B) Whether to advertise on TV, radio, or newspaper
C) How to raise capital
D) Whether to accept American Express
Answer:
Page Ref: 5
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

59) Paying federal payroll taxes is part of which transaction cycle?
A) Human resources/payroll
B) Expenditure
C) Financing
D) Revenue
Answer:
Page Ref: 8
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Analytic
60) Who of the following would not be involved in the revenue cycle?
A) Accounts payable clerk
B) Customer
C) Cashier
D) Credit manager
Answer:
Page Ref: 7-8
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

61) Which of the following is not one of the three basic types of data about a specific sales transaction that should be captured by an Accounting Information System?
A) Name of the employee who completed the sale
B) Daily sales quota
C) Product sold
D) Date
Answer:
Page Ref: 4
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

62) Who of the following is not a stakeholder with whom an accounting information system typically communicates directly?
A) Wall Street industry analyst
B) Venture capitalist
C) Company that supplies raw materials
D) Company that purchases finished goods for resale to consumers
Answer:
Page Ref: 6
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

63) Define the concept of a system.

64) Define data, information, and how the value of information is determined.

65) Define an accounting information system.

66) Identify the components of an accounting information system.

67) What is the CITP designation and why is it important to AIS?

68) Differentiate between an AIS course and other accounting courses.

69) What is the purpose behind the five primary activities in the value chain?

70) How can an AIS add value to the organization?

71) How can a well-designed AIS improve the efficiency and effectiveness of a company’s value chain?

72) Discuss the concept of a system and the issues of goal conflict and goal congruence.

73) Discuss the seven characteristics of useful information.

74) Explain what an AIS is, describe the basic tasks it performs in an organization, and give some examples of the types of accounting transactions it processes.

75) Discuss the components of a supply chain.

76) How can an AIS become part of the firm’s value chain and add value to the business?

77) How can the value of the information produced by an accounting information system be determined? What would a measurement and verification expert think about quantification and verification of such information?

78) Why have accounting software packages been designed with separate transaction modules?

79) How are “Give and Take” transactions classified in business today and what impact does this have on AIS?

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 2 Overview of Transaction Processing and ERP Systems

1) What usually initiates data input into a system?
A) The transaction system automatically checks each hour to see if any new data is available for input and processing.
B) The performance of some business activity generally serves as the trigger for data input.
C) A general ledger program is queried to produce a trial balance at the end of an accounting period.
D) Data is only input when a source document is submitted to the accounting department.
Answer:
Page Ref: 26
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

2) An ERP system might facilitate the purchase of direct materials by all of the following except
A) selecting the best supplier by comparing bids.
B) preparing a purchase order when inventory falls to reorder point.
C) routing a purchase order to a purchasing agent for approval.
D) communicating a purchase order to a supplier.
Answer:
Page Ref: 37
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Reflective Thinking

3) Which of the following is not true about the accounts receivable subsidiary ledger?
A) Debits and credits in the subsidiary ledger must always equal.
B) Every credit sale is entered individually into the subsidiary ledger.
C) The total of the subsidiary ledgers must equal the control account.
D) The subsidiary ledgers play an important role in maintaining the accuracy of the data stored in the AIS.
Answer:
Page Ref: 28
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking
4) Which of the following is not usually a consideration when designing a coding system?
A) Government regulations on coding systems
B) Standardization
C) Future expansion needs
D) Facilitating report preparation
Answer:
Page Ref: 29
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

5) The general ledger
A) summarizes the transactions in journals.
B) only includes balance sheet accounts.
C) is posted in total to the general journal.
D) is the initial place to record depreciation expense.
Answer:
Page Ref: 28
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking

6) For a retail business, a delivery of inventory, from a vendor (with whom there is an established credit relationship) would be initially recorded in which type of accounting record as part of which transaction cycle?
A) purchases journal; expenditure cycle
B) general journal; expenditure cycle
C) general ledger; expenditure cycle
D) cash disbursements journal; production cycle
Answer:
Page Ref: 31
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking

7) Which of the following statements regarding special journals is not true?
A) The balances in a special journal must always reconcile to the general ledger.
B) Special journals are used to record large numbers of repetitive transactions.
C) Special journals are periodically summarized and posted to the general ledger.
D) Special journals provide a specialized format for recording similar transactions.
Answer:
Page Ref: 31
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
8) Changing an employee’s hourly wage rate would be recorded in which file?
A) Employee master file
B) Employee transaction file
C) Payroll master file
D) Payroll transaction file
Answer:
Page Ref: 32
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

9) A typical source document could be
A) in some paper form.
B) a computer data entry screen.
C) a notepad entry.
D) both A and B
Answer:
Page Ref: 27
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

10) Which step below is not considered to be part of the data processing cycle?
A) data input
B) feedback from external sources
C) data storage
D) data processing
Answer:
Page Ref: 26
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

11) Data must be collected about three facets of each business activity. What are they?
A) the business activity, the resources it affects, the people who participate
B) the business activity, the transactions it creates, the impact on the financial statements
C) the inputs, outputs and processes used
D) who is involved, what was sold, how much was paid
Answer:
Page Ref: 26
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
12) The issuing of a purchase order is part of which transaction cycle?
A) the revenue cycle
B) the production cycle
C) the human resources cycle
D) the expenditure cycle
Answer:
Page Ref: 27
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

13) The collection of job time tickets or time sheets is part of which transaction cycle?
A) revenue cycle
B) production cycle
C) human resources cycle
D) expenditure cycle
Answer:
Page Ref: 27
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

14) Common source documents for the revenue cycle include all of the following except
A) sales order.
B) receiving report.
C) delivery ticket.
D) credit memo.
Answer:
Page Ref: 27
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

15) Which of the following documents would be found in the expenditure cycle?
A) delivery ticket
B) time card
C) credit memo
D) purchase order
Answer:
Page Ref: 27
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
16) Documents that are sent to customers or suppliers and then sent back to the company in the course of a business transaction are known as
A) turnaround documents.
B) source documents.
C) source data automation.
D) transaction documents.
Answer:
Page Ref: 27
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

17) Which of the following is an example of source data automation?
A) a utility bill
B) POS (point-of-sale) scanners in retail stores
C) a bill of lading
D) a subsidiary ledger
Answer:
Page Ref: 27
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

18) Pre-numbering of source documents helps to verify that
A) all transactions have been recorded since the numerical sequence serves as a control.
B) source data automation was used to capture data.
C) documents have been used in order.
D) company policies were followed.
Answer:
Page Ref: 27-28
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

19) Source documents generally help to improve accuracy in transaction processing because
A) they specify which information to collect.
B) logically related data can be grouped in the same area of the document.
C) they provide directions and steps for completing the form.
D) All of the above are correct.
Answer:
Page Ref: 27
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
20) When the sum of all entries in the subsidiary ledger equals the balance in the corresponding general ledger account, it is assumed that
A) the recording processes were accurate.
B) all source documents were recorded.
C) adjusting entries are not required.
D) no errors exist in the subsidiary ledger.
Answer:
Page Ref: 28
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

21) The general ledger account that corresponds to a subsidiary ledger account is known as a
A) dependent account.
B) attribute account.
C) entity account.
D) control account.
Answer:
Page Ref: 28
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

22) Pre-numbered checks, invoices, and purchase orders are examples of
A) sequence codes.
B) block codes.
C) group codes.
D) mnemonic codes.
Answer:
Page Ref: 28
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

23) A chart of accounts is an example of (select all that apply)
A) sequence codes.
B) block codes.
C) group codes.
D) mnemonic codes.
Answer:, C
Page Ref: 28-29
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking
24) Product items are often coded with (select all that apply)
A) sequence codes.
B) block codes.
C) group codes.
D) mnemonic codes.
Answer:, D
Page Ref: 28-29
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

25) Which of the following statements is false?
A) Codes should be consistent with intended use.
B) Codes should allow for growth.
C) Codes should be as simple as possible.
D) Codes should be customized for each division of an organization.
Answer:
Page Ref: 29
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

26) To be effective, the chart of accounts must
A) be as concise as possible.
B) begin with account 001.
C) utilize only one coding technique.
D) contain sufficient detail to meet the information needs of the organization.
Answer:
Page Ref: 29
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

27) The chart of accounts of a corporate retail bookstore would probably include
A) work-in-process inventory.
B) a drawing account.
C) retained earnings.
D) both A and C
Answer:
Page Ref: 29
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
28) In transaction processing, generally which activity comes first?
A) recording data in a journal
B) posting items to special journals
C) capturing data on source documents
D) recording data in a general ledger
Answer:
Page Ref: 26
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

29) The efficiency of recording numerous business transactions can be best improved by the use of
A) prenumbered source documents.
B) specialized journals.
C) posting references.
D) subsidiary ledgers.
Answer:
Page Ref: 31
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

30) A general journal
A) would be used to record monthly depreciation entries.
B) simplifies the process of recording large numbers of repetitive transactions.
C) records all detailed data for any general ledger account that has individual sub-accounts.
D) contains summary-level data for every account of the organization.
Answer:
Page Ref: 31
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

31) The general ledger
A) is used to record infrequent or non-routine transactions.
B) simplifies the process of recording large numbers of repetitive transactions.
C) records all detailed data for any general ledger account that has individual sub-accounts.
D) contains summary-level data for every account of the organization.
Answer:
Page Ref: 28
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
32) A subsidiary ledger
A) is used to record infrequent or non-routine transactions.
B) simplifies the process of recording large numbers of repetitive transactions.
C) records all detailed data for any general ledger account that has individual sub-accounts.
D) contains summary-level data for every account of the organization.
Answer:
Page Ref: 28
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

33) A specialized journal
A) is used to record infrequent or non-routine transactions.
B) simplifies the process of recording large numbers of repetitive transactions.
C) records all detailed data for any general ledger account that has individual sub-accounts.
D) contains summary-level data for every account of the organization.
Answer:
Page Ref: 31
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

34) An audit trail
A) provides the means to check the accuracy and validity of ledger postings.
B) begins with the general journal.
C) is automatically created in every computer-based information system.
D) is a summary of recorded transactions.
Answer:
Page Ref: 31
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

35) Concerning a master file, which of the following statements is false?
A) A master file is conceptually similar to a ledger in a manual AIS.
B) A master file stores cumulative information.
C) A master file exists across fiscal periods.
D) A master file’s individual records are rarely, if ever, changed.
Answer:
Page Ref: 32
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
36) Which of the following is conceptually similar to a journal in a manual AIS?
A) database
B) master file
C) record
D) transaction file
Answer:
Page Ref: 33
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

37) Which of the following statements is true?
A) Batch processing ensures that stored information is always current.
B) Batch input is more accurate than on-line data entry.
C) On-line batch processing is a combination of real-time and batch processing.
D) Batch processing not frequently used.
Answer:
Page Ref: 33-34
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

38) The data processing method used by FedEx to track packages is an example of
A) real-time processing.
B) batch processing.
C) online batch processing.
D) real-time batch processing.
Answer:
Page Ref: 34
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
39) Which statement below regarding the AIS is false?
A) The AIS must be able to provide managers with detailed and operational information about the organization’s performance.
B) Both traditional financial measures and operational data are required for proper and complete evaluation of performance.
C) The AIS was often just one of the information systems used by an organization to collect and process financial and nonfinancial data.
D) Traditionally, most AIS have been designed so that both financial and operational data are stored in a manner that facilitates their integration in reports.
Answer:
Page Ref: 34
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Reflective Thinking

40) Callow Youth Clothing (CYC) is a boutique retailer located in Estes Park, Colorado. During the peak tourist season, it has average daily cash and credit card sales in excess of $5,000. What is the best way for CYC to ensure that sales data entry is efficient and accurate?
A) Well-designed paper forms
B) Source data automation
C) Turnaround documents
D) Sequentially numbered sales invoices
Answer:
Page Ref: 27
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking

41) In Petaluma, California, electric power is provided to consumers by the Power To The People Electrical Company (PTTP), a local co-op. Each month PTTP mails bills to 70,000 households and then processes payments as they are received. What is the best way for this business to ensure that payment data entry is efficient and accurate?
A) Well-designed paper forms
B) Source data automation
C) Turnaround documents
D) Sequentially numbered bills
Answer:
Page Ref: 27
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking
42) Callow Youth Clothing is a boutique retailer located in Estes Park, Colorado. It is a sole proprietorship that stocks an inventory of between 80 and 160 different products. Inventory is updated in real time by the AIS. When designing a chart of accounts for this business, what is the minimum number of digits necessary to represent the general ledger account code, including subsidiary ledgers?
A) 4
B) 6
C) 7
D) 9
Answer:
Page Ref: 29
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Reflective Thinking

43) The quality assurance department at a large manufacturing business enters data into the AIS that is used to produce a weekly report that summarizes the proportion of defective units in each product line. This is an example of
A) internal financial information.
B) internal nonfinancial information.
C) external financial information.
D) external nonfinancial information.
Answer:
Page Ref: 34
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Reflective Thinking

44) The premier buyer and seller of vintage action figures in the San Francisco Bay area is Vini Vidi Geeky. Since 1996, the owner, Glamdring Elfthrall, has leveraged computer technology to provide a superior level of customer service. In particular, the store’s database system was designed to make detailed information about each individual action figure’s characteristics easily accessible. Price information and condition are also provided for each inventory item. In this database, the price of figures is a(an)
A) entity.
B) attribute.
C) field.
D) record.
Answer:
Page Ref: 31
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking
45) The premier buyer and seller of vintage action figures in the San Francisco Bay area is Vini Vidi Geeky. Since 1996, the owner, Glamdring Elfthrall, has leveraged computer technology to provide a superior level of customer service. In particular, the store’s database system was designed to make detailed information about each individual action figure’s characteristics easily accessible. Price information and condition are also provided for each inventory item. In this database, the data about an individual figure is a(an)
A) entity.
B) attribute.
C) field.
D) record.
Answer:
Page Ref: 32
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

46) The premier buyer and seller of vintage action figures in the San Francisco Bay area is Vini Vidi Geeky. Since 1996, the owner, Glamdring Elfthrall, has leveraged computer technology to provide a superior level of customer service. In particular, the store’s database system was designed to make detailed information about each individual action figure’s characteristics easily accessible. Price information and condition are also provided for each inventory item. In this database, action figures (collectively) are a(an)
A) entity.
B) attribute.
C) field.
D) record.
Answer:
Page Ref: 31
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking
47) The premier buyer and seller of vintage action figures in the San Francisco Bay area is Vini Vidi Geeky. Since 1996, the owner, Glamdring Elfthrall, has leveraged computer technology to provide a superior level of customer service. In particular, the store’s database system was designed to make detailed information about each individual action figure’s characteristics easily accessible. Price information and condition are also provided for each inventory item. In this database, the data about an individual figure’s price is stored in a(an)
A) entity.
B) attribute.
C) field.
D) record.
Answer:
Page Ref: 32
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

48) Hector Sanchez works in the accounting department of a multinational manufacturing company. His job includes updating accounts receivable based on sales orders and remittance advices. His responsibilities are part of the company’s
A) revenue cycle.
B) expenditure cycle.
C) financing cycle.
D) production cycle.
Answer:
Page Ref: 27
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

49) Hector Sanchez works in the accounting department of a multinational manufacturing company. His job includes updating accounts payable based on purchase orders and checks. His responsibilities are part of the company’s
A) revenue cycle.
B) expenditure cycle.
C) financing cycle.
D) production cycle.
Answer:
Page Ref: 27
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

50) Many small businesses choose to outsource their payroll activities to firms that specialize in providing payroll services. Dolores Yu operates a payroll processing business in Calabasas, California. When she sends bills out to her clients, her work is part of her firm’s
A) revenue cycle.
B) expenditure cycle.
C) financing cycle.
D) production cycle.
Answer:
Page Ref: 27
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

51) The coding technique most likely used for sales orders is called a
A) group code.
B) block code.
C) data code.
D) sequence code.
Answer:
Page Ref: 28
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

52) Data processing includes all of the following except
A) verifying subsidiary ledger balances.
B) changing customer addresses.
C) removing inventory items no longer offered.
D) adding the name of a new vendor.
Answer:
Page Ref: 33
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking

53) Which of the following is an example of an ERP system?
A) Alexis uses a computerized information system to keep track of all the financial data generated by her bakery. She is considering opening a new bakery on the east side of town.
B) Betty has a system that keeps track of the accounts payable and receivable for her plumbing business. At the end of the year, the system helps her to prepare her taxes in just two hours.
C) Charlie keeps records of all his business records in a shoe box. Each week he enters all of the data into spreadsheets that automatically generate purchase orders, based on predetermined inventory reorder points. Production quotas for the coming week are also automatically generated based on customer orders.
D) Doug is a free-lance photographer. He keeps records of all expenses and revenues on his cell phone and then emails them to himself every month. The files are stored on his personal computer and backed up to CD quarterly.
Answer:
Page Ref: 36
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Reflective Thinking

54) A specialized journal would be most likely to be used to enter
A) sales transactions.
B) monthly depreciation adjustments.
C) annual closing entries.
D) stock issuance transactions.
Answer:
Page Ref: 31
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

55) The Cape Fear Rocket Club heads out to the dunes of Kittyhawk, North Carolina every August to pierce the sky with their fiery projectiles. An enterprising seller of t-shirts has devised a series of designs that capture the spirit of the event in silk-screened splendor. His employees can be found on many of the major intersections hawking his wares out of the backs of station wagons and pickup trucks. What is the best way for this business to ensure that sales data entry is efficient and accurate?
A) Well-designed paper forms
B) Source data automation
C) Turnaround documents
D) Sequentially numbered forms
Answer:
Page Ref: 27
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking

56) Which of the following information would most likely be reviewed by management on an exception report?
A) Monthly cash budget
B) Quality control system failures
C) Unit sales by territory and salesperson
D) Income statement
Answer:
Page Ref: 34
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Reflective Thinking

57) All of the following situations would likely be communicated in an exception report except
A) production stoppages.
B) weekly credit and cash sales comparison.
C) low inventory level.
D) expense variances outside acceptable range.
Answer:
Page Ref: 34
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Reflective Thinking

58) Changing an employee’s hourly wage rate would be recorded where?
A) Employee master file
B) Employee transaction file
C) Special journal
D) Employee update file
Answer:
Page Ref: 32
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Reflective Thinking

59) Which of the following statements is not correct?
A) The audit trail is intended to verify the validity and accuracy of transaction recording.
B) The audit trail consists of records stored sequentially in an audit file.
C) The audit trail provides the means for locating and examining source documents.
D) The audit trail is created with document numbers and posting references.
Answer:
Page Ref: 31
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

60) Data about which of the following facets of a business activity is most likely to be recorded in a transaction file?
A) Business activity
B) Resources affected by the business activity
C) People who participate in the business activity
D) Place the business activity occurs
Answer:
Page Ref: 33
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Reflective Thinking

61) Data about all of the following facets of a business activity are most likely to be recorded in a master file except the
A) business activity.
B) resources affected by the business activity.
C) people who participate in the business activity.
D) place the business activity occurs.
Answer:
Page Ref: 32
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Reflective Thinking

62) Which of the following statements about data processing methods is true?
A) Online real-time processing does not store data in a temporary file.
B) Batch processing cannot be used to update a master file.
C) Control totals are used to verify accurate processing in both batch and online batch processing.
D) Online real-time processing is only possible with source data automation.
Answer:
Page Ref: 33
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Reflective Thinking
63) In an ERP system, the module used to record data about transactions in the revenue cycle is called
A) order to cash.
B) purchase to pay.
C) financial.
D) customer relationship management.
Answer:
Page Ref: 37
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Analytic

64) A delivery of inventory from a vendor, with whom a credit line is already established, would be initially recorded in which type of accounting record and as part of what transaction cycle?
A) purchases journal; expenditure cycle
B) general journal; expenditure cycle
C) general ledger; expenditure cycle
D) cash disbursements journal; production cycle
Answer:
Page Ref: 27
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Reflective Thinking

65) Implementation of an ERP system requires increased focus on all except which of the following controls ?
A) Segregation of duties between custody, authorization, and recording
B) Data entry controls on validity and accuracy
C) Controls over access to data
D) Appropriate disposal of hard copy reports
Answer:
Page Ref: 38
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Analytic
66) Which statement below regarding the AIS and managerial reports is false?
A) The AIS is best utilized for financial data while the management information system is best utilized for operational data.
B) The AIS must be able to provide managers with detailed operational information about the organization’s performance.
C) Both financial and nonfinancial data are required for proper and complete evaluation of organizational performance.
D) Most source documents capture both financial and nonfinancial data about business transactions.
Answer:
Page Ref: 34
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Reflective Thinking

67) What is the purpose of source documents? What controls are embedded in source documents? Give two examples of source documents.

68) Describe an audit trail.

69) Explain how data is organized and stored in an AIS.

70) Describe the basic cycles and business activities for a typical merchandising company.

71) Describe guidelines to follow for a well-designed coding system.

72) Describe the relationship between the general and subsidiary ledgers.

73) Describe four advantages and four disadvantages of implementing an ERP system at a multinational corporation.

74) Describe the methods used to collect data about business activities. Describe design and control considerations for each of the data collection methods.

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 3 Systems Documentation Techniques

1) Graphical representations of information are often supplemented by
A) product specifications.
B) narrative descriptions.
C) logic charts.
D) oral descriptions from management.
Answer:
Page Ref: 49
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

2) The correct label for Shape 1 in the flowchart below is

A) Purchase Order 2
B) Purchase Requisition 1
C) Accounts Payable Trial Balance
D) 2
Answer:
Page Ref: 55-60
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

3) The correct label for Shape 2 in the flowchart below is

A) 1
B) Purchase Requisition 1
C) Receiving Report 1
D) 2
Answer:
Page Ref: 55-60
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

4) The correct label for Shape 3 in the flowchart below is

A) Purchase Order 4
B) Purchase Requisition 1
C) Vendor
D) 4
Answer:
Page Ref: 55-60
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Analytic

5) The correct shape for the triangle labeled “Supplier” in the flowchart below is

A) magnetic disk
B) terminal
C) manual process
D) off-page connector
Answer:
Page Ref: 57
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
6) When preparing a document flowchart, the names of organizational departments or job functions should appear in the
A) column headings.
B) right-hand margin.
C) written narrative accompanying the flowchart.
D) title of the flowchart.
Answer:
Page Ref: 60
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

7) All of the following are guidelines for preparing data flow diagrams except
A) show the most detail in the highest-level DFD.
B) include all storage files, even if they are only temporary.
C) uniquely name all data flows.
D) sequentially number process bubbles.
Answer:
Page Ref: 55
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

8) Flowchart symbols
A) are divided into four categories.
B) are unique to the organization creating the flowchart.
C) are normally drawn using a flowcharting template.
D) eliminate the need for narrative descriptions or explanations.
Answer:
Page Ref: 56
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

9) The Sarbanes-Oxley Act requires independent auditors to
A) create flowcharts using specialized software.
B) establish and maintain adequate controls in the client’s information system.
C) understand a client’s system of internal controls.
D) prepare and understand all types of system documentation.
Answer:
Page Ref: 50
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
10) The passage of the Sarbanes Oxley Act
A) made documentation skills even more important.
B) requires public companies to prepare an annual internal control report.
C) mandates that auditors must be able to prepare, evaluate and read documentation tools such as flowcharts.
D) all of the above
Answer:
Page Ref: 50
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

11) Which of the following is not a true statement?
A) Documentation tools save an organization both time and money.
B) Documentation tools are used extensively in the systems development process.
C) Data flow diagrams and flowcharts are the two most frequently used systems development documentation tools.
D) Data flow diagrams and flowcharts are difficult to prepare and revise using software packages.
Answer:
Page Ref: 50
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

12) A data flow diagram
A) is a graphical description of the source and destination of data that shows how data flow within an organization.
B) is a graphical description of the flow of documents and information between departments or areas of responsibility.
C) is a graphical description of the relationship among the input, processing, and output in an information system.
D) is a graphical description of the sequence of logical operations that a computer performs as it executes a program.
Answer:
Page Ref: 50
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
13) In a DFD, a “data sink” is also known as a
A) data store.
B) transformation process.
C) data flow.
D) data destination.
Answer:
Page Ref: 50
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

14) In preparing a DFD, when data are transformed through a process, the symbol used should be
A) a circle.
B) an arrow.
C) a square.
D) two horizontal lines.
Answer:
Page Ref: 50-51
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

15) In general, a data destination will be shown by
A) an arrow pointing away.
B) an arrow pointing in.
C) arrows pointing both ways.
D) no arrows, only two horizontal lines.
Answer:
Page Ref: 51
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

16) In a data flow diagram of the customer payment process, “update receivables” will appear above or in
A) a square.
B) a circle.
C) two horizontal lines.
D) none of the above
Answer:
Page Ref: 51
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
17) In a data flow diagram of the customer payment process, “Customer” will appear above or in
A) a square.
B) a circle.
C) two horizontal lines.
D) none of the above
Answer:
Page Ref: 51
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

18) In a data flow diagram of the customer payment process, “Customer payment” will appear above or in
A) a square.
B) a circle.
C) two horizontal lines.
D) an arrow.
Answer:
Page Ref: 51
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

19) Most processes on a DFD can be identified by
A) data in-flows only.
B) data out-flows only.
C) data flows both into or out of a process.
D) always being followed by a data store.
Answer:
Page Ref: 55
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

20) More than one arrow is needed between symbols on a DFD if
A) data elements always flow together.
B) data elements flow at different times.
C) data elements flow to different locations.
D) there is no guideline on use of single or multiple arrows.
Answer:
Page Ref: 55
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
21) A DFD created at the highest-level or summary view is referred to as a
A) process diagram.
B) overview diagram.
C) content diagram.
D) context diagram.
Answer:
Page Ref: 52
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

22) In a payroll processing DFD, the “prepare reports” activity will be represented by ________, the “employee payroll file” will be represented by ________, and the “management” will be represented by ________.
A) a circle; two horizontal lines; a square
B) a circle; two horizontal lines; two horizontal lines
C) a rectangle; a square; a circle
D) a square; two horizontal lines; a circle
Answer:
Page Ref: 54
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

23) Which is a true statement regarding the use of the manual processing symbol in a flowchart?
A) If a document is moved from one column to another, show the document only in the last column.
B) Each manual processing symbol should have an input and an output.
C) Do not connect two documents when moving from one column to another.
D) Use a manual processing symbol to indicate a document being filed.
Answer:
Page Ref: 60
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
24) Which is a true statement regarding a document flowchart?
A) A document flowchart illustrates the sequence of logical operations performed by a computer.
B) A document flowchart is particularly useful in analyzing the adequacy of internal control procedures.
C) A document flowchart should ignore control processes and actions.
D) A document flowchart is not normally used in the systems design process.
Answer:
Page Ref: 57
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

Use the chart below to answer the following questions regarding flow chart symbols.

25) Which symbol would be used in a flowchart to represent a computer process?
A) #1
B) #2
C) #5
D) #15
Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

26) Which symbol would be used in a flowchart to represent a decision?
A) #10
B) #16
C) #9
D) #6
Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

27) Which symbol would be used in a flowchart to represent an invoice sent to a customer?
A) #2
B) #6
C) #1
D) #15
Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

28) Which symbol would be used in a flowchart to represent a general ledger?
A) #2
B) #1
C) #3
D) #5
Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

29) Which symbol would be used in a flowchart to represent a manual process?
A) #5
B) #6
C) #10
D) #11
Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

30) Which symbol would be used in a flowchart to represent a connection to another part of the flowchart on the same page?
A) #4
B) #13
C) #14
D) #15
Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

31) Which symbol would be used in a flowchart to represent a connection to another part of the flowchart on a different page?
A) #4
B) #13
C) #14
D) #15
Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

32) Which symbol would be used in a flowchart to represent a file of paper documents?
A) #7
B) #8
C) #9
D) #15
Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

33) Which symbol would be used in a flowchart to represent a general ledger master file kept on magnetic disk?
A) #2
B) #5
C) #7
D) #8
Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

34) Which symbol would be used in a flowchart to represent employee time cards sent by department managers to the payroll department?
A) #1
B) #4
C) #11
D) #16
Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

35) Which symbol would be used in a flowchart to represent the display of a report on a computer screen?
A) #1
B) #2
C) #3
D) #11
Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

36) Which symbol would be used in a flowchart to represent the addition of information about a step represented in another symbol on the flowchart?
A) #1
B) #5
C) #11
D) #15
Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
37) Which symbol would be used in a flowchart to represent a payroll master file kept on magnetic tape?
A) #4
B) #7
C) #8
D) #9
Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

38) Which symbol would be used in a flowchart to represent a beginning, an ending, or a connection to another procedure?
A) #9
B) #14
C) #15
D) #16
Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

39) Which symbol would be used in a flowchart to represent a flow of data or documents?
A) #12
B) #13
C) #14
D) #15
Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

40) Which symbol would be used in a flowchart to represent a communication link?
A) #12
B) #13
C) #14
D) #15
Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
41) In a document flowchart of a manual payroll processing system, “update employee file” will be shown by a(n) ________ symbol, and “prepare payroll check” will be shown by a(n) ________ symbol.
A) input; output
B) input; manual operation
C) manual operation; output
D) manual operation; manual operation
Answer:
Page Ref: 58
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

42) A flowchart that depicts the relationships among the input, processing, and output of an AIS is
A) an internal control flowchart.
B) a document flowchart.
C) a system flowchart.
D) a program flowchart.
Answer:
Page Ref: 60
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

43) In a program flowchart, branching to alternative paths is represented by
A) a terminal.
B) data/information flow.
C) computer operation.
D) decision diamond.
Answer:
Page Ref: 57
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
44) The Union Soup Kitchen is a non-profit organization that collects, stores, prepares and provides food to the homeless in Erie, Pennsylvania. Donations of food are recorded in a database and a receipt is provided to the donor. When food is used, the database is updated so that it always reflects the amounts and types of food that are available. In a data flow diagram, which type of symbol would be used to represent donors?
A)

B)

C)

D)

Answer:
Page Ref: 50
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

45) The Union Soup Kitchen is a non-profit organization that collects, stores, prepares and provides food to the homeless in Erie, Pennsylvania. Donations of food are recorded in a database and a receipt is provided to the donor. When food is used, the database is updated so that it always reflects the amounts and types of food that are available. In a data flow diagram, which type of symbol would be used to represent the processing of donations?
A)

B)

C)

D)

Answer:
Page Ref: 50
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
46) The Union Soup Kitchen is a non-profit organization that collects, stores, prepares and provides food to the homeless in Erie, Pennsylvania. Donations of food are recorded in a database and a receipt is provided to the donor. When food is used, the database is updated so that it always reflects the amounts and types of food that are available. In a data flow diagram, which type of symbol would be used to represent the storage location of data in the system?
A)

B)

C)

D)

Answer:
Page Ref: 50
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

47) The Union Soup Kitchen is a non-profit organization that collects, stores, prepares and provides food to the homeless in Erie, Pennsylvania. Donations of food are recorded in a database and a receipt is provided to the donor. When food is used, the database is updated so that it always reflects the amounts and types of food that are available. In a data flow diagram, which type of symbol would be used to represent the process of updating inventory records in the system?
A)

B)

C)

D)

Answer:
Page Ref: 50
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
48) The Union Soup Kitchen is a non-profit organization that collects, stores, prepares and provides food to the homeless in Erie, Pennsylvania. Donations of food are recorded in a database and a receipt is provided to the donor. When food is used, the database is updated so that it always reflects the amounts and types of food that are available. In a data flow diagram, which type of symbol would be used to represent the flow of data from the donor into the system?
A)

B)

C)

D)

Answer:
Page Ref: 50
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
49) Chuck and Jill Scruggs travel in their motor home six months of the year and buy unique artifacts. Within hours after the Scruggs make a purchase, they have photographed it, written a description of it, and posted it for sale on eBay with a reservation price. Anything that does not sell is shipped back to Austin, Texas, for display in The House of Curiosities, a retail business that the Scruggs operate during the balance of the year. Which symbol should be used to represent eBay in a context diagram of this process?
A)

B)

C)

D)

Answer:
Page Ref: 50
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
50) Chuck and Jill Scruggs travel in their motor home six months of the year and buy unique artifacts. Within hours after the Scruggs make a purchase, they have photographed it, written a description of it, and posted it for sale on eBay with a reservation price. Anything that does not sell is shipped back to Austin, Texas, for display in The House of Curiosities, a retail business that the Scruggs operate during the balance of the year. Which symbol should be used to represent the preparation of data for submission to eBay in a context diagram of this process?
A)

B)

C)

D)

Answer:
Page Ref: 50
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
51) Chuck and Jill Scruggs travel in their motor home six months of the year and buy unique artifacts. Within hours after the Scruggs make a purchase, they have photographed it, written a description of it, and posted it for sale on eBay with a reservation price. Anything that does not sell within a week is shipped back to Austin, Texas, for display in The House of Curiosities, a retail business that the Scruggs operate during the balance of the year. Which symbol should be used to represent the transfer of data to eBay in a context diagram of this process?
A)

B)

C)

D)

Answer:
Page Ref: 50
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
52) Chuck and Jill Scruggs travel in their motor home six months of the year and buy unique artifacts. Within hours after the Scruggs make a purchase, they have photographed it, written a description of it, and posted it for sale on eBay with a reservation price. Anything that does not sell is shipped back to Austin, Texas, for display in The House of Curiosities, a retail business that the Scruggs operate during the balance of the year. Which symbol should be used to represent the remote server that is used to store data while the Scruggs are traveling?
A)

B)

C)

D)

Answer:
Page Ref: 50
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

53) Chas Mulligan has been hired by Yardley Security as an assistant to the internal auditor. He has been asked to thoroughly document the existing accounting information system in preparation for making recommendations for improvements to internal controls. He decides to begin with a description of the information stored in paper records, their sources, and their destinations. The documentation tool that he should employ for this purpose is a
A) data flow diagram.
B) document flowchart.
C) system flowchart.
D) program flowchart.
Answer:
Page Ref: 57
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking
54) Chas Mulligan has been hired by Yardley Security as an assistant to the internal auditor. He has been asked to document the existing accounting information system, and focus on the activities and flow of data between activities. He decides to begin with a summary description of the sources and uses of data in the organization and how they are processed by the system. The documentation tool that he should employ for this purpose is a
A) data flow diagram.
B) document flowchart.
C) system flowchart.
D) program flowchart.
Answer:
Page Ref: 50
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

55) Chas Mulligan has been hired by Yardley Security as an assistant to the internal auditor. He has been asked to thoroughly document the existing accounting information system in preparation for making recommendations for improvements. He decides to begin by meeting with the information technology staff in order to develop an understanding of the computer programs used by the system. The documentation tool that he should employ for this purpose is a
A) data flow diagram.
B) document flowchart.
C) system flowchart.
D) program flowchart.
Answer:
Page Ref: 62
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Reflective Thinking

56) Chas Mulligan has been hired by Yardley Security as an assistant to the internal auditor. He has been asked to thoroughly document the existing accounting information system in preparation for making recommendations for improvements. He decides to begin by meeting with the information technology staff in order to develop an understanding of the overall operation of the AIS, including data entry, storage, and output. The documentation tool that he should employ for this purpose is a
A) data flow diagram.
B) document flowchart.
C) system flowchart.
D) program flowchart.
Answer:
Page Ref: 60
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking
57) When a sale is made, data is captured by a cash register and stored on a floppy disk for later uploading to the accounting system. Which one of the following diagrams represents this activity?
A)

B)

C)

D)

Answer:
Page Ref: 56
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking

58) A materials requisition order document is prepared from the inventory file and the materials file, both of which are stored on disk. Which one of the following diagrams represents this activity?
A)

B)

C)

D)

Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking

59) A customer’s check is returned for insufficient funds and the accounts receivable file, stored on magnetic disk, is updated. Which one of the following diagrams represents this activity?
A)

B)

C)

D)

Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking

60) A business simulation game that is used by colleges and universities all over the world has students submit decisions over the Internet. Decisions are stored online, processed on the server, and then the results are stored online. They are then downloaded by students in preparation for the next round. Which one of the following diagrams represents this activity?
A)

B)

C)

D)

Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking

61) A report is generated from data stored on magnetic disk. Which one of the following diagrams represents this activity?
A)

B)

C)

D)

Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking
62) An employee receives a paycheck prepared in the payroll process. Which one of the following diagrams represents this activity?
A)

B)

C)

D)

Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking
63) A student manually prepares a homework assignment and then turns it in to her teacher. Which one of the following diagrams represents this activity?
A)

B)

C)

D)

Answer:
Page Ref: 56-57
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking

64) A well-planned and drawn level 0 data flow diagram for the expenditure cycle would show which of the following processes?
A) 0.1 Order Goods; 1.1 Receive and Store Goods; 2.1 Pay for Goods
B) 0.1 Order Goods; 0.2 Receive and Store Goods; 0.3 Pay for Goods
C) 1.0 Order Goods; 2.0 Receive and Store Goods; 3.0 Pay for Goods
D) 1.0 Order Goods; 1.1 Receive and Store Goods; 1.2 Pay for Goods
Answer:
Page Ref: 52-53
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking
65) A well-planned and drawn context data flow diagram will include how many processes?
A) One
B) Between 5 and 7
C) Between 2 and 7, but no more than 7
D) As many as are needed to accurately depict the process being documented
Answer:
Page Ref: 52
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

66) Which of the following is not true about program flowcharts?
A) Program flowcharts are a high-level overview of all business processes.
B) Program flowcharts document the processing logic of computer programs.
C) A program flowchart will exist for every computer process symbol on a system flowchart.
D) Program flowcharts increase computer programmer productivity.
Answer:
Page Ref: 62
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking

67) Data flow diagrams depict
A) processes, but not who is performing the processes.
B) processes, but not the data that flows between processes.
C) who is performing processes, but not how they perform the process.
D) who is performing processes, but not the data that flows between processes.
Answer:
Page Ref: 50
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Reflective Thinking

68) Which is the correct label for the blank transformation process circle in the data flow diagram below?

A) 1.2 Check Credit
B) 1.2 Enter Order in Sales Journal
C) 1.2 Does Customer Have Credit?
D) 1.2 Salesperson Approves
Answer:
Page Ref: 52
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

69) In the data flow diagram below, inventory is a

A) data store.
B) data source.
C) data flow.
D) data source and destination.
Answer:
Page Ref: 52
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

70) Discuss the ways in which information professionals interact with documentation tools and the various levels of understanding necessary.

71) Explain two reasons why it is important to have a working knowledge of DFDs and flowcharting.

72) What does the Sarbanes-Oxley Act require that is relevant to documentation tools?

73) Describe a situation in which data flow should be shown with two data flow lines instead of one.

74) Describe the different levels of DFDs.

75) Describe a system flowchart. Describe a program flowchart. How are the two interrelated?

76) How is a DFD different from a flowchart?

77) Explain the relevance of the Sarbanes Oxley Act to the documentation tools presented in this chapter.

78) Discuss the idea of a data flow.

79) What is the value of using a context diagram when working with DFDs?

80) Identify five important guidelines for drawing a DFD. Select one from your list and describe why it could be the most important one to consider when preparing a DFD. Support your choice with an example.

81) Identify five important guidelines for drawing a flowchart. Select one from your list and describe why it could be the most important one to consider when preparing a flowchart. Support your choice with an example.
82) Following is a context diagram for a current Payroll Processing System. a) Identify the data sources and destinations, data flows, and transformation process marked by question marks. b) What would you need to do to explode this diagram?

83) Identify the mistake(s) in each flowchart segment.

Accounting Information Systems, 12e (Romney/Steinbart)

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 4 Relational Databases

1) Using a file-oriented approach to data and information, data is maintained in
A) a centralized database.
B) many interconnected files.
C) many separate files.
D) a decentralized database.
Answer:
Page Ref: 88
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

2) In a well-structured relational database,
A) every table must be related to at least one other table.
B) every table must be related to all other tables.
C) one table must be related to at least one other table.
D) one table must be related to all other tables.
Answer:
Page Ref: 96-98
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Reflective Thinking

3) File-oriented approaches create problems for organizations because of
A) multiple transaction files.
B) a lack of sophisticated file maintenance software.
C) multiple users.
D) multiple master files.
Answer:
Page Ref: 88
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

4) Which statement is true regarding file systems?
A) Transaction files are similar to ledgers in a manual AIS.
B) Multiple master files create problems with data consistency.
C) Transaction files are permanent.
D) Individual records are never deleted in a master file.
Answer:
Page Ref: 88
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

5) The ________ acts as an interface between the database and the various application programs.
A) data warehouse
B) database administrator
C) database management system
D) database system
Answer:
Page Ref: 88
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

6) The combination of the database, the DBMS, and the application programs that access the database through the DBMS is referred to as the
A) data warehouse.
B) database administrator.
C) database system.
D) database manager.
Answer:
Page Ref: 88
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

7) The person responsible for the database is the
A) data coordinator.
B) database administrator.
C) database manager.
D) database master.
Answer:
Page Ref: 88
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

8) All of the following are benefits of the database approach except:
A) Data integration and sharing
B) Decentralized management of data
C) Minimal data redundancy
D) Cross-functional analysis and reporting
Answer:
Page Ref: 89
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

9) The physical view of a database system refers to
A) how a user or programmer conceptually organizes and understands the data.
B) how the DBMS accesses data for a certain application program.
C) how and where the data are physically arranged and stored.
D) how master files store data values used by more than one application program.
Answer:
Page Ref: 90
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

10) The ________ handles the link between the way data are physically stored and each user’s logical view of that data.
A) data warehouse
B) data dictionary
C) database management (DBMS) software
D) schema
Answer:
Page Ref: 90
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

11) The logical structure of a database is described by the
A) data dictionary.
B) schema.
C) database management system.
D) internal level.
Answer:
Page Ref: 90
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

12) The schema that provides an organization-wide view of the entire database is known as the
A) external-level schema.
B) internal-level schema.
C) conceptual-level schema.
D) logical view of the database.
Answer:
Page Ref: 90
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

13) A set of individual user views of the database is called the
A) conceptual-level schema.
B) internal-level schema.
C) external-level schema.
D) meta-schema.
Answer:
Page Ref: 90
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

14) A low-level view of the database that describes how the data are actually stored and accessed is the
A) conceptual-level schema.
B) subschema.
C) internal-level schema.
D) external-level schema.
Answer:
Page Ref: 90
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

15) Record layouts, definitions, addresses, and indexes will be stored at the ________ level schema.
A) external
B) conceptual
C) internal
D) meta
Answer:
Page Ref: 90
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

16) The ________ contains information about the structure of the database.
A) data definition language
B) data dictionary
C) data warehouse
D) database management system
Answer:
Page Ref: 92
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

17) Which of the following would not be found in a data dictionary entry for a data item?
A) records containing a specific data item
B) physical location of the data
C) source of the data item
D) field type
Answer:
Page Ref: 93
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

18) The data dictionary usually is maintained
A) automatically by the DBMS.
B) by the database administrator.
C) by the database programmers.
D) by top management.
Answer:
Page Ref: 92
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

19) Reports produced using the data dictionary could include all of the following except a list of
A) programs where a data item is used.
B) synonyms for the data items in a particular file.
C) outputs where a data element is used.
D) the schemas included in a database.
Answer:
Page Ref: 92
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

20) Which statement below concerning the database management system (DBMS) is false?
A) The DBMS automatically creates application software for users, based on data dictionary parameters.
B) The DBMS automatically maintains the data dictionary.
C) Users’ requests for information are transmitted to the DBMS through application software.
D) The DBMS uses special languages to perform specific functions.
Answer:
Page Ref: 92
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic

21) Which would not generally be considered a data dictionary output report?
A) A list of cash balances in the organization’s bank accounts
B) A list of all programs in which a data element is used
C) A list of all synonyms for the data elements in a particular file
D) A list of all data elements used by a particular user
Answer:
Page Ref: 92
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

22) Creating an empty table in a relational database requires use of the ________, and populating that table requires the use of ________.
A) DDL; DML
B) DQL; SQL
C) DDL; DQL
D) DML; DDA
Answer:
Page Ref: 92
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

23) When the human resources manager wants to gather data about vacation and personal day usage by employees and by departments, the manager would use which language?
A) Data Query Language
B) Data Manipulation Language
C) Data Report Language
D) Data Definition Language
Answer:
Page Ref: 92
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

24) If a national sales tax were implemented, which language would be used to add a new field in the sales table to track the sales tax due?
A) Data Definition Language
B) Data Manipulation Language
C) Data Query Language
D) Data Update Language
Answer:
Page Ref: 92
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

25) The feature in many database systems that simplifies the creation of reports by allowing users to specify the data elements desired and the format of the output. is named the
A) report writer.
B) report generator.
C) report creator.
D) report printer.
Answer:
Page Ref: 92
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

26) The abstract representation of the contents of a database is called the
A) logical data model.
B) data dictionary.
C) physical view.
D) schema.
Answer:
Page Ref: 90
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

27) The problem of changes (or updates) to data values in a database being incorrectly recorded is known as
A) an update anomaly.
B) an insert anomaly.
C) a delete anomaly.
D) a memory anomaly.
Answer:
Page Ref: 94
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

28) The potential inconsistency that could occur when there are multiple occurrences of a specific data item in a database is called the
A) update anomaly.
B) insert anomaly.
C) inconsistency anomaly.
D) delete anomaly.
Answer:
Page Ref: 94
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

29) Inability to add new data to a database without violating the basic integrity of the database is referred to as the
A) update anomaly.
B) insert anomaly.
C) integrity anomaly.
D) delete anomaly.
Answer:
Page Ref: 94
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

30) A relational database in which customer data is not maintained independently of sales invoice data will most likely result in
A) an update anomaly.
B) an insert anomaly.
C) a delete anomaly.
D) an integrity anomaly.
Answer:
Page Ref: 94
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Reflective Thinking

31) The problem of losing desired information from a database when an unwanted record is purged from the database is referred to as the ________ anomaly.
A) purge
B) erase
C) delete
D) integrity
Answer:
Page Ref: 94
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

32) The delete anomaly
A) may result in unintentional loss of important data.
B) is usually easily detected by users.
C) restricts the addition of new records.
D) prevents users from deleting outdated data from records or tables.
Answer:
Page Ref: 94
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Analytic

33) The update anomaly in file-based systems or unnormalized database tables
A) occurs because of data redundancy.
B) restricts addition of new fields or attributes.
C) results in records that cannot be updated.
D) is usually easily detected by users.
Answer:
Page Ref: 94
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Analytic

34) In a relational database, requiring that every record in a table have a unique identifier is called the
A) entity integrity rule.
B) referential integrity rule.
C) unique primary key rule.
D) foreign key rule.
Answer:
Page Ref: 96
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

35) The database requirement that foreign keys must be null or have a value corresponding to the value of a primary key in another table is formally called the
A) entity integrity rule.
B) referential integrity rule.
C) rule of keys.
D) foreign key rule.
Answer:
Page Ref: 96
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

36) In a well-structured database, the constraint that ensures the consistency of the data is known as the
A) entity integrity rule.
B) referential integrity rule.
C) logical view.
D) consistency integrity rule.
Answer:
Page Ref: 96
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

37) Which statement below is false regarding the basic requirements of the relational data model?
A) Every column in a row must be single-valued.
B) All non-key attributes in a table should describe a characteristic about the object identified by the primary key.
C) Foreign keys, if not null, must have values that correspond to the value of a primary key in another table.
D) Primary keys can be null.
Answer:
Page Ref: 96
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

38) Identify the aspect of a well-structured database that is incorrect.
A) Data is consistent.
B) Redundancy is minimized and controlled.
C) All data is stored in one table or relation.
D) The primary key of any row in a relation cannot be null.
Answer:
Page Ref: 96
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

39) In the database design approach known as normalization, the first assumption made about data is
A) there is no redundancy in the data.
B) the delete anomaly will not apply since all customer records will be maintained indefinitely.
C) everything is initially stored in one large table.
D) the data will not be maintained in 3NF tables.
Answer:
Page Ref: 97
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Analytic
40) The database design method in which a designer uses knowledge about business processes to create a diagram of the elements to be included in the database is called
A) normalization.
B) decentralization.
C) geometric data modeling.
D) semantic data modeling.
Answer:
Page Ref: 97
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

41) Which of the statements below is incorrect?
A) Semantic data modeling facilitates the efficient design of databases.
B) Semantic data modeling facilitates communicating with the intended users of the system.
C) Semantic data modeling allows a database designer to use knowledge about business processes to design the database.
D) Semantic data modeling follows the rules of normalization in the design of a database.
Answer:
Page Ref: 97
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Analytic

42) What is one potential drawback in the design and implementation of database systems for accounting?
A) Double-entry accounting relies on redundancy as part of the accounting process but well-designed database systems reduce and attempt to eliminate redundancy.
B) Relational DBMS query languages will allow financial reports to be prepared to cover whatever time periods managers want to examine.
C) Relational DBMS provide the capability of integrating financial and operational data.
D) Relational DBMS can accommodate multiple views of the same underlying data; therefore, tables storing information about assets can include data about both historical and replacement costs.
Answer:
Page Ref: 104
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Reflective Thinking
43) Which is probably the most immediate and significant effect of database technology on accounting?
A) replacement of the double entry-system
B) change in the nature of financial reporting
C) elimination of traditional records such as journals and ledgers
D) quicker access to and greater use of accounting information in decision-making
Answer:
Page Ref: 105
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

44) In a well-designed and normalized database, which of the following attributes would be a foreign key in a cash receipts table?
A) Customer number
B) Cash receipt date
C) Remittance advice number
D) Customer check number
Answer:
Page Ref: 96
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

45) Dana Halsey is chair of the Purebred Marmoset Society, which maintains a database of registered purebred marmosets and their breeding history. One table will store the name, birth date, and other characteristics of all of the marmosets that have been registered. Each marmoset is uniquely identified by a registration number. A second table will contain data that link each marmoset to its male and female parents by means of their registration numbers. The primary key in the first table is:
A) name
B) birth date
C) a foreign key in the second table.
D) the primary key in the second table.
Answer:
Page Ref: 96
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Reflective Thinking
46) Dana Halsey is chair of the Purebred Marmoset Society, which maintains a database of registered purebred marmosets and their breeding history. One table will store the name, birth date, and other characteristics of all of the marmosets that have been registered. Each marmoset is uniquely identified by a registration number. A second table will contain data that link each marmoset to its male and female parents by means of their registration numbers. The primary key in the second table is:
A) name
B) birth date
C) a combination of primary keys in the first table
D) the same as the primary key in the first table
Answer:
Page Ref: 96
Objective: Learning Objective 5
Difficulty : Difficult
AACSB: Reflective Thinking

47) Dana Halsey is chair of the Purebred Marmoset Society, which maintains a database of registered purebred marmosets and their breeding history. One table will store the name, birth date, and other characteristics of all of the marmosets that have been registered. Each marmoset is uniquely identified by a registration number. A second table will contain data that link each marmoset to its male and female parents by means of their registration numbers. The entities described by the second table are:
A) marmosets
B) parental relationships
C) registration numbers
D) names
Answer:
Page Ref: 96
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Reflective Thinking

48) Dana Halsey is chair of the Purebred Marmoset Society, which maintains a database of registered purebred marmosets and their breeding history. One table will store the name, birth date, and other characteristics of all of the marmosets that have been registered. Each marmoset is uniquely identified by a registration number. A second table will contain data that link each marmoset to its male and female parents by means of their registration numbers. The entities described by the first table are:
A) marmosets
B) parental relationships
C) registration numbers
D) names
Answer:
Page Ref: 96
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Reflective Thinking

49) Dana Halsey is chair of the Purebred Marmoset Society, which maintains a database of registered purebred marmosets and their breeding history. One table will store the name, birth date, and other characteristics of all of the marmosets that have been registered. Each marmoset is uniquely identified by a registration number. A second table will contain data that link each marmoset to its male and female parents by means of their registration numbers. The primary key in the first table is:
A) name
B) registration number
C) date of birth
D) relationship number
Answer:
Page Ref: 96
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Reflective Thinking
50) Dana Halsey is chair of the Purebred Marmoset Society, which maintains a database of registered purebred marmosets and their breeding history. One table will store the name, birth date, and other characteristics of all of the marmosets that have been registered. Each marmoset is uniquely identified by a registration number. A second table will contain data that link each marmoset to its male and female parents by means of their registration numbers. The primary key in the second table is:
A) name
B) registration number
C) date of birth
D) relationship number
Answer:
Page Ref: 96
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Reflective Thinking

51) Scuz Bootes has been doing custom choppers, piercings, and tattoos for over thirty years. His home and place of business is a garage in the harbor district of Seattle, Washington. He has meticulous records of every job he has ever done, carefully handwritten with the customer name and address, a description of the job, and an attached picture of the bike or body part before and after customization. His unique style has recently attracted the attention of national media after several celebrities sought him out and showcased his work. Business is booming. Consequently, Scuz has hired you to construct an accounting information system, beginning with the historical records. As you read through the records, you notice that some customer last names have different first names in different records. For example, R. Framington Farnsworth (custom chopper), Bob Farnsworth (tattoo), and Snake Farnsworth (tattoos and piercings) all seem to be the same person. This is an example of what type of problem in the existing records?
A) Entity integrity
B) Referential integrity
C) Update anomaly
D) Insert anomaly
Answer:
Page Ref: 94
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Reflective Thinking
52) Scuz Bootes has been doing custom choppers, piercings, and tattoos for over thirty years. His home and place of business is a garage in the harbor district of Seattle, Washington. He has meticulous records of every job he has ever done, carefully handwritten with the customer name and address, a description of the job, and an attached picture of the bike or body part before and after customization. His unique style has recently attracted the attention of national media after several celebrities sought him out and showcased his work. Business is booming. Consequently, Scuz has hired you to construct an accounting information system, beginning with the historical records. As you read through the records, you notice that some describe multiple services. For example, Sheila Yasgur (notation: won lottery) got a custom chopper, multiple tattoos, and piercings in undisclosed locations (no pictures.) You realize that, in these cases, a single written record will have to be translated into multiple sales records. This is an example of what type of problem in the existing records?
A) Entity integrity
B) Referential integrity
C) Update anomaly
D) Insert anomaly
Answer:
Page Ref: 94
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Reflective Thinking

53) Scuz Bootes has been doing custom choppers, piercings, and tattoos for over thirty years. His home and place of business is a garage in the harbor district of Seattle, Washington. He has meticulous records of every job he has ever done, carefully handwritten with the customer name and address, a description of the job, and an attached picture of the bike or body part before and after customization. His unique style has recently attracted the attention of national media after several celebrities sought him out and showcased his work. Business is booming. Consequently, Scuz has hired you to construct an accounting information system, beginning with the historical records. As you read through the records, you notice that some customer last names have different first names in different records. For example, R. Framington Farnsworth (custom chopper), Bob Farnsworth (tattoo), and Snake Farnsworth (tattoos and piercings) all seem to be the same person. You explain to Scuz that every customer must be identified by a unique customer number in the AIS. You are referring to the
A) entity integrity rule.
B) referential integrity rule.
C) update anomaly.
D) insert anomaly.
Answer:
Page Ref: 96
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Reflective Thinking
54) Scuz Bootes has been doing custom choppers, piercings, and tattoos for over thirty years. His home and place of business is a garage in the harbor district of Seattle, Washington. He has meticulous records of every job he has ever done, carefully handwritten with the customer name and address, a description of the job, and an attached picture of the bike or body part before and after customization. His unique style has recently attracted the attention of national media after several celebrities sought him out and showcased his work. Business is booming. Consequently, Scuz has hired you to construct an accounting information system, beginning with the historical records. You begin development of the relational database that will form the core of the AIS by envisioning the record stored in a single table with a column that represents each attribute. You then begin to break this table down into smaller tables. This process is called
A) integration.
B) optimization.
C) minimization.
D) normalization.
Answer:
Page Ref: 97
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Reflective Thinking

55) Chelsana Washington is a medical equipment sales representative. Her company has provided her with a laptop computer that uses wireless connectivity to access the accounting information system from virtually anywhere in the country. She, and the other sales reps, have access to view customer and product information. They have access that allows them to enter and cancel customer orders. The permissions for Chelsana define a(an) ________ in the company’s database management system.
A) conceptual-level schema
B) subschema
C) data dictionary
D) physical view
Answer:
Page Ref: 90
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking
56) Chelsana Washington is a medical equipment sales representative. Her company has provided her with a laptop computer that uses wireless connectivity to access the accounting information system from virtually anywhere in the country. She, and the other sales reps, have access to view customer and product information. They have access that allows them to enter and cancel customer orders. The permissions for the sales reps define a(an) ________ in the company’s database management system.
A) conceptual-level schema
B) external-level schema
C) data dictionary
D) physical view
Answer:
Page Ref: 90
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

57) Shandra Bundawi is a new graduate who has been hired by an old-line, family-owned furniture manufacturing company in the northeast. She has been asked to analyze the company’s accounting information system and to recommend cost-effective improvements. After noting that the production and sales departments use database systems that are entirely separated, she recommends that they be combined. Implementation of her recommendation would benefit the company by contributing to data
A) independence.
B) integration.
C) redundancy.
D) qualifications.
Answer:
Page Ref: 89
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Reflective Thinking
58) Scuz Bootes has been doing custom choppers, piercings, and tattoos for over thirty years. His home and place of business is a garage in the harbor district of Seattle, Washington. He has meticulous records of every job he has ever done. These have been entered into a computerized accounting information system that his accountant refers to as a “data warehouse.” Scuz is considering an expansion of his business into scarification, and has asked his accountant to identify past customers who might be likely candidates for this service. Scuz wants his accountant to engage in
A) customer auditing.
B) customer resource management.
C) data mining.
D) enterprise resource planning.
Answer:
Page Ref: 89
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

59) Heidi Holloway is a headhunter with Career Funnel in Boca Raton, Florida. Heidi is proud of the company’s motto: We funnel workers into jobs. The foundation of CF’s success is its accounting information system. When a client is placed with an employer, a record is created that identifies the employment relationship. CF follows up on placements by surveying both employers and clients about the employment experience and then entering the results into the AIS. Clients are uniquely identified by social security number. In records that contain client survey data,the social security number number is likely to be
A) the primary key.
B) a foreign key.
C) combined with other data fields to form a primary key.
D) null.
Answer:
Page Ref: 96
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Reflective Thinking

60) The data on this sales invoice would be generated from how many well-structured tables in a well-designed relational database?

A) 6
B) 5
C) 4
D) 7
Answer:
Page Ref: 96
Objective: Learning Objective 5
Difficulty : Difficult
AACSB: Reflective Thinking

61) Which of the following would not be one of the well-structured tables in a well-designed relational database used to generate this sales invoice?

A) Customer Order
B) Customer
C) Sales
D) Sales Order
Answer:
Page Ref: 96
Objective: Learning Objective 5
Difficulty : Difficult
AACSB: Reflective Thinking

62) Which of the following would not be true about the well-structured tables in a well-designed relational database used to generate this sales invoice?

A) Quantity would be generated from the Sales table.
B) 34567 would be a primary key in the Sales table.
C) Unit Price would be generated from the Inventory table.
D) Hardware City is an example of a non-key data value in the Customer table.
Answer:
Page Ref: 96
Objective: Learning Objective 5
Difficulty : Difficult
AACSB: Reflective Thinking

63) Which one of the following results corresponds to the query below?

A)

B)

C)

D)

Answer:
Page Ref: 97-104
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

64) Which one of the following results corresponds to the query below?

A)

B)

C)

D)

Answer:
Page Ref: 97-104
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Reflective Thinking
65) Which one of the following results corresponds to the query below?

A)

B)

C)

D)

Answer:
Page Ref: 97-104
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Reflective Thinking
66) Describe a major advantage of database systems over file-oriented transaction processing systems.

67) What is the difference in logical view and physical view?

68) Describe the different schemas involved in a database structure. What is the role of accountants in development of schemas?

69) Describe a data dictionary.

70) Explain the types of attributes that tables possess in a relational database.

71) Explain the two advantages semantic data modeling has over normalization when designing a relational database.

72) Explain the difference between file-oriented transaction processing systems and relational database systems. Discuss the advantages and disadvantages of each system.

73) Discuss redundancy as it applies to database design.

74) Discuss the ways in which a well-designed DBMS will facilitate the three basic functions of creating, changing, and querying data.

75) List the four DBMS “languages” and describe who uses each and for what purpose.

76) Describe the information that is contained in the data dictionary.

77) Explain the relational database data model.

78) What are the basic requirements when logically designing a relational database model?

79) Describe what you think will be the main impact of database technology in your career.

80) Chagall Curtain Company is changing from a file-oriented system to a relational database system. Design at least three tables that would be needed to capture data for a sales transaction. Each table should include a primary key, three non-key attributes, and foreign keys as necessary. Make up data

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 5 Computer Fraud

1) Perhaps the most striking fact about natural disasters in relation to AIS controls is that
A) many companies in one location can be seriously affected at one time by a disaster.
B) losses are absolutely unpreventable.
C) there are a large number of major disasters every year.
D) disaster planning has largely been ignored in the literature.
Answer:
Page Ref: 121
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

2) Which of the following best describes lapping?
A) Applying cash receipts to a different customer’s account in an attempt to conceal previous thefts of cash receipts.
B) Inflating bank balances by transferring money among different bank accounts.
C) Increasing expenses to conceal that an asset was stolen.
D) Stealing small amounts of cash, many times over a period of time.
Answer:
Page Ref: 128
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

3) Which of the following is the greatest risk to information systems and causes the greatest dollar losses?
A) human errors and omissions
B) physical threats such as natural disasters
C) dishonest employees
D) fraud and embezzlement
Answer:
Page Ref: 122
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
4) All of the following could lead to computer fraud except
A) allowing computer operators full access to the computer room.
B) releasing data to unauthorized users.
C) allowing computer users to test software upgrades.
D) storing backup tapes in a location where they can be quickly accessed.
Answer:
Page Ref: 131-134
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

5) Which of the following is not an example of the fraud triangle characteristic concerned with easing a fraudster’s conscience?
A) Revenge against the company
B) Sense of entitlement as compensation for receiving a lower than average raise
C) Intent to repay “borrowed” funds in the future
D) Belief that the company won’t suffer because an insurance company will reimburse losses
Answer:
Page Ref: 130
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

6) Most fraud perpetrators are insiders because
A) insiders are more dishonest than outsiders.
B) insiders know more about the system and its weaknesses than outsiders.
C) outsiders are more likely to get caught than insiders.
D) insiders have more need for money than outsiders.
Answer:
Page Ref: 126
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

7) Most frauds are detected by
A) external auditors.
B) internal auditors.
C) accident.
D) hotline tip.
Answer:
Page Ref: 135
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic
8) Amy wants to open a floral shop in a downtown business district. She doesn’t have funds enough to purchase inventory and pay six months rent up front. Amy approaches a good friend, Coleen, to discuss the possibility of Coleen investing funds and becoming a 25% partner in the business. After a lengthy discussion Coleen agrees to invest. Eight months later, Coleen and Amy have a falling out. In order for Coleen to sue Amy for fraud, all the following must be true except
A) Amy told Coleen she had worked at a floral shop for several years, when in fact she did not have any prior experience in floral retail.
B) Coleen’s decision to invest was primarily based on Amy’s assertion that she had prior floral retail experience.
C) Coleen’s 25% share of the business is worth substantially less than her initial investment.
D) Before Coleen invested, Amy prepared a detailed business plan and sales forecasts, and provided Coleen with copies.
Answer:
Page Ref: 123
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking

9) Perpetrators of theft of company assets typically exhibit all the following characteristics except that they
A) attempt to return or pay back stolen amounts soon after the initial theft, but find they are unable to make full restitution.
B) use trickery or lies to gain the confidence and trust of others at the organization they defraud.
C) become bolder and more greedy the longer the theft remains undetected.
D) begin to rely on stolen amounts as part of their income.
Answer:
Page Ref: 124-125
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

10) “Cooking the books” is typically accomplished by all the following except
A) inflating accounts payable.
B) accelerating recognition of revenue.
C) delaying recording of expenses.
D) overstating inventory.
Answer:
Page Ref: 125
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

11) SAS No. 99 requires that auditors
A) plan audits based on an analysis of fraud risk.
B) detect all material fraud.
C) alert the Securities and Exchange Commission of any fraud detected.
D) take all of the above actions.
Answer:
Page Ref: 125
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Analytic

12) Which of the following is not a management characteristic that increases pressure to commit fraudulent financial reporting?
A) Close relationship with the current audit engagement partner and manager
B) Pay for performance incentives based on short-term performance measures
C) High management and employee turnover
D) Highly optimistic earnings projections
Answer:
Page Ref: 128
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

13) Intentional or reckless conduct that results in materially misleading financial statements is called
A) financial fraud.
B) misstatement fraud.
C) fraudulent financial reporting.
D) audit failure fraud.
Answer:
Page Ref: 125
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

14) Researchers have compared the psychological and demographic characteristics of white-collar criminals, violent criminals, and the general public. They found that
A) few differences exist between white-collar criminals and the general public.
B) white-collar criminals eventually become violent criminals.
C) most white-collar criminals invest their illegal income rather than spend it.
D) most white-collar criminals are older and not technologically proficient.
Answer:
Page Ref: 126
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

15) Which of the following is an opportunity that could contribute to employee fraud?
A) an employee’s spouse loses their job
B) an employee suddenly acquires lots of credit cards
C) an employee is upset that he was passed over for a promotion
D) close association with suppliers or customers
Answer:
Page Ref: 129
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

16) Which of the following is a financial pressure that could cause an employee to commit fraud?
A) a feeling of not being appreciated
B) failing to receive a deserved promotion
C) believing that their pay is too low relative to others around them
D) having a spouse injured in a car accident and in the hospital for several weeks
Answer:
Page Ref: 127
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

17) Opportunity to commit fraud is comprised of three stages. The stage that often takes most time and effort would include
A) stealing inventory from the warehouse.
B) selling stolen inventory to get cash.
C) lapping accounts receivable.
D) creating false journal entries to overstate revenue.
Answer:
Page Ref: 128
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

18) In many cases of fraud, the ________ takes more time and effort than the ________.
A) concealment; theft
B) theft; concealment
C) conversion; theft
D) conversion; concealment
Answer:
Page Ref: 128
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

19) Which of the following is the best way to hide theft of assets?
A) Creating “cash” through the transfer of money between banks
B) Conversion of stolen assets into cash
C) Stealing cash from customer A and then using customer B’s balance to pay customer A’s accounts receivable
D) Charging the stolen asset to an expense account
Answer:
Page Ref: 128
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

20) In a ________ scheme, customer receipts are stolen and then subsequent payments by other customers are misapplied to cover the theft of the original receipts.
A) kiting
B) laundering
C) bogus expense
D) lapping
Answer:
Page Ref: 128
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

21) One fraudulent scheme covers up a theft by creating cash through the transfer of money between banks. This is known as
A) lapping.
B) misappropriation of assets.
C) kiting.
D) concealment.
Answer:
Page Ref: 128
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
22) Which characteristic of the fraud triangle often stems from a lack of internal controls within an organization?
A) pressure
B) opportunity
C) rationalization
D) concealment
Answer:
Page Ref: 129
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

23) Which situation below makes it easy for someone to commit a fraud?
A) placing excessive trust in key employees
B) inadequate staffing within the organization
C) unclear company policies
D) All of the above situations make it easy for someone to commit a fraud.
Answer:
Page Ref: 129
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

24) What is the most prevalent opportunity within most companies to commit fraud?
A) lack of any internal controls
B) failure to enforce the internal controls
C) loopholes in the design of internal controls
D) management’s failure to believe employees would commit fraud
Answer:
Page Ref: 129
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

25) Which characteristic of the fraud triangle relates to excuses that perpetrators use to justify their illegal behavior?
A) pressure
B) opportunity
C) rationalization
D) concealment
Answer:
Page Ref: 130
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
26) The US Justice Department defines computer fraud as
A) any crime in which a computer is used.
B) an illegal act in which knowledge of computer technology is essential.
C) any act in which cash is stolen using a computer.
D) an illegal act in which a computer is an integral part of the crime.
Answer:
Page Ref: 130
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Analytic

27) The most efficient way to conceal asset misappropriation is to
A) write-off a customer receivable as bad debt.
B) alter monthly bank statements before reconciliation.
C) alter monthly physical inventory counts to reconcile to perpetual inventory records.
D) record phony payments to vendors.
Answer:
Page Ref: 128
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

28) Computer fraud is often much more difficult to detect than other types of fraud because
A) perpetrators usually only steal very small amounts of money at a time, thus requiring a long period of time to have elapsed before they’re discovered.
B) massive fraud can be committed in only seconds, leaving little or no evidence.
C) most perpetrators invest their illegal income rather than spend it, thus concealing key evidence.
D) most computer criminals are older and are considered to be more cunning when committing such a fraud.
Answer:
Page Ref: 130
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Analytic

29) Why is computer fraud often more difficult to detect than other types of fraud?
A) Rarely is cash stolen in computer fraud.
B) The fraud may leave little or no evidence it ever happened.
C) Computers provide more opportunities for fraud.
D) Computer fraud perpetrators are just more clever than other types of criminals.
Answer:
Page Ref: 130
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic
30) Why do many fraud cases go unreported and unprosecuted?
A) Major fraud is a public relations nightmare.
B) Fraud is difficult, costly, and time-consuming to investigate and prosecute.
C) Law enforcement and the courts are often so busy with violent crimes that little time is left for fraud cases.
D) all of the above
Answer:
Page Ref: 131
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

31) The fraud that requires the least computer knowledge or skill involves
A) altering or falsifying source data.
B) unauthorized use of computers.
C) tampering with or copying software.
D) forging documents like paychecks.
Answer:
Page Ref: 131
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Reflective Thinking

32) The simplest and most common way to commit a computer fraud is to
A) alter computer input.
B) alter computer output.
C) modify the processing.
D) corrupt the database.
Answer:
Page Ref: 131
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

33) Downloading a master list of customers and selling it to a competitor is an example of
A) data fraud.
B) output theft.
C) download fraud.
D) fraudulent financial reporting.
Answer:
Page Ref: 133
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic
34) Which of the following will not reduce the likelihood of an occurrence of fraud?
A) encryption of data and programs
B) use of forensic accountants
C) adequate insurance coverage
D) required vacations and rotation of duties
Answer:
Page Ref: 134-135
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

35) Which of the following is not an example of one of the basic types of fraud?
A) While straightening the store at the end of the day, a shoe store employee finds and keeps an expensive pair of sunglasses left by a customer.
B) An executive devised and implemented a plan to accelerate revenue recognition on a long-term contract, which will allow the company to forestall filing for bankruptcy. The executive does not own any stock, stock options or grants, and will not receive a bonus or perk because of the overstated revenue.
C) A purchasing agent places a large order at higher-than-normal unit prices with a vendor that gave the agent tickets to several football games.
D) A salesperson approves a large sales discount on an order from a company owned partially by the salesperson’s sister.
Answer:
Page Ref: 124-125
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking

36) On Monday morning, Janet Pillsner, Chief Information Officer at International Securities Corporation (ISC), got some bad news. A tape used to store system data backups was lost while it was being transported to an offsite storage location. She called a meeting of her technical staff to discuss the implications of the loss. Which of the following is most likely to relieve her concerns over the potential cost of the loss?
A) The shipper has insurance that will reimburse ISC for the cost of the tape.
B) ISC has a copy of the tape onsite, so a new copy for storage offsite can easily be prepared.
C) The tape was encrypted and password protected.
D) ISC has a comprehensive disaster recovery plan.
Answer:
Page Ref: 135
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Reflective Thinking
37) A simple method for catching or preventing many types of employee fraud is to
A) monitor all employee behavior using video cameras.
B) require all employees to take annual vacations.
C) explain to employees that fraud is illegal and that it will be severely punished.
D) monitor employee bank accounts and net worth.
Answer:
Page Ref: 134
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

38) Describe two kinds of fraud.

39) What are the actions recommended by the Treadway Commission to reduce the possibility of fraudulent financial reporting?

40) Explain the impact of SAS No. 99 on auditors’ responsibilities.

41) Why is computer fraud on the rise?

42) Describe at least four ways a company can make fraud less likely to occur.

43) Describe four ways companies can reduce losses from fraud.

44) What are some of the distinguishing characteristics of fraud perpetrators?

45) Why do fraudulent acts often go unreported and are therefore not prosecuted?

46) A teller at a savings and loan drive-through accepted a cash payment from customer #1 for an auto loan. The teller appeared to process the payment, but told the customer the printer was jammed and she can’t print a receipt. The customer accepted the excuse and drove away. The teller pocketed the cash and wrote down customer #1’s loan number and payment amount for future reconciling. A couple of days before customer #1’s monthly statement was printed, the teller recorded a cash payment from customer #2 as if it were made by customer #1. The teller pocketed the difference between the two payments. The teller continued to steal and misapply customer payments for the next two years without detection.

Identify the type of fraud scheme described. Describe five controls you would implement to address the fraud risk, and label each control as preventive or detective.

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 6 Computer Fraud and Abuse Techniques

1) Wally Hewitt maintains an online brokerage account. In early March, Wally received an email from the firm that explained that there had been a computer error and that provided a phone number so that Wally could verify his customer information. When he called, a recording asked that he enter the code from the email, his account number, and his social security number. After he did so, he was told that he would be connected with a customer service representative, but the connection was terminated. He contacted the brokerage company and was informed that they had not sent the email. Wally was a victim of
A) Bluesnarfing.
B) splogging.
C) vishing.
D) typosquatting.
Answer:
Page Ref: 157
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

2) When a computer criminal gains access to a system by searching records or the trash of the target company, this is referred to as
A) data diddling.
B) dumpster diving.
C) eavesdropping.
D) piggybacking.
Answer:
Page Ref: 159
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

3) Jerry Schneider was able to amass operating manuals and enough technical data to steal $1 million of electronic equipment by
A) scavenging.
B) skimming.
C) Internet auction fraud.
D) cyber extortion.
Answer:
Page Ref: 159
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

4) A part of a program that remains idle until some date or event occurs and then is activated to cause havoc in the system is a
A) trap door.
B) data diddle.
C) logic bomb.
D) virus.
Answer:
Page Ref: 161
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

5) The unauthorized copying of company data is known as
A) data leakage.
B) eavesdropping.
C) masquerading.
D) phishing.
Answer:
Page Ref: 154
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

6) Computer fraud perpetrators who use telephone lines to commit fraud and other illegal acts are typically called
A) hackers.
B) crackers.
C) phreakers.
D) jerks.
Answer:
Page Ref: 154
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
7) What is a denial of service attack?
A) A denial of service attack occurs when the perpetrator sends hundreds of messages from randomly generated false addresses, overloading an Internet service provider’s e-mail server.
B) A denial of service attack occurs when an e-mail message is sent through a re-mailer, who removes the message headers making the message anonymous, then resends the message to selected addresses.
C) A denial of service attack occurs when a cracker enters a system through an idle modem, captures the PC attached to the modem, and then gains access to the network to which it is connected.
D) A denial of service attack occurs when the perpetrator e-mails the same message to everyone on one or more Usenet newsgroups LISTSERV lists.
Answer:
Page Ref: 150
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

8) Gaining control of someone else’s computer to carry out illicit activities without the owner’s knowledge is known as
A) hacking.
B) hijacking.
C) phreaking.
D) sniffings.
Answer:
Page Ref: 150
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

9) Illegally obtaining and using confidential information about a person for economic gain is known as
A) eavesdropping.
B) identity theft.
C) packet sniffing.
D) piggybacking.
Answer:
Page Ref: 156
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
10) Tapping into a communications line and then entering the system by accompanying a legitimate user without their knowledge is called
A) superzapping.
B) data leakage.
C) hacking.
D) piggybacking.
Answer:
Page Ref: 153
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

11) Which of the following is not a method of identify theft?
A) Scavenging
B) Phishing
C) Shoulder surfing
D) Phreaking
Answer:
Page Ref: 154
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

12) Which method of fraud is physical in its nature rather than electronic?
A) cracking
B) hacking
C) eavesdropping
D) scavenging
Answer:
Page Ref: 159
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

13) Which of the following is the easiest method for a computer criminal to steal output without ever being on the premises?
A) dumpster diving
B) by use of a Trojan horse
C) using a telescope to peer at paper reports
D) electronic eavesdropping on computer monitors
Answer:
Page Ref: 159
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
14) The deceptive method by which a perpetrator gains access to the system by pretending to be an authorized user is called
A) cracking.
B) masquerading.
C) hacking.
D) superzapping.
Answer:
Page Ref: 153
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

15) The unauthorized access to, and use of, computer systems is known as
A) hacking.
B) hijacking.
C) phreaking.
D) sniffing.
Answer:
Page Ref: 149
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

16) A fraud technique that slices off tiny amounts from many projects is called the ________ technique.
A) Trojan horse
B) round down
C) salami
D) trap door
Answer:
Page Ref: 154
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
17) Data diddling is
A) gaining unauthorized access to and use of computer systems, usually by means of a personal computer and a telecommunications network.
B) unauthorized copying of company data such as computer files.
C) unauthorized access to a system by the perpetrator pretending to be an authorized user.
D) changing data before, during, or after it is entered into the system in order to delete, alter, or add key system data.
Answer:
Page Ref: 154
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

18) Spyware is
A) software that tells the user if anyone is spying on his computer.
B) software that monitors whether spies are looking at the computer.
C) software that monitors computing habits and sends the data it gathers to someone else.
D) none of the above
Answer:
Page Ref: 159
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

19) The unauthorized use of special system programs to bypass regular system controls and perform illegal act is called
A) a Trojan horse.
B) a trap door.
C) the salami technique.
D) superzapping.
Answer:
Page Ref: 162
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

20) Computer fraud perpetrators that modify programs during systems development, allowing access into the system that bypasses normal system controls are using
A) a Trojan horse.
B) a trap door.
C) the salami technique.
D) superzapping.
Answer:
Page Ref: 162
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

21) A fraud technique that allows a perpetrator to bypass normal system controls and enter a secured system is called
A) superzapping.
B) data diddling.
C) using a trap door.
D) piggybacking.
Answer:
Page Ref: 162
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

22) A set of unauthorized computer instructions in an otherwise properly functioning program is known as a
A) logic bomb.
B) spyware.
C) trap door.
D) Trojan horse.
Answer:
Page Ref: 161
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
23) A ________ is similar to a ________, except that it is a program rather than a code segment hidden in a host program.
A) worm; virus
B) Trojan horse; worm
C) worm; Trojan horse
D) virus; worm
Answer:
Page Ref: 163
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

24) Wally Hewitt is an accountant with a large accounting firm. The firm has a very strict policy of requiring all users to change their passwords every sixty days. In early March, Wally received an email from the firm that explained that there had been an error updating his password and that provided a link to a Web site with instructions for re-entering his password. Something about the email made Wally suspicious, so he called the firm’s information technology department and found that the email was fictitious. The email was an example of
A) social engineering.
B) phishing.
C) piggybacking.
D) spamming.
Answer:
Page Ref: 157
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

25) Developers of computer systems often include a user name and password that is hidden in the system, just in case they need to get into the system and correct problems in the future. This is referred to as a
A) Trojan horse.
B) key logger.
C) spoof.
D) back door.
Answer:
Page Ref: 162
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
26) In the 1960s, techniques were developed that allowed individuals to fool the phone system into providing free access to long distance phone calls. The people who use these methods are referred to as
A) phreakers.
B) hackers.
C) hijackers.
D) superzappers.
Answer:
Page Ref: 154
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

27) During a routine audit, a review of cash receipts and related accounting entries revealed discrepancies. Upon further analysis, it was found that figures had been entered correctly and then subsequently changed, with the difference diverted to a fictitious customer account. This is an example of
A) kiting.
B) data diddling.
C) data leakage.
D) phreaking.
Answer:
Page Ref: 154
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

28) It was late on a Friday afternoon when Troy Willicott got a call at the help desk for Taggitt Finances. A man with an edge of panic clearly discernible in his voice was on the phone. “I’m really in a bind and I sure hope that you can help me.” He identified himself as Chet Frazier from the Accounting Department. He told Troy that he had to work on a report that was due on Monday morning and that he had forgotten to bring a written copy of his new password home with him. Troy knew that Taggitt’s new password policy, that required that passwords must be at least fifteen characters long, must contain letters and numbers, and must be changed every sixty days, had created problems. Consequently, Troy provided the password, listened as it was read back to him, and was profusely thanked before ending the call. The caller was not Chet Frazier, and Troy Willicott was a victim of
A) phreaking.
B) war dialing.
C) identity theft.
D) social engineering.
Answer:
Page Ref: 156
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
29) Chiller451 was chatting online with 3L3tCowboy. “I can’t believe how lame some people are! 🙂 I can get into any system by checking out the company web site to see how user names are defined and who is on the employee directory. Then, all it takes is brute force to find the password.” Chiller451 is a ________ and the fraud he is describing is ________.
A) phreaker; dumpster diving
B) hacker; social engineering
C) phreaker; the salami technique
D) hacker; password cracking
Answer:
Page Ref: 153
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

30) After graduating from college with a communications degree, Sylvia Placer experienced some difficulty in finding full-time employment. She free-lanced during the summer as a writer and then started a blog in the fall. Shortly thereafter she was contacted by Clickadoo Online Services, who offered to pay her to promote their clients by mentioning them in her blog and linking to their Web sites. She set up several more blogs for this purpose and is now generating a reasonable level of income. She is engaged in
A) Bluesnarfing.
B) splogging.
C) vishing.
D) typosquatting.
Answer:
Page Ref: 150
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

31) Telefarm Industries is a telemarketing firm that operates in the Midwest. The turnover rate among employees is quite high. Recently, the information technology manager discovered that an unknown employee had used a Bluetooth-enabled mobile phone to access the firm’s database and copy a list of customers from the past three years that included credit card information. Telefarm was a victim of
A) Bluesnarfing.
B) splogging.
C) vishing.
D) typosquatting.
Answer:
Page Ref: 165
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
32) Jim Chan decided to Christmas shop online. He linked to Amazon.com, found a perfect gift for his daughter, registered, and placed his order. It was only later that he noticed that the Web site’s URL was actually Amazom.com. Jim was a victim of
A) Bluesnarfing.
B) splogging.
C) vishing.
D) typosquatting.
Answer:
Page Ref: 158
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

33) Computers that are part of a botnet and are controlled by a bot herder are referred to as
A) posers.
B) zombies.
C) botsquats.
D) evil twins.
Answer:
Page Ref: 150
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

34) Jiao Jan had been the Web master for Folding Squid Technologies for only three months when the Web site was inundated with access attempts. The only solution was to shut down the site and then selectively open it to access from certain Web addresses. FST suffered significant losses during the period. The company had been the victim of a(an)
A) denial-of-service attack.
B) zero-day attack.
C) malware attack.
D) cyber-extortion attack.
Answer:
Page Ref: 150
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
35) Jiao Jan had been the Web master for Folding Squid Technologies for only three months when he received an anonymous email that threatened to inundate the company Web site with access attempts unless a payment was wired to an account in Eastern Europe. Jiao was concerned that FST would suffer significant losses if the threat was genuine. The author of the email was engaged in
A) a denial-of-service attack.
B) Internet terrorism.
C) hacking.
D) cyber-extortion.
Answer:
Page Ref: 154
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

36) Mo Chauncey was arrested in Emporia, Kansas, on February 29, 2008, for running an online business that specialized in buying and reselling stolen credit card information. Mo was charged with
A) typosquatting.
B) carding.
C) pharming.
D) phishing.
Answer:
Page Ref: 158
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

37) I work in the information technology department of a company I’ll call CMV. On Wednesday morning, I arrived at work, scanned in my identity card and punched in my code. This guy in a delivery uniform came up behind me carrying a bunch of boxes. I opened the door for him, he nodded and went on in. I didn’t think anything of it until later. Then I wondered if he might have been
A) pretexting.
B) piggybacking.
C) posing.
D) spoofing.
Answer:
Page Ref: 153
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
38) The call to tech support was fairly routine. A first-time computer user had purchased a brand new PC two months ago and it was now operating much more slowly and sluggishly than it had at first. Had he been accessing the Internet? Yes. Had he installed any “free” software? Yes. The problem is likely to be a(an)
A) virus.
B) zero-day attack.
C) denial of service attack.
D) dictionary attack.
Answer:
Page Ref: 163
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

39) In November of 2005 it was discovered that many of the new CDs distributed by Sony BMG installed software when they were played on a computer. The software was intended to protect the CDs from copying. Unfortunately, it also made the computer vulnerable to attack by malware run over the Internet. The scandal and resulting backlash was very costly. The software installed by the CDs is a
A) virus.
B) worm.
C) rootkit.
D) squirrel.
Answer:
Page Ref: 162
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

40) Which of the following would be least effective to reduce exposure to a computer virus?
A) Only transfer files between employees with USB flash drives.
B) Install and frequently update antivirus software.
C) Install all new software on a stand-alone computer for until it is tested.
D) Do not open email attachments from unknown senders.
Answer:
Page Ref: 164
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
41) Which of the following is not an example of social engineering?
A) Obtaining and using another person’s Social Security Number, credit card, or other confidential information
B) Creating phony Web sites with names and URL addresses very similar to legitimate Web sites in order to obtain confidential information or to distribute malware or viruses
C) Using email to lure victims into revealing passwords or user IDs
D) Setting up a computer in a way that allows the user to use a neighbors unsecured wireless network
Answer:
Page Ref: 156-159
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

42) How can a system be protected from viruses?

43) Describe at least six computer attacks and abuse techniques.

44) Describe at least four social engineering techniques.

45) Describe the differences between a worm and a virus?

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 7 Control and Accounting Information Systems

1) What is one reason why AIS threats are increasing?
A) LANs and client/server systems are easier to control than centralized, mainframe systems.
B) Many companies do not realize that data security is crucial to their survival.
C) Computer control problems are often overestimated and overly emphasized by management.
D) Many companies believe that protecting information is a strategic requirement.
Answer:
Page Ref: 184
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

2) Which of the following is not one of the risk responses identified in the COSO Enterprise Risk Management Framework?
A) Monitoring
B) Avoidance
C) Acceptance
D) Sharing
Answer:
Page Ref: 193
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

3) A control procedure designed so that the employee that records cash received from customers does not also have access to the cash itself is an example of a(n)
A) preventive control.
B) detective control.
C) corrective control.
D) authorization control.
Answer:
Page Ref: 185
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

4) At a movie theater box office, all tickets are sequentially prenumbered. At the end of each day, the beginning ticket number is subtracted from the ending number to calculate the number of tickets sold. Then, ticket stubs collected at the theater entrance are counted and compared with the number of tickets sold. Which of the following situations does this control detect?
A) Some customers presented tickets purchased on a previous day when there wasn’t a ticket taker at the theater entrance (so the tickets didn’t get torn.)
B) A group of kids snuck into the theater through a back door when customers left after a show.
C) The box office cashier accidentally gives too much change to a customer.
D) The ticket taker admits his friends without tickets.
Answer:
Page Ref: 199-200
Objective: Learning Objective 7
Difficulty : Moderate
AACSB: Reflective Thinking

5) At a movie theater box office, all tickets are sequentially prenumbered. At the end of each day, the beginning ticket number is subtracted from the ending number to calculate the number of tickets sold. Cash is counted and compared with the number of tickets sold. Which of the following situations does this control detect?
A) Some customers presented tickets purchased on a previous day when there wasn’t a ticket taker at the theater entrance (so the tickets didn’t get torn.)
B) A group of kids snuck into the theater through a back door when customers left after a show.
C) The box office cashier accidentally gives too much change to a customer.
D) The ticket taker admits his friends without tickets.
Answer:
Page Ref: 199-200
Objective: Learning Objective 7
Difficulty : Moderate
AACSB: Reflective Thinking

6) Which of the following is an example of a preventive control?
A) approving customer credit prior to approving a sales order
B) reconciling the bank statement to the cash control account
C) counting inventory on hand and comparing counts to the perpetual inventory records
D) maintaining frequent backup records to prevent loss of data
Answer:
Page Ref: 185
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

7) Independent checks on performance include all the following except
A) data input validation checks.
B) reconciling hash totals.
C) preparing a trial balance report.
D) supervisor review of journal entries and supporting documentation.
Answer:
Page Ref: 200
Objective: Learning Objective 7
Difficulty : Easy
AACSB: Analytic

8) A computer operator is allowed to work as a programmer on a new payroll software project. Does this create a potential internal control problem?
A) Yes, the computer operator could alter the payroll program to increase her salary.
B) Yes, this is a potential problem unless the computer operator is supervised by the payroll manager.
C) No, ideal segregation of duties is not usually possible, and operators are often the best at programming changes and updates.
D) No, as long as the computer operator separately accounts for hours worked in programming and in operations.
Answer:
Page Ref: 198
Objective: Learning Objective 7
Difficulty : Moderate
AACSB: Analytic

9) One of the objectives of the segregation of duties is to
A) make sure that different people handle different parts of the same transaction.
B) ensure that no collusion will occur.
C) make sure that different people handle different transactions.
D) achieve an optimal division of labor for efficient operations.
Answer:
Page Ref: 196
Objective: Learning Objective 7
Difficulty : Moderate
AACSB: Analytic
10) Pam is a receptionist for Dunderhead Paper Co., which has strict corporate policies on appropriate use of corporate resources. The first week of August, Pam saw Michael, the branch manager, putting pencils, pens, erasers, paper and other supplies into his briefcase on his way out the door. This situation best reflects a weakness in which aspect of internal environment, as discussed in the COSO Enterprise Risk Management Framework?
A) Integrity and ethical values
B) Risk management philosophy
C) Restrict access to assets
D) Methods of assigning authority and responsibility
Answer:
Page Ref: 189
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

11) Which of the following statements is true?
A) Internal auditors, rather than external auditors, can conduct evaluations of effectiveness of Enterprise Risk Management processes.
B) Re-adding the total of a batch of invoices and comparing the total with the first total you calculated is an example of an independent check.
C) Requiring two signatures on checks over $20,000 is an example of segregation of duties.
D) Although forensic specialists utilize computers, only people can accurately identify fraud.
Answer:
Page Ref: 201
Objective: Learning Objective 7
Difficulty : Difficult
AACSB: Reflective Thinking

12) Of the following examples of fraud, which will be the most difficult to prevent and detect? Assume the company enforces adequate segregation of duties.
A) Jim issues credit cards to him and Marie, and when the credit card balances are just under $1,000, Marie writes off the accounts as bad debt. Jim then issues new cards.
B) An employee puts inventory behind the dumpster while unloading a vendor’s delivery truck, then picks up the inventory later in the day and puts it in her car.
C) A mail room employee steals a check received from a customer and destroys the documentation.
D) The accounts receivable clerk does not record sales invoices for friends or family, so they can receive free goods.
Answer:
Page Ref: 197
Objective: Learning Objective 7
Difficulty : Difficult
AACSB: Reflective Thinking
13) According to The Sarbanes-Oxley Act of 2002, the audit committee of the board of directors is directly responsible for
A) hiring and firing the external auditors.
B) performing tests of the company’s internal control structure.
C) certifying the accuracy of the company’s financial reporting process.
D) overseeing day-to-day operations of the internal audit department.
Answer:
Page Ref: 186
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

14) Go-Go Corporation, a publicly traded company, has three brothers who serve as President, Vice President of Finance and CEO. This situation
A) increases the risk associated with an audit.
B) must be changed before your audit firm could accept the audit engagement.
C) is a violation of the Sarbanes-Oxley Act.
D) violates the Securities and Exchange Act.
Answer:
Page Ref: 193
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

15) Which of the following is a control related to design and use of documents and records?
A) Sequentially prenumbering sales invoices
B) Comparing physical inventory counts with perpetual inventory records
C) Reconciling the bank statement to the general ledger
D) Locking blank checks in a drawer or safe
Answer:
Page Ref: 199
Objective: Learning Objective 7
Difficulty : Easy
AACSB: Analytic
16) Which of the following duties could be performed by the same individual without violating segregation of duties controls?
A) Approving accounting software change requests and testing production scheduling software changes
B) Programming new code for accounting software and testing accounting software upgrades
C) Approving software changes and implementing the upgraded software
D) Managing accounts payable function and revising code for accounting software to more efficiently process discount due dates on vendor invoices
Answer:
Page Ref: 198
Objective: Learning Objective 7
Difficulty : Moderate
AACSB: Reflective Thinking

17) With a limited work force and a desire to maintain strong internal control, which combination of duties would result in the lowest risk exposure?
A) Updating the inventory subsidiary ledgers and recording purchases in the purchases journal
B) Approving a sales return on a customer’s account and depositing customers’ checks in the bank
C) Updating the general ledger and working in the inventory warehouse
D) Entering payments to vendors in the cash disbursements journal and entering cash received from customers in the cash receipts journal
Answer:
Page Ref: 196-197
Objective: Learning Objective 7
Difficulty : Moderate
AACSB: Reflective Thinking

18) Which of the following is not a factor of internal environment according to the COSO Enterprise Risk Management Framework?
A) Analyzing past financial performance and reporting
B) Providing sufficient resources to knowledgeable employees to carry out duties
C) Disciplining employees for violations of expected behavior
D) Setting realistic targets for long-term performance
Answer:
Page Ref: 188
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
19) Which of the following suggests a weakness in a company’s internal environment?
A) The audit committee regularly meets with the external auditors.
B) The Board of Directors is primarily independent directors.
C) The company has an up-to-date organizational chart.
D) Formal employee performance evaluations are prepared every three years.
Answer:
Page Ref: 191
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

20) Which of the following statements about internal environment is false?
A) Management’s attitudes toward internal control and ethical behavior have only minimal impact on employee beliefs or actions.
B) Supervision is especially important in organizations that cannot afford elaborate responsibility reporting or are too small to have adequate segregation of duties.
C) An overly complex or unclear organizational structure may be indicative of more serious problems.
D) A written policy and procedures manual is an important tool for assigning authority and responsibility.
Answer:
Page Ref: 189
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Reflective Thinking

21) Which of the following is not a reason for the increase in security problems for AIS?
A) Confidentiality issues caused by interlinked inter-company networks
B) Difficult to control distributed computing networks
C) Increasing efficiency resulting from more automation
D) Increasing numbers of information systems and users
Answer:
Page Ref: 184
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

22) One reason why many organizations do not adequately protect their systems is because
A) control problems may be overestimated by many companies.
B) productivity and cost cutting cause management to forgo implementing and maintaining internal controls.
C) control technology has not yet been developed.
D) all of the above
Answer:
Page Ref: 184
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

23) Accountants must try to protect the AIS from threats. Which of the following would be a measure that should be taken?
A) Take a proactive approach to eliminate threats.
B) Detect threats that do occur.
C) Correct and recover from threats that do occur.
D) All of the above are proper measures for the accountant to take.
Answer:
Page Ref: 185
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

24) The process that a business uses to safeguard assets, provide accurate and reliable information, and promote and improve operational efficiency is known as
A) a phenomenon.
B) internal control.
C) an AIS threat.
D) a preventive control.
Answer:
Page Ref: 184
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
25) Safeguarding assets is one of the control objectives of internal control. Which of the following is not one of the other control objectives?
A) providing accurate and reliable information
B) promoting operational efficiency
C) ensuring that no fraud has occurred
D) encouraging adherence to management policies
Answer:
Page Ref: 184
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

26) Internal control is often referred to as a(n) ________, because it permeates an organization’s operating activities and is an integral part of management activities.
A) event
B) activity
C) process
D) system
Answer:
Page Ref: 184
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

27) Which of the following is accomplished by corrective controls?
A) Identify the cause of the problem.
B) Correct the resulting errors.
C) Modify the system to prevent future occurrences of the problem.
D) All of the above are accomplished by corrective controls.
Answer:
Page Ref: 185
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

28) Duplicate checking of calculations is an example of a ________ control, and procedures to resubmit rejected transactions is an example of a ________ control.
A) corrective; detective
B) detective; corrective
C) preventive; corrective
D) detective; preventive
Answer:
Page Ref: 185
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
29) What is not a corrective control procedure?
A) Identify the cause of a problem.
B) Deter problems before they arise.
C) Correct resulting errors or difficulties.
D) Modify the system so that future problems are minimized or eliminated.
Answer:
Page Ref: 185
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

30) ________ controls are designed to make sure an organization’s control environment is stable and well managed.
A) Application
B) Detective
C) General
D) Preventive
Answer:
Page Ref: 185
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

31) ________ controls prevent, detect and correct transaction errors and fraud.
A) Application
B) Detective
C) General
D) Preventive
Answer:
Page Ref: 185
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

32) The primary purpose of the Foreign Corrupt Practices Act of 1977 was
A) to require corporations to maintain a good system of internal control.
B) to prevent the bribery of foreign officials by American companies.
C) to require the reporting of any material fraud by a business.
D) All of the above are required by the act.
Answer:
Page Ref: 185
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
33) Congress passed this federal law for the purpose of preventing financial statement fraud, to make financial reports more transparent and to strengthen the internal control of public companies.
A) Foreign Corrupt Practices Act of 1977
B) The Securities Exchange Act of 1934
C) The Sarbanes-Oxley Act of 2002
D) The Control Provision of 1998
Answer:
Page Ref: 185
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

34) Which of the following is not one of the important aspects of the Sarbanes-Oxley Act?
A) The creation of the Public Company Accounting Oversight Board
B) New rules for auditors and management
C) New roles for audit committees
D) New rules for information systems development
Answer:
Page Ref: 186
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

35) A(n) ________ helps employees act ethically by setting limits beyond which an employee must not pass.
A) boundary system
B) diagnostic control system
C) interactive control system
D) internal control system
Answer:
Page Ref: 185
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
36) A(n) ________ measures company progress by comparing actual performance to planned performance.
A) boundary system
B) diagnostic control system
C) interactive control system
D) internal control system
Answer:
Page Ref: 185
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

37) A(n) ________ helps top-level managers with high-level activities that demand frequent and regular attention.
A) boundary system
B) diagnostic control system
C) interactive control system
D) internal control system
Answer:
Page Ref: 185
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

38) This control framework addresses the issue of control from three vantage points: business objectives, information technology resources, and information technology processes.
A) ISACA’s control objectives for information and related technology
B) COSO’s internal control framework
C) COSO’s enterprise risk management framework
D) none of the above
Answer:
Page Ref: 186
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
39) This control framework’s intent includes helping the organization to provide reasonable assurance that objectives are achieved and problems are minimized, and to avoid adverse publicity and damage to the organization’s reputation.
A) ISACA’s control objectives for information and related technology
B) COSO’s internal control framework
C) COSO’s enterprise risk management framework
D) none of the above
Answer:
Page Ref: 187
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

40) The COSO Enterprise Risk Management Framework includes eight components. Which of the following is not one of them?
A) control environment
B) risk assessment
C) compliance with federal, state, or local laws
D) monitoring
Answer:
Page Ref: 188
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

41) Which of the following is not one of the eight interrelated risk and control components of COSO Enterprise Risk Management Framework?
A) Internal environment
B) Monitoring
C) Risk response
D) Event assessment
Answer:
Page Ref: 188
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

42) The COSO Enterprise Risk Management Integrated Framework stresses that
A) risk management activities are an inherent part of all business operations and should be considered during strategy setting.
B) effective risk management is comprised of just three interrelated components; internal environment, risk assessment, and control activities.
C) risk management is the sole responsibility of top management.
D) risk management policies, if enforced, guarantee achievement of corporate objectives.
Answer:
Page Ref: 187
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

43) Which of the following would be considered a “red flag” for problems with management operating style if the question were answered “yes”?
A) Does management take undue business risks to achieve its objectives?
B) Does management attempt to manipulate performance measures such as net income?
C) Does management pressure employees to achieve results regardless of the methods?
D) All of the above statements would raise “red flags” if answered “yes.”
Answer:
Page Ref: 189
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

44) Which component of the COSO Enterprise Risk Management Integrated Framework is concerned with understanding how transactions are initiated, data are captured and processed, and information is reported?
A) Information and communication
B) Internal environment
C) Event identification
D) Objective setting
Answer:
Page Ref: 201
Objective: Learning Objective 8
Difficulty : Easy
AACSB: Analytic
45) The COSO Enterprise Risk Management Integrated Framework identifies four objectives necessary to achieve corporate goals. Objectives specifically identified include all of the following except
A) implementation of newest technologies.
B) compliance with laws and regulations.
C) effective and efficient operations.
D) reliable reporting.
Answer:
Page Ref: 192
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

46) The audit committee of the board of directors
A) is usually chaired by the CFO.
B) conducts testing of controls on behalf of the external auditors.
C) provides a check and balance on management.
D) does all of the above.
Answer:
Page Ref: 189
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

47) The audit committee is responsible for
A) overseeing the internal control structure.
B) overseeing the financial reporting process.
C) working with the internal and external auditors.
D) All of the above are responsibilities.
Answer:
Page Ref: 189
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

48) The definition of the lines of authority and responsibility and the overall framework for planning, directing, and controlling is laid out by the
A) control activities
B) organizational structure
C) budget framework
D) internal environment
Answer:
Page Ref: 190
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
49) Reducing management layers, creating self-directed work teams, and emphasizing continuous improvement are all related to which aspect of internal environment?
A) Organizational structure
B) Methods of assigning authority and responsibility
C) Management philosophy and operating style
D) Commitment to competence
Answer:
Page Ref: 190
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

50) Personnel policies such as background checks, mandatory vacations, and rotation of duties tend to deter
A) unintentional errors.
B) employee fraud or embezzlement.
C) fraud by outsiders.
D) disgruntled employees.
Answer:
Page Ref: 190-191
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

51) The SEC and FASB are best described as external influences that directly affect an organization’s
A) hiring practices.
B) philosophy and operating style.
C) internal environment.
D) methods of assigning authority.
Answer:
Page Ref: 192
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
52) Which attribute below is not an aspect of the COSO ERM Framework internal environment?
A) Enforcing a written code of conduct
B) Holding employees accountable for achieving objectives
C) Restricting access to assets
D) Avoiding unrealistic expectations
Answer:
Page Ref: 188
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

53) The amount of risk a company is willing to accept in order to achieve its goals and objectives is
A) Inherent risk
B) Residual risk
C) Risk appetite
D) Risk assessment
Answer:
Page Ref: 189
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

54) The risk that remains after management implements internal controls is
A) Inherent risk
B) Residual risk
C) Risk appetite
D) Risk assessment
Answer:
Page Ref: 193
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

55) The risk that exists before management takes any steps to control the likelihood or impact of a risk is
A) Inherent risk
B) Residual risk
C) Risk appetite
D) Risk assessment
Answer:
Page Ref: 193
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic
56) When undertaking risk assessment, the expected loss is calculated like this.
A) Impact times expected loss
B) Impact times likelihood
C) Inherent risk times likelihood
D) Residual risk times likelihood
Answer:
Page Ref: 194
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

57) Generally in a risk assessment process, the first step is to
A) identify the threats that the company currently faces.
B) estimate the risk probability of negative events occurring.
C) estimate the exposure from negative events.
D) identify controls to reduce all risk to zero.
Answer:
Page Ref: 194
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

58) Store policy that allows retail clerks to process sales returns for $300 or less, with a receipt dated within the past 60 days, is an example of
A) general authorization.
B) specific authorization.
C) special authorization.
D) generic authorization.
Answer:
Page Ref: 196
Objective: Learning Objective 7
Difficulty : Easy
AACSB: Reflective Thinking

59) Corporate policy that requires a purchasing agent and purchasing department manager to sign off on asset purchases over $1,500 is an example of
A) general authorization.
B) specific authorization.
C) special authorization.
D) generic authorization.
Answer:
Page Ref: 196
Objective: Learning Objective 7
Difficulty : Easy
AACSB: Reflective Thinking
60) A document that shows all projects that must be completed and the related IT needs in order to achieve long-range company goals is known as a
A) performance evaluation.
B) project development plan.
C) data processing schedule.
D) strategic master plan.
Answer:
Page Ref: 198
Objective: Learning Objective 7
Difficulty : Moderate
AACSB: Analytic

61) A ________ is created to guide and oversee systems development and acquisition.
A) performance evaluation
B) project development plan
C) steering committee
D) strategic master plan
Answer:
Page Ref: 198
Objective: Learning Objective 7
Difficulty : Easy
AACSB: Analytic

62) A ________ shows how a project will be completed, including tasks and who will perform them as well as a timeline and cost estimates.
A) performance evaluation
B) project development plan
C) steering committee
D) strategic master plan
Answer:
Page Ref: 198
Objective: Learning Objective 7
Difficulty : Easy
AACSB: Analytic
63) Which of the following is not a violation of the Sarbanes-Oxley Act (SOX)? The management at Folding Squid Technologies
A) asked their auditors to make recommendations for the redesign of their information technology system and to aid in the implementation process.
B) hired the manager from the external audit team as company CFO twelve months after the manager had worked on the audit.
C) selected the company’s Chief Financial Officer to chair the audit committee.
D) did not mention to auditors that the company had experienced significant losses due to fraud during the past year.
Answer:
Page Ref: 186
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

64) The Sarbanes-Oxley Act (SOX) applies to
A) all companies with gross annual revenues exceeding $500 million.
B) publicly held companies with gross annual revenues exceeding $500 million.
C) all private and publicly held companies incorporated in the United States.
D) all publicly held companies.
Answer:
Page Ref: 185
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

65) Chuck Hewitt was relaxing after work with a colleague at a local watering hole. Well into his second martini, he began expressing his opinions about his company’s budgeting practices. It seems that, as a result of “budget handcuffs” that require managers to explain material deviations from budgeted expenditures, his ability to creatively manage his department’s activities have been curtailed. The level of control that the company is using in this case is a
A) boundary system.
B) belief system.
C) interactive control system.
D) diagnostic control system.
Answer:
Page Ref: 185
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
66) Chuck Hewitt was relaxing after work with a colleague at a local watering hole. Well into his second martini, he began expressing his opinions about his work environment. It seems that, as a result of “feminazi” interference, the suggestive banter that had been prevalent in the workplace during his youth was no longer acceptable. He even had to sit through a sexual harassment workshop! The level of control that the company is using in this case is a
A) boundary system.
B) belief system.
C) interactive control system.
D) diagnostic control system.
Answer:
Page Ref: 185
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

67) River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa. Management has determined that there is one chance in a thousand of a client being injured or killed. Settlement of resulting lawsuits has an average cost of $650,000. Insurance with a $50,000 deductible is available. It covers the costs of lawsuits, unless there is evidence of criminal negligence. What is the impact of this risk without insurance?
A) $50,000
B) $650,000
C) $650
D) $50
Answer:
Page Ref: 194
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

68) River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa. Management has determined that there is one chance in a thousand of a client being injured or killed. Settlement of resulting lawsuits has an average cost of $650,000. Insurance with a $50,000 deductible is available. It covers the costs of lawsuits, unless there is evidence of criminal negligence. What is the expected loss without insurance?
A) $50,000
B) $650,000
C) $650
D) $50
Answer:
Page Ref: 194
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic
69) River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa. Management has determined that there is one chance in a thousand of a client being injured or killed. Settlement of resulting lawsuits has an average cost of $650,000. Insurance with a $50,000 deductible is available. It covers the costs of lawsuits, unless there is evidence of criminal negligence. What is the expected loss with insurance?
A) $50,000
B) $650,000
C) $650
D) $50
Answer:
Page Ref: 194
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

70) River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa. Management has determined that there is one chance in a thousand of a client being injured or killed. Settlement of resulting lawsuits have an average cost of $650,000. Insurance with a $50,000 deductible is available. It covers the costs of lawsuits, unless there is evidence of criminal negligence. Based on cost-benefit analysis, what is the most that the business should pay for the insurance?
A) $500
B) $650
C) $600
D) $50
Answer:
Page Ref: 194
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

71) Due to data errors occurring from time to time in processing the Albert Company’s payroll, the company’s management is considering the addition of a data validation control procedure that is projected to reduce the risk of these data errors from 13% to 2%. The cost of the payroll reprocessing is estimated to be $11,000. The cost of implementing the data validation control procedure is expected to be $700. Which of the following statements is true?
A) The data validation control procedure should be implemented because its net estimated benefit is $510.
B) The data validation control procedure should be implemented because its cost of $700 is less than the payroll reprocessing cost of $1,430.
C) The data validation control procedure should not be implemented because its cost of $700 exceeds the expected benefit by $480.
D) The data validation control procedure should not be implemented because its net estimated benefit is a negative $1,210.
Answer:
Page Ref: 194
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic

72) The organization chart for Geerts Corporation includes a controller and an information processing manager, both of whom report to the vice president of finance. Which of the following would be a control weakness?
A) Assigning the programming and operating of the computer system to an independent control group which reports to the controller
B) Providing for maintenance of input data controls by an independent control group which reports to the controller
C) Periodically rotating assignment of application processing among machine operators, who all report to the information processing manager
D) Providing for review and distribution of system-generated reports by an independent control group which reports to the controller
Answer:
Page Ref: 198
Objective: Learning Objective 7
Difficulty : Moderate
AACSB: Reflective Thinking

73) Global Economic Strategies, L.L.D., has been diligent in ensuring that their operations meet modern control standards. Recently, they have extended their control compliance system by incorporating policies and procedures that require the specification of company objectives, uncertainties associated with objectives, and contingency plans. They are transitioning from a ________ to a ________ control framework.
A) COSO-Integrated Framework; COBIT
B) COBIT; COSO-Integrated Framework
C) COBIT; COSO-ERM
D) COSO-Integrated Framework; COSO-ERM
E) COSO-ERM; COBIT
Answer:
Page Ref: 187-188
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking

74) FranticHouse Partners, L.L.C., does home remodeling and repair. All employees are bonded, so the firm’s risk exposure to employee fraud is
A) reduced.
B) shared.
C) avoided.
D) accepted.
Answer:
Page Ref: 193
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

75) FranticHouse Partners, L.L.C., does home remodeling and repair. The firm does not accept jobs that require the installation of slate or copper roofing because these materials often require costly post-installation services. The firm’s risk exposure to costly post-installation services is
A) reduced.
B) shared.
C) avoided.
D) accepted.
Answer:
Page Ref: 193
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

76) According to the COSO Enterprise Risk Management Framework, the risk assessment process incorporates all of the following components except
A) reporting potential risks to auditors.
B) identifying events that could impact the enterprise.
C) evaluating the impact of potential events on achievement of objectives.
D) establishing objectives for the enterprise.
Answer:
Page Ref: 193
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic

77) Ferdinand Waldo Demara was known as the great imposter. He had an astounding ability to convince people that he was who he truly was not. He worked as a naval officer, physician, college teacher, prison warden, and other jobs without any of the prerequisite qualifications. By not diligently checking references, the organizations fooled by Demara (including the Canadian Navy) apparently chose to ________ the risk of fraud.
A) reduce
B) share
C) avoid
D) accept
Answer:
Page Ref: 193
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

78) Which of the following is an independent check on performance?
A) The Purchasing Agent physically reviews the contents of shipments and compares them with the purchase orders he has placed.
B) Production teams perform quality evaluations of the products that they produce.
C) The General Manager compares budgeted amounts with expenditure records from all departments.
D) Petty cash is disbursed by Fred Haynes. He also maintains records of disbursements, places requests to finance to replace expended funds, and periodically reconciles the petty cash balance.
Answer:
Page Ref: 200
Objective: Learning Objective 7
Difficulty : Easy
AACSB: Analytic

79) Petty cash is disbursed by the Fred Haynes in the Cashier’s Office. He also maintains records of disbursements, places requests to the Finance Department to replace expended funds, and periodically reconciles the petty cash balance. This represents a(an) ________ segregation of duties.
A) effective
B) ideal
C) ineffective
D) limited
Answer:
Page Ref: 196
Objective: Learning Objective 7
Difficulty : Easy
AACSB: Analytic

80) Hiring decisions at Frazier’s Razors are made by Sheila Frazier, the Director of Human Resources. Pay rates are approved by the Vice President for Operations. At the end of each pay period, supervisors submit time cards to Sheila, who prepares paycheck requisitions. Paychecks are then distributed through the company’s mail room. This represents a(an) ________ segregation of duties.
A) effective
B) partial
C) ineffective
D) limited
Answer:
Page Ref: 196
Objective: Learning Objective 7
Difficulty : Moderate
AACSB: Reflective Thinking

81) Change management refers to
A) disbursement controls on petty cash.
B) operational controls applied to companies after mergers or acquisitions.
C) replacement of upper management and their introduction to the organization.
D) controls designed to ensure that updates in information technology do not have negative consequences.
Answer:
Page Ref: 199
Objective: Learning Objective 7
Difficulty : Easy
AACSB: Analytic

82) The Director of Information Technology for the city of Bumpkiss, Minnesota, formed a company to sell computer supplies and software. All purchases made on behalf of the City were made from his company. He was later charged with fraud for overcharging the City, but was not convicted. The control issue in this case arose because the Director had both ________ and ________ duties.
A) custody; authorization
B) custody; recording
C) recording; authorization
D) management; custody
Answer:
Page Ref: 196
Objective: Learning Objective 7
Difficulty : Moderate
AACSB: Reflective Thinking

83) According to the ERM, these help the company address all applicable laws and regulations.
A) Compliance objectives
B) Operations objectives
C) Reporting objectives
D) Strategic objectives
Answer:
Page Ref: 192
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

84) According to the ERM, high level goals that are aligned with and support the company’s mission are
A) compliance objectives.
B) operations objectives.
C) reporting objectives.
D) strategic objectives.
Answer:
Page Ref: 192
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic
85) According to the ERM, these deal with the effectiveness and efficiency of company operations, such as performance and profitability goals.
A) Compliance objectives
B) Operations objectives
C) Reporting objectives
D) Strategic objectives
Answer:
Page Ref: 192
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

86) According to the ERM, these objectives help ensure the accuracy, completeness and reliability of internal and external company reports.
A) Compliance objectives
B) Operations objectives
C) Reporting objectives
D) Strategic objectives
Answer:
Page Ref: 192
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

87) Which of the following is not a risk reduction element of a disaster recovery plan?
A) Identification of alternate work site
B) Off-site storage of backup files and programs
C) Documentation of procedures and responsibilitie
D) Adequate casualty insurance
Answer:
Page Ref: 193
Objective: Learning Objective 6
Difficulty : Difficult
AACSB: Reflective Thinking
88) Describe the differences between general and specific authorization.

89) Explain how a company could be the victim of fraud, even if ideal segregation of duties is enforced.

90) Classify each of the following controls as preventive, detective, or corrective.
Periodic bank reconciliation
Separation of cash and accounting records
Maintaining backup copies of master and transaction files
Pre-numbering of sales invoices
Chart of accounts
Retina scan before entering a sensitive R & D facility
Resubmission of error transactions for subsequent processing
Internal auditor rechecking the debits and credits on the payment voucher
Depositing all cash receipts intact
Hiring qualified accounting personnel

91) Discuss four reasons why AIS threats are increasing.

92) Explain why the Foreign Corrupt Practices Act was important to accountants.

93) Discuss the internal environment and identify the elements that comprise the internal environment.

94) Explain why management’s philosophy and operating style are considered to be the most important element of the internal environment.

95) What are some of the ways to assign authority and responsibility within an organization?

96) Discuss the weaknesses in COSO’s internal control framework that led to the development of the COSO Enterprise Risk Management framework.

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 8 Information Systems Controls for System ReliabilityPart 1: Information Security

1) The Trust Services Framework reliability principle that states that users must be able to enter, update, and retrieve data during agreed-upon times is known as
A) availability.
B) security.
C) maintainability.
D) integrity.
Answer:
Page Ref: 221
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

2) Which of the following is not a useful control procedure to control access to system outputs?
A) Allowing visitors to move through the building without supervision
B) Coding reports to reflect their importance
C) Requiring employees to log out of applications when leaving their desk
D) Restricting access to rooms with printers
Answer:
Page Ref: 229
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

3) According to the Trust Services Framework, the reliability principle of integrity is achieved when the system produces data that
A) is available for operation and use at times set forth by agreement.
B) is protected against unauthorized physical and logical access.
C) can be maintained as required without affecting system availability, security, and integrity.
D) is complete, accurate, and valid.
Answer:
Page Ref: 221
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
4) Which of the following is not one of the three fundamental information security concepts?
A) Information security is a technology issue based on prevention.
B) Security is a management issue, not a technology issue.
C) The idea of defense-in-depth employs multiple layers of controls.
D) The time-based model of security focuses on the relationship between preventive, detective and corrective controls.
Answer:
Page Ref: 222-224
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

5) Which of the following is not one of the essential criteria for successfully implementing each of the principles that contribute to systems reliability, as discussed in the Trust Services Framework?
A) Developing and documenting policies
B) Effectively communicating policies to all outsiders
C) Designing and employing appropriate control procedures to implement policies
D) Monitoring the system and taking corrective action to maintain compliance with policies
Answer:
Page Ref: 223
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

6) If the time an attacker takes to break through the organization’s preventive controls is greater than the sum of the time required to detect the attack and the time required to respond to the attack, then security is
A) effective.
B) ineffective.
C) overdone.
D) undermanaged.
Answer:
Page Ref: 224
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
7) Verifying the identity of the person or device attempting to access the system is
A) authentication.
B) authorization.
C) identification.
D) threat monitoring.
Answer:
Page Ref: 226
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

8) Restricting access of users to specific portions of the system as well as specific tasks, is
A) authentication.
B) authorization.
C) identification.
D) threat monitoring.
Answer:
Page Ref: 228
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

9) Which of the following is an example of a preventive control?
A) Encryption
B) Log analysis
C) Intrusion detection
D) Emergency response teams
Answer:
Page Ref: 228
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

10) Which of the following is an example of a detective control?
A) Physical access controls
B) Encryption
C) Log analysis
D) Emergency response teams
Answer:
Page Ref: 237
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
11) Which of the following is an example of a corrective control?
A) Physical access controls
B) Encryption
C) Intrusion detection
D) Incident response teams
Answer:
Page Ref: 239
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

12) Which of the following is not a requirement of effective passwords?
A) Passwords should be changed at regular intervals.
B) Passwords should be no more than 8 characters in length.
C) Passwords should contain a mixture of upper and lowercase letters, numbers and characters.
D) Passwords should not be words found in dictionaries.
Answer:
Page Ref: 227
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

13) Multi-factor authentication
A) involves the use of two or more basic authentication methods.
B) is a table specifying which portions of the systems users are permitted to access.
C) provides weaker authentication than the use of effective passwords.
D) requires the use of more than one effective password.
Answer:
Page Ref: 228
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

14) An access control matrix
A) does not have to be updated.
B) is a table specifying which portions of the system users are permitted to access.
C) is used to implement authentication controls.
D) matches the user’s authentication credentials to his authorization.
Answer:
Page Ref: 228
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
15) Perimeter defense is an example of which of the following preventive controls that are necessary to provide adequate security?
A) Training
B) Controlling physical access
C) Controlling remote access
D) Host and application hardening
Answer:
Page Ref: 230
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

16) Which of the following preventive controls are necessary to provide adequate security for social engineering threats?
A) Controlling remote access
B) Encryption
C) Host and application hardening
D) Awareness training
Answer:
Page Ref: 226
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

17) A special purpose hardware device or software running on a general purpose computer, which filters information that is allowed to enter and leave the organization’s information system, is known as a(n)
A) demilitarized zone.
B) intrusion detection system.
C) intrusion prevention system.
D) firewall.
Answer:
Page Ref: 230
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
18) This protocol specifies the procedures for dividing files and documents into packets to be sent over the Internet.
A) Access control list
B) Internet protocol
C) Packet switching protocol
D) Transmission control protocol
Answer:
Page Ref: 231
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

19) This protocol specifies the structure of packets sent over the internet and the route to get them to the proper destination.
A) Access control list
B) Internet protocol
C) Packet switching protocol
D) Transmission control protocol
Answer:
Page Ref: 231
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

20) This network access control determines which IP packets are allowed entry to a network and which are dropped.
A) Access control list
B) Deep packet inspection
C) Stateful packet filtering
D) Static packet filtering
Answer:
Page Ref: 233
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

21) Compatibility tests utilize a(n) ________, which is a list of authorized users, programs, and data files the users are authorized to access or manipulate.
A) validity test
B) biometric matrix
C) logical control matrix
D) access control matrix
Answer:
Page Ref: 228
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

22) The process that screens individual IP packets based solely on the contents of the source and/or destination fields in the packet header is known as
A) access control list.
B) deep packet inspection.
C) stateful packet filtering.
D) static packet filtering.
Answer:
Page Ref: 233
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

23) The process that maintains a table that lists all established connections between the organization’s computers and the Internet, to determine whether an incoming packet is part of an ongoing communication initiated by an internal computer is known as
A) access control list.
B) deep packet inspection.
C) stateful packet filtering.
D) static packet filtering.
Answer:
Page Ref: 233
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
24) The process that allows a firewall to be more effective by examining the data in the body of an IP packet, instead of just the header, is known as
A) deep packet inspection.
B) stateful packet filtering.
C) static packet filtering.
D) an intrusion prevention system.
Answer:
Page Ref: 233
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

25) The security technology that evaluates IP packet traffic patterns in order to identify attacks against a system is known as
A) an intrusion prevention system.
B) stateful packet filtering.
C) static packet filtering.
D) deep packet inspection.
Answer:
Page Ref: 234
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

26) This is used to identify rogue modems (or by hackers to identify targets).
A) War chalking
B) War dialing
C) War driving
D) none of the above
Answer:
Page Ref: 235
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

27) The process of turning off unnecessary features in the system is known as
A) deep packet inspection.
B) hardening.
C) intrusion detection.
D) war dialing.
Answer:
Page Ref: 236
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
28) The most common input-related vulnerability is
A) buffer overflow attack.
B) hardening.
C) war dialing.
D) encryption.
Answer:
Page Ref: 237
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

29) This creates logs of network traffic that was permitted to pass the firewall.
A) Intrusion detection system
B) Log analysis
C) Penetration test
D) Vulnerability scan
Answer:
Page Ref: 238
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

30) The process that uses automated tools to identify whether a system possesses any well-known security problems is known as a(n)
A) intrusion detection system.
B) log analysis.
C) penetration test.
D) vulnerability scan.
Answer:
Page Ref: 236
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

31) This is an authorized attempt by an internal audit team or an external security consultant to attempt to break into the organization’s information system.
A) Intrusion detection system
B) Log analysis
C) Penetration test
D) Vulnerability scan
Answer:
Page Ref: 238
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
32) A well-known hacker started his own computer security consulting business shortly after being released from prison. Many companies pay him to attempt to gain unauthorized access to their network. If he is successful, he offers advice as to how to design and implement better controls. What is the name of the testing for which the hacker is being paid?
A) Penetration test
B) Vulnerability scan
C) Deep packet inspection
D) Buffer overflow test
Answer:
Page Ref: 238
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

33) The ________ disseminates information about fraud, errors, breaches and other improper system uses and their consequences.
A) chief information officer
B) chief operations officer
C) chief security officer
D) computer emergency response team
Answer:
Page Ref: 240
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

34) In 2007, a major U.S. financial institution hired a security firm to attempt to compromise its computer network. A week later, the firm reported that it had successfully entered the system without apparent detection and presented an analysis of the vulnerabilities that had been found. This is an example of a
A) preventive control.
B) detective control.
C) corrective control.
D) standard control.
Answer:
Page Ref: 238
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
35) It was 9:08 A.M. when Jiao Jan, the Network Administrator for Folding Squid Technologies, was informed that the intrusion detection system had identified an ongoing attempt to breach network security. By the time that Jiao had identified and blocked the attack, the hacker had accessed and downloaded several files from the company’s server. Using the notation for the time-based model of security, in this case
A) P > D
B) D > P
C) C > P
D) P > C
Answer:
Page Ref: 224
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Analytic

36) Which of the following is commonly true of the default settings for most commercially available wireless access points?
A) The security level is set at the factory and cannot be changed.
B) Wireless access points present little danger of vulnerability so security is not a concern.
C) Security is set to the lowest level that the device is capable of.
D) Security is set to the highest level that the device is capable of.
Answer:
Page Ref: 235
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

37) In recent years, many of the attacks carried out by hackers have relied on this type of vulnerability in computer software.
A) Code mastication
B) Boot sector corruption
C) Weak authentication
D) Buffer overflow
Answer:
Page Ref: 236
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
38) Meaningful Discussions is a social networking site that boasts over a million registered users and a quarterly membership growth rate in the double digits. As a consequence, the size of the information technology department has been growing very rapidly, with many new hires. Each employee is provided with a name badge with a photo and embedded computer chip that is used to gain entry to the facility. This is an example of a(an)
A) authentication control.
B) biometric device.
C) remote access control.
D) authorization control.
Answer:
Page Ref: 226
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

39) When new employees are hired by Folding Squid Technologies, they are assigned user names and appropriate permissions are entered into the information system’s access control matrix. This is an example of a(an)
A) authentication control.
B) biometric device.
C) remote access control.
D) authorization control.
Answer:
Page Ref: 228
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

40) When new employees are hired by Folding Squid Technologies, they are assigned user names and passwords and provided with laptop computers that have an integrated fingerprint reader. In order to log in, the user’s fingerprint must be recognized by the reader. This is an example of a(an)
A) authorization control.
B) biometric device.
C) remote access control.
D) defense in depth.
Answer:
Page Ref: 227
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
41) Information technology managers are often in a bind when a new exploit is discovered in the wild. They can respond by updating the affected software or hardware with new code provided by the manufacturer, which runs the risk that a flaw in the update will break the system. Or they can wait until the new code has been extensively tested, but that runs the risk that they will be compromised by the exploit during the testing period. Dealing with these issues is referred to as
A) change management.
B) hardening.
C) patch management.
D) defense in depth.
Answer:
Page Ref: 240
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

42) Murray Snitzel called a meeting of the top management at Snitzel Capital Management. Number one on the agenda was computer system security. “The risk of security breach incidents has become unacceptable,” he said, and turned to the Chief Information Officer. “This is your responsibility! What do you intend to do?” Which of the following is the best answer?
A) Evaluate and modify the system using the Trust Services framework
B) Evaluate and modify the system using the COSO Internal Control Framework.
C) Evaluate and modify the system using the CTC checklist.
D) Evaluate and modify the system using COBOL.
Answer:
Page Ref: 221
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

43) Which of the following is the most effective method of protecting against social engineering attacks on a computer system?
A) stateful packet filtering
B) employee awareness training
C) a firewall
D) a demilitarized zone
Answer:
Page Ref: 226
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
44) The most effective way to protect network resources, like email servers, that are outside of the network and are exposed to the Internet is
A) stateful packet filtering.
B) employee training.
C) a firewall.
D) a demilitarized zone.
Answer:
Page Ref: 230
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

45) All employees of E.C. Hoxy are required to pass through a gate and present their photo identification cards to the guard before they are admitted. Entry to secure areas, such as the Information Technology Department offices, requires further procedures. This is an example of a(an)
A) authentication control.
B) authorization control.
C) physical access control.
D) hardening procedure.
Answer:
Page Ref: 229
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

46) On February 14, 2008, students enrolled in an economics course at Swingline College received an email stating that class would be cancelled. The email claimed to be from the professor, but it wasn’t. Computer forensic experts determined that the email was sent from a computer in one of the campus labs at 9:14 A.M. They were then able to uniquely identify the computer that was used by means of its network interface card’s ________ address. Security cameras revealed the identity of the student responsible for spoofing the class.
A) TCP/IP
B) MAC
C) DMZ
D) IDS
Answer:
Page Ref: 228
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic
47) There are “white hat” hackers and “black hat” hackers. Cowboy451 was one of the “black hat” hackers. He had researched an exploit and determined that he could penetrate the target system, download a file containing valuable data, and cover his tracks in eight minutes. Six minutes into the attack he was locked out of the system. Using the notation of the time-based model of security, which of the following must be true?
A) P < 6 B) D = 6 C) P = 6 D) P > 6
Answer:
Page Ref: 224
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Analytic

48) Identify three ways users can be authenticated and give an example of each.
Answer: Users can be authenticated by verifying: 1. something they know (password). 2. something they have (smart card or ID badge). 3. Something they are (biometric identification of fingerprint).
Page Ref: 226
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

49) Describe four requirements of effective passwords .
Answer: 1. Strong passwords should be at least 8 characters. 2. Passwords should use a mixture of upper and lowercase letters, numbers and characters. 3. Passwords should be random and not words found in dictionaries. 4. Passwords should be changes frequently.
Page Ref: 227
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

50) Explain social engineering.
Answer: Social engineering attacks use deception to obtain unauthorized access to information resources, such as attackers who post as a janitor or as a legitimate system user. Employees must be trained not to divulge passwords or other information about their accounts to anyone who contacts them and claims to be part of the organization’s security team.
Page Ref: 226
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
51) Explain the value of penetration testing.
Answer: Penetration testing involves an authorized attempt by an internal audit team or an external security consultant to break into the organization’s information system. This type of service is provided by risk management specialists in all the Big Four accounting firms. These specialists spend more than half of their time on security matters. The team attempts to compromise the system using every means possible. With a combination of systems technology skills and social engineering, these teams often find weaknesses in systems that were believed to be secure.
Page Ref: 238
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

52) Describe the function of a computer incident response team (CIRT) and the steps that a CIRT should perform following a security incident.
Answer: CIRT is responsible for dealing with major security incidents and breaches. The team should include technical specialists and senior operations management. In response to a security incident, first the CIRT must recognize that a problem exists. Log analysis, intrusion detection systems can be used to detect problems and alert the CIRT. Second, the problem must be contained, perhaps by shutting down a server or curtailing traffic on the network. Third, the CIRT must focus on recovery. Corrupt programs may need to be reinstalled and data restored from backups. Finally, the CIRT must follow-up to discover how the incident occurred and to design corrective controls to prevent similar incidents in the future.
Page Ref: 239
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

53) Identify six physical access controls.
Answer: Require visitors to sign in and receive a visitor badge before being escorted by an employee; require employees to wear photo ID badges that are checked by security guards; physical locks and keys; storing documents and electronic media in a fire-proof safe or cabinet; restrict or prohibit cell phones, iPods and other portable devices; set screen savers to start after a few minutes of inactivity; set computers to lock keyboards after a few minutes of inactivity; utilize screen protection devices; use biometric devices to authorize access to spaces and equipment; attach and lock laptops to immobile objects; utilize magnetic or chip cards to authorize access to spaces and equipment; limit or prohibit windows and glass walls in sensitive areas.
Page Ref: 229-230
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 9 Information Systems Controls for Systems ReliabilityPart 2: Confidentiality and Privacy

1) Concerning virtual private networks (VPN), which of the following is not true?
A) VPNs provide the functionality of a privately owned network using the Internet.
B) Using VPN software to encrypt information while it is in transit over the Internet in effect creates private communication channels, often referred to as tunnels, which are accessible only to those parties possessing the appropriate encryption and decryption keys.
C) The cost of the VPN software is much less than the cost of leasing or buying the infrastructure (telephone lines, satellite links, communications equipment, etc.) needed to create a privately owned secure communications network.
D) It is more expensive to reconfigure VPNs to include new sites than it is to add or remove the corresponding physical connections in a privately owned network.
Answer:
Page Ref: 264
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

2) Which of the following is not associated with asymmetric encryption?
A) No need for key exchange
B) Public keys
C) Private keys
D) Speed
Answer:
Page Ref: 260
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

3) The system and processes used to issue and manage asymmetric keys and digital certificates are known as
A) asymmetric encryption.
B) certificate authority.
C) digital signature.
D) public key infrastructure.
Answer:
Page Ref: 262
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

4) Which of the following describes one weakness of encryption?
A) Encrypted packets cannot be examined by a firewall.
B) Encryption protects the confidentiality of information while in storage.
C) Encryption protects the privacy of information during transmission.
D) Encryption provides for both authentication and non-repudiation.
Answer:
Page Ref: 264
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

5) Using a combination of symmetric and asymmetric key encryption, Chris Kai sent a report to her home office in Syracuse, New York. She received an email acknowledgement that the document had been received and then, a few minutes later, she received a second email that indicated that the hash calculated from the report differed from that sent with the report. This most likely explanation for this result is that
A) the public key had been compromised.
B) the private key had been compromised.
C) the symmetric encryption key had been compromised.
D) the asymmetric encryption key had been compromised.
Answer:
Page Ref: 261
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic

6) Encryption has a remarkably long and varied history. The invention of writing was apparently soon followed by a desire to conceal messages. One of the earliest methods, attributed to an ancient Roman emperor, was the simple substitution of numbers for letters, for example A = 1, B = 2, etc. This is an example of
A) a hashing algorithm.
B) symmetric key encryption.
C) asymmetric key encryption.
D) a public key.
Answer:
Page Ref: 260
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
7) An electronic document that certifies the identity of the owner of a particular public key.
A) Asymmetric encryption
B) Digital certificate
C) Digital signature
D) Public key
Answer:
Page Ref: 262
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

8) These systems use the same key to encrypt and to decrypt.
A) Asymmetric encryption
B) Hashing encryption
C) Public key encryption
D) Symmetric encryption
Answer:
Page Ref: 260
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

9) These are used to create digital signatures.
A) Asymmetric encryption and hashing
B) Hashing and packet filtering
C) Packet filtering and encryption
D) Symmetric encryption and hashing
Answer:
Page Ref: 261
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

10) Information encrypted with the creator’s private key that is used to authenticate the sender is
A) asymmetric encryption.
B) digital certificate.
C) digital signature.
D) public key.
Answer:
Page Ref: 261
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
11) Which of the following is not one of the three important factors determining the strength of any encryption system?
A) Key length
B) Key management policies
C) Encryption algorithm
D) Privacy
Answer:
Page Ref: 259
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

12) A process that takes plaintext of any length and transforms it into a short code.
A) Asymmetric encryption
B) Encryption
C) Hashing
D) Symmetric encryption
Answer:
Page Ref: 260
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

13) Which of the following descriptions is not associated with symmetric encryption?
A) A shared secret key
B) Faster encryption
C) Lack of authentication
D) Separate keys for each communication party
Answer:
Page Ref: 260
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
14) Encryption has a remarkably long and varied history. Spies have been using it to convey secret messages ever since there were secret messages to convey. One powerful method of encryption uses random digits. Two documents are prepared with the same random sequence of numbers. The spy is sent out with one and the spy master retains the other. The digits are used as follows. Suppose that the word to be encrypted is SPY and the random digits are 352. Then S becomes V (three letters after S), P becomes U (five letters after P), and Y becomes A (two letters after Y, restarting at A after Z). The spy would encrypt a message and then destroy the document used to encrypt it. This is an early example of
A) a hashing algorithm.
B) asymmetric key encryption.
C) symmetric key encryption.
D) public key encryption.
Answer:
Page Ref: 260
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

15) One way to circumvent the counterfeiting of public keys is by using
A) a digital certificate.
B) digital authority.
C) encryption.
D) cryptography.
Answer:
Page Ref: 262
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

16) In a private key system the sender and the receiver have ________, and in the public key system they have ________.
A) different keys; the same key
B) a decrypting algorithm; an encrypting algorithm
C) the same key; two separate keys
D) an encrypting algorithm; a decrypting algorithm
Answer:
Page Ref: 260
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
17) Asymmetric key encryption combined with the information provided by a certificate authority allows unique identification of
A) the user of encrypted data.
B) the provider of encrypted data.
C) both the user and the provider of encrypted data.
D) either the user or the provider of encrypted data.
Answer:
Page Ref: 262
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

18) Which of the following is not one of the 10 internationally recognized best practices for protecting the privacy of customers’ personal information?
A) Providing free credit report monitoring for customers
B) Inform customers of the option to opt-out of data collection and use of their personal information
C) Allow customers’ browsers to decline to accept cookies
D) Utilize controls to prevent unauthorized access to, and disclosure of, customers’ information
Answer:
Page Ref: 256-257
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

19) On March 3, 2008, a laptop computer belonging to Folding Squid Technology was stolen from the trunk of Jiao Jan’s car while he was attending a conference in Cleveland, Ohio. After reporting the theft, Jiao considered the implications of the theft for the company’s network security and concluded there was nothing to worry about because
A) the computer was protected by a password.
B) the computer was insured against theft.
C) it was unlikely that the thief would know how to access the company data stored on the computer.
D) the data stored on the computer was encrypted.
Answer:
Page Ref: 258
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
20) Jeff Davis took a call from a client. “Jeff, I need to interact online and real time with our affiliate in India, and I want to make sure that our communications aren’t intercepted. What do you suggest?” Jeff responded “The best solution will be to implement
A) a virtual private network.”
B) a private cloud environment.”
C) an asymmetric encryption system with digital signatures.”
D) multifactor authentication.”
Answer:
Page Ref: 264
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

21) In developing policies related to personal information about customers, Folding Squid Technologies adhered to the Trust Services framework. The standard applicable to these policies is
A) security.
B) confidentiality.
C) privacy.
D) availability.
Answer:
Page Ref: 254
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

22) Jeff Davis took a call from a client. “Jeff, I need for my customers to make payments online using credit cards, but I want to make sure that the credit card data isn’t intercepted. What do you suggest?” Jeff responded “The best solution will be to implement
A) a virtual private network.”
B) a private cloud environment.”
C) an encryption system with digital signatures.”
D) a data masking program.”
Answer:
Page Ref: 261
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

23) Describe some steps you can take to minimize your risk of identify theft.

24) Describe symmetric encryption and identify three limitations.

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 10 Information Systems Controls for Systems ReliabilityPart 3: Processing Integrity and Availability

1) The best example of a hash total for a payroll transaction file could be
A) total of employees’ social security numbers.
B) sum of net pay.
C) total number of employees.
D) sum of hours worked.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

2) Error logs and review are an example of
A) data entry controls.
B) data transmission controls.
C) output controls.
D) processing controls.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
3) Following is the result of batch control totals on employee Social Security Numbers in a payroll processing transaction:

Correct Values From Masterfile Values Entered During Processing
487358796 487358796
534916487 534916487
498374526 498374526
514873420 514873420
534196487 534916487
678487853 678487853
471230589 471230589
3719438158 3720158158

The difference in the control totals is 720,000. Which data entry control would best prevent similar data entry errors in the future?
A) Modulus 11
B) Validity check
C) Check digit
D) Sequence check
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

4) Which of the following data entry controls would not be useful if you are recording the checkout of library books by members?
A) Sequence check
B) Prompting
C) Validity check
D) Concurrent update control
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

5) A customer failed to include her account number on her check, and the accounts receivable clerk credited her payment to a different customer with the same last name. Which control could have been used to most effectively to prevent this error?
A) Closed-loop verification
B) Duplicate values check
C) Validity check
D) Reconciliation of a batch control total
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

6) If invoices are processed in groups of fifty, which fields from the document shown below would not be used to create a hash control total?

A) Amount
B) Item Number
C) Quantity Ordered
D) Sales Order number
Answer:

Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Reflective Thinking

7) A data entry input control in which the application software sums the first four digits of a customer number to calculate the value of the fifth digit and then compares the calculated number to the number typed in during data entry is an example of a
A) check digit verification.
B) validity check.
C) closed-loop verification.
D) duplicate data check.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

8) All of the following controls for online entry of a sales order would be useful except
A) check digit verification on the dollar amount of the order.
B) validity check on the inventory item numbers.
C) field check on the customer ID and dollar amount of the order.
D) concurrent update control.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Analytic

9) A specific inventory record indicates that there were 12 items on hand before a customer brings two of the items to the check stand to be purchased. The cashier accidentally entered quantity 20 instead of 2. Which data entry control would best have prevented this error?
A) sign check
B) limit check
C) validity check
D) field check
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

10) When processing weekly payroll, an employee accidentally entered 400 for hours worked. The best data entry control for this error would be
A) a limit check.
B) a check digit.
C) batch total reconciliation.
D) a field check.
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

11) The data entry control that would best prevent entering an invoice received from a vendor who is not on an authorized supplier list is
A) a validity check.
B) an authorization check.
C) a check digit.
D) closed-loop verification.
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

12) Forms design is an example of this type of control.
A) Data entry control
B) Processing control
C) Output control
D) Input control
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

13) Sequentially prenumbered forms is an example of a(n)
A) data entry control.
B) data transmission control.
C) processing control.
D) input control.
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

14) Turnaround documents are an example of a(n)
A) data entry control.
B) output control.
C) processing control.
D) input control.
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

15) A validity check is an example of a(n)
A) data entry control.
B) data transmission control.
C) output control.
D) input control.
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

16) Parity checks are an example of a(n)
A) data entry control.
B) data transmission control.
C) output control.
D) processing control.
Answer:
Page Ref: 279
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

17) User reviews are an example of a(n)
A) data entry control.
B) data transmission control.
C) output control.
D) processing control.
Answer:
Page Ref: 278
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

18) Data matching is an example of a(n)
A) data entry control.
B) data transmission control.
C) processing control.
D) input control.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

19) Batch totals are an example of a(n)
A) data entry control.
B) data transmission control.
C) output control.
D) processing control.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

20) Cancellation and storage of documents means that
A) data are copied from a document and stored, after which the document is shredded.
B) documents are defaced before being shredded.
C) documents are defaced and stored.
D) cancellation data are copied from documents before they are stored.
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

21) Check digit verification is an example of a(n)
A) data transmission control.
B) output control.
C) processing control.
D) input control.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

22) This ensures that the input data will fit into the assigned field.
A) Limit check
B) Range check
C) Size check
D) Validity check
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

23) This tests a numerical amount to ensure that it does not exceed a predetermined value nor fall below another predetermined value.
A) Completeness check
B) Field check
C) Limit check
D) Range check
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

24) This determines if all required data items have been entered.
A) Completeness check
B) Field check
C) Limit check
D) Range check
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

25) This determines the correctness of the logical relationship between two data items.
A) Range check
B) Reasonableness test
C) Sign check
D) Size check
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

26) This determines if characters are of the proper type.
A) Field check
B) Alpha-numeric check
C) Range check
D) Reasonableness test
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

27) This tests a numerical amount to ensure that it does not exceed a predetermined value.
A) Completeness check
B) Limit check
C) Range check
D) Sign check
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

28) This batch processing data entry control sums a field that contains dollar values.
A) Record count
B) Financial total
C) Hash total
D) Sequence check
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

29) This batch processing data entry control sums a non-financial numeric field.
A) Record count
B) Financial total
C) Hash total
D) Sequence check
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

30) When I enter a correct customer number, the data entry screen displays the customer name and address. This is an example of
A) prompting.
B) preformatting.
C) closed-loop verification.
D) error checking.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

31) This control ensures that the correct and most current files are being updated.
A) Cross-footing balance test
B) Data matching
C) File labels
D) Write-protect mechanism
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

32) This batch processing data entry control sums the number of items in a batch.
A) Financial total
B) Hash total
C) Record count
D) Sequence check
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

33) This data entry control compares the ID number in transaction data to a master file to verify that the ID number exists.
A) Reasonableness test
B) User review
C) Data matching
D) Validity check
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

34) File labels are an example of
A) data entry controls.
B) output controls.
C) processing controls.
D) source data controls.
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

35) A computer operator accidentally used the wrong master file when updating a transaction file. As a result, the master file data is now unreadable. Which control could best have prevented this from happening?
A) Internal header label
B) Validity check
C) Check digit
D) Parity check
Answer:
Page Ref: 277
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

36) Chaz Finnerty called the IT Help Desk in a huff. “I’m trying to open an Excel file and I get a message that says that the file is locked for editing. What’s going on?” The answer is likely that
A) the file is corrupted due to a computer virus.
B) there is no problem. Chaz is editing the file, so it is locked.
C) concurrent update controls have locked the file.
D) Chaz probably opened the file as read-only.
Answer:
Page Ref: 278
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
37) This control protects records from errors that occur when two or more users attempt to update the same record simultaneously.
A) Concurrent update controls
B) Cross-footing balance test
C) Data conversion controls
D) Recalculation of batch totals
Answer:
Page Ref: 278
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

38) Modest Expectations Investment Services (MEIS) allows customers to manage their investments over the Internet. If customers attempt to sell more shares of a stock than they have in their account, an error message is displayed. This is an example of a
A) reasonableness test.
B) field check.
C) validity check.
D) limit check.
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

39) Modest Expectations Investment Services (MEIS) allows customers to manage their investments over the Internet. If customers attempt to spend more money than they have in their account, an error message is displayed. This is an example of a
A) reasonableness test.
B) field check.
C) validity check.
D) limit check.
Answer:
Page Ref: 276
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
40) The Spontaneous Combustion Rocket Shoppe in downtown Fargo, North Dakota, generates three quarters of its revenue from orders taken over the Internet. The revenue clearing account is debited by the total of cash and credit receipts and credited by the total of storefront and Internet sales. This is an example of a
A) data integrity test.
B) zero-balance test.
C) trial balance audit.
D) cross-footing balance test.
Answer:
Page Ref: 278
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

41) What is the most effective way to ensure information system availability?
A) High bandwidth
B) Maintain a hot site
C) Maintain a cold site
D) Frequent backups
Answer:
Page Ref: 287
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

42) Concerning system availability, which of the following statements is true?
A) Human error does not threaten system availability.
B) Proper controls can maximize the risk of threats causing significant system downtime.
C) Threats to system availability can be completely eliminated.
D) Threats to system availability include hardware and software failures as well as natural and man-made disasters.
Answer:
Page Ref: 284
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
43) Which of the following is not an objective of a disaster recovery plan?
A) Minimize the extent of the disruption, damage or loss.
B) Permanently establish an alternative means of processing information.
C) Resume normal operations as soon as possible.
D) Train employees for emergency operations.
Answer:
Page Ref: 287
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

44) Which item below would not typically be part of an adequate disaster recovery plan?
A) a system upgrade due to operating system software changes
B) uninterruptible power systems installed for key system components
C) scheduled electronic vaulting of files
D) backup computer and telecommunication facilities
Answer:
Page Ref: 287
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

45) A facility that contains all the computing equipment the organization needs to perform its essential business activities is known as a
A) cold site.
B) hot site.
C) remote site.
D) subsidiary location.
Answer:
Page Ref: 287
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

46) A facility that is pre-wired for necessary telecommunications and computer equipment, but doesn’t have equipment installed, is known as a
A) cold site.
B) hot site.
C) remote site.
D) subsidiary location.
Answer:
Page Ref: 287
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
47) When a computer system’s files are automatically duplicated on a second data storage system as they are changed, the process is referred to as
A) real-time mirroring.
B) batch updating.
C) consistency control.
D) double-secure storage.
Answer:
Page Ref: 287
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

48) ________ enables a system to continue functioning in the event that a particular component fails.
A) An incremental backup procedure
B) Fault tolerance
C) Preventive maintenance
D) A concurrent update control
Answer:
Page Ref: 284
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

49) A copy of a database, master file, or software that will be retained indefinitely as a historical record is known as a(n)
A) archive.
B) cloud computing.
C) differential backup.
D) incremental backup.
Answer:
Page Ref: 286
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

50) While this type of backup process takes longer than the alternative, restoration is easier and faster.
A) Archive
B) Cloud computing
C) Differential backup
D) Incremental backup
Answer:
Page Ref: 286
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

51) ________ involves copying only the data items that have changed since the last partial backup.
A) Archive
B) Cloud computing
C) Differential backup
D) Incremental backup
Answer:
Page Ref: 285
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

52) ________ copies all changes made since the last full backup.
A) Archive
B) Cloud computing
C) Differential backup
D) Incremental backup
Answer:
Page Ref: 286
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

53) The maximum amount of time between backups is determined by a company’s
A) recovery time objective.
B) recovery point objective.
C) recovery objective.
D) maximum time recovery objective.
Answer:
Page Ref: 285
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

54) The maximum acceptable down time after a computer system failure is determined by a company’s
A) recovery time objective.
B) recovery point objective.
C) recovery objective.
D) maximum time recovery objective.
Answer:
Page Ref: 285
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

55) The accounting department at Synergy Hydroelectric records an average of 12,500 transactions per hour. By cost-benefit analysis, managers have concluded that the maximum acceptable loss of data in the event of a system failure is 25,000 transactions. If the firm’s recovery time objective is 120 minutes, then the worst case recovery time objective is
A) 1 hour
B) 2 hours
C) 3 hours
D) 4 hours
Answer:
Page Ref: 285
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

56) The accounting department at Synergy Hydroelectric records an average of 10,000 transactions per hour. By cost-benefit analysis, managers have concluded that the maximum acceptable loss of data in the event of a system failure is 20,000 transactions. If the firm’s recovery time objective is 60 minutes, then the worst case recovery time objective is
A) 1 hour
B) 2 hours
C) 3 hours
D) 4 hours
Answer:
Page Ref: 285
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

57) The accounting department at Synergy Hydroelectric records an average of 10,000 transactions per hour. By cost-benefit analysis, managers have concluded that the maximum acceptable loss of data in the event of a system failure is 40,000 transactions. The firm’s recovery point objective is therefore
A) 40,000 transactions
B) 10,000 transactions
C) 10 hours
D) 4 hours
Answer:
Page Ref: 285
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

58) The accounting department at Synergy Hydroelectric records an average of 12,500 transactions per hour. By cost-benefit analysis, managers have concluded that the maximum acceptable loss of data in the event of a system failure is 25,000 transactions. The firm’s recovery point objective is therefore
A) 25,000 transactions
B) 12,500 transactions
C) 1 hour
D) 2 hours
Answer:
Page Ref: 285
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

59) This control entails verifying that the proper number of bits are set to the value 1 in each character received.
A) Echo check
B) Field check
C) Parity check
D) Trailer record
Answer:
Page Ref: 279
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
60) Probably the most important change management control is
A) monitoring user rights and privileges during the change process.
B) testing all changes thoroughly prior to implementation on a stand-alone computer.
C) updating all documentation to reflect changes made to the system.
D) management’s careful monitoring and review.
Answer:
Page Ref: 289
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

61) Which of the following is true?
A) Cloud computing is a control technique for system availability.
B) Cloud computing eliminates the need for backup of applications and data.
C) Cloud computing refers to the practice of storing application files and backup data on satellites ‘in the clouds’.
D) Cloud computing eliminates the need for companies to own their own software and servers.
Answer:
Page Ref: 288
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

62) Discuss how cloud computing could both positively and negatively affect system availability.

63) Define and contrast a recovery point objective and a recovery time objective.

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 11 Auditing Computer-Based Information Systems

1) Auditing involves the
A) collection, review, and documentation of audit evidence.
B) planning and verification of economic events.
C) collection of audit evidence and approval of economic events.
D) testing, documentation, and certification of audit evidence.
Answer:
Page Ref: 303
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

2) What is not a typical responsibility of an internal auditor?
A) helping management to improve organizational effectiveness
B) assisting in the design and implementation of an AIS
C) preparation of the company’s financial statements
D) implementing and monitoring of internal controls
Answer:
Page Ref: 303
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

3) Which type of work listed below is not typical of internal auditors?
A) operational and management audits
B) information system audits
C) financial statement audit
D) financial audit of accounting records
Answer:
Page Ref: 303
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

4) The ________ audit examines the reliability and integrity of accounting records.
A) financial
B) informational
C) information systems
D) operational
Answer:
Page Ref: 303
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

5) The ________ audit reviews the general and application controls of an AIS to assess its compliance with internal control policies and procedures and its effectiveness in safeguarding assets.
A) financial
B) information systems
C) management
D) internal control
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

6) One type of audit that is concerned with the economical and efficient use of resources and the accomplishment of established goals and objectives is known as a(n) ________ audit.
A) financial
B) information systems
C) internal control
D) operational or management
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

7) The ________ audit is concerned with the economical and efficient use of resources and the accomplishment of established goals and objectives.
A) financial
B) informational
C) information systems
D) operational
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
8) The purpose of ________ is to determine why, how, when, and who will perform the audit.
A) audit planning
B) the collection of audit evidence
C) the communication of audit results
D) the evaluation of audit evidence
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

9) Organizing the audit team and the physical examination of assets are components of which two separate audit stages?
A) planning; evaluating audit evidence
B) planning; collecting audit evidence
C) collecting audit evidence; communicating audit results
D) communicating audit results; evaluating audit evidence
Answer:
Page Ref: 304-305
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

10) With which stage in the auditing process are the consideration of risk factors and materiality most associated?
A) audit planning
B) collection of audit evidence
C) communication of audit results
D) evaluation of audit evidence
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

11) A system that employs various types of advanced technology has more ________ risk than traditional batch processing.
A) control
B) detection
C) inherent
D) investing
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
12) Control risk is defined as the
A) susceptibility to material risk in the absence of controls.
B) risk that a material misstatement will get through the internal control structure and into the financial statements.
C) risk that auditors and their audit procedures will not detect a material error or misstatement.
D) risk auditors will not be given the appropriate documents and records by management who wants to control audit activities and procedures.
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

13) The possibility that a material error will occur even though auditors are following audit procedures and using good judgment is referred to as
A) control risk.
B) detection risk.
C) inherent risk.
D) investigating risk.
Answer:
Page Ref: 305
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

14) The ________ stage of the auditing process involves (among other things) the auditors observing the operating activities and having discussions with employees.
A) audit planning
B) collection of audit evidence
C) communication of audit results
D) evaluation of audit evidence
Answer:
Page Ref: 305
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
15) Verifying the accuracy of certain information, often through communication with third parties, is known as
A) reperformance.
B) confirmation.
C) substantiation.
D) documentation.
Answer:
Page Ref: 305
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

16) The evidence collection method that examines all supporting documents to determine the validity of a transaction is called
A) review of documentation.
B) vouching.
C) physical examination.
D) analytical review.
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

17) The evidence collection method that considers the relationships and trends among information to detect items that should be investigated further is called
A) review of the documentation.
B) vouching.
C) physical examination.
D) analytical review.
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
18) Assessing the quality of internal controls, the reliability of information, and operating performance are all part of which stage of the auditing process?
A) audit planning
B) collection of audit evidence
C) evaluation of audit evidence
D) communication of audit results
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

19) An auditor must be willing to accept some degree of risk that the audit conclusion is incorrect. Accordingly, the auditor’s objective is to seek ________ that no material error exists in the information audited.
A) absolute reliability
B) reasonable evidence
C) reasonable assurance
D) reasonable objectivity
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

20) The risk-based audit approach is
A) a four-step approach to internal control evaluation.
B) a four-step approach to financial statement review and recommendations.
C) a three-step approach to internal control evaluation.
D) a three-step approach to financial statement review and recommendations.
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

21) Which of the following is the first step in the risk-based audit approach?
A) Identify the control procedures that should be in place.
B) Evaluate the control procedures.
C) Determine the threats facing the AIS.
D) Evaluate weaknesses to determine their effect on the audit procedures.
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
22) Determining whether the necessary control procedures are in place is accomplished by conducting
A) a systems overhaul.
B) a systems review.
C) tests of controls.
D) both B and C
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Analytic

23) According to the risk-based auditing approach, when a control deficiency is identified, the auditor should inquire about
A) tests of controls.
B) the feasibility of a systems review.
C) materiality and inherent risk factors.
D) compensating controls.
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

24) The ________ to auditing provides auditors with a clear understanding of possible errors and irregularities and the related risks and exposures.
A) risk-based approach
B) risk-adjusted approach
C) financial audit approach
D) information systems approach
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

25) What is the purpose of an information systems audit?
A) To determine the inherent risk factors found in the system
B) To review and evaluate the internal controls that protect the system
C) To examine the reliability and integrity of accounting records
D) To examine whether resources have been used in an economical and efficient manner in keeping with organization goals and objectives
Answer:
Page Ref: 307
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

26) The information systems audit objective that pertains to source data being processed into some form of output is known as
A) overall security.
B) program development.
C) program modifications.
D) processing.
Answer:
Page Ref: 307
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

27) To maintain the objectivity necessary for performing an independent evaluation function, auditors should not be involved in
A) making recommendations to management for improvement of existing internal controls.
B) examining system access logs.
C) examining logical access policies and procedures.
D) developing the information system.
Answer:
Page Ref: 309
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
28) The auditor’s role in systems development should be as
A) an advisor and developer of internal control specifications.
B) a developer of internal controls.
C) an independent reviewer only.
D) A and B above
Answer:
Page Ref: 309
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

29) Regarding program modifications, which statement below is incorrect?
A) Only material program changes should be thoroughly tested and documented.
B) When a program change is submitted for approval, a list of all required updates should be compiled and then approved by management and program users.
C) During the change process, the developmental version of the program must be kept separate from the production version.
D) After the modified program has received final approval, the change is implemented by replacing the developmental version with the production version.
Answer:
Page Ref: 311
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

30) How could auditors determine if unauthorized program changes have been made?
A) By interviewing and making inquiries of the programming staff
B) By examining the systems design and programming documentation
C) By using a source code comparison program
D) By interviewing and making inquiries of recently terminated programming staff
Answer:
Page Ref: 311
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
31) Which auditing technique will not assist in determining if unauthorized programming changes have been made?
A) Use of a source code comparison program
B) Use of the reprocessing technique to compare program output
C) Interviewing and making inquiries of the programming staff
D) Use of parallel simulation to compare program output
Answer:
Page Ref: 311
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

32) Strong ________ controls can partially compensate for inadequate ________ controls.
A) development; processing
B) processing; development
C) operational; internal
D) internal; operational
Answer:
Page Ref: 310
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

33) The ________ procedure for auditing computer process controls uses a hypothetical series of valid and invalid transactions.
A) concurrent audit techniques
B) test data processing
C) integrated test facility
D) dual process
Answer:
Page Ref: 312
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

34) The auditor uses ________ to continuously monitor the system and collect audit evidence while live data are processed.
A) test data processing
B) parallel simulation
C) concurrent audit techniques
D) analysis of program logic
Answer:
Page Ref: 313
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
35) Auditors have several techniques available to them to test computer-processing controls. An audit technique that immediately alerts auditors of suspicious transactions is known as
A) a SCARF.
B) an audit hook.
C) an audit sinker.
D) the snapshot technique.
Answer:
Page Ref: 313
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

36) A type of software that auditors can use to analyze program logic and detect unexecuted program code is
A) a mapping program.
B) an audit log.
C) a scanning routine.
D) program tracing.
Answer:
Page Ref: 314
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

37) One tool used to document the review of source data controls is
A) a flowchart generator program.
B) a mapping program.
C) an input control matrix.
D) a program algorithm matrix.
Answer:
Page Ref: 314
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

38) An audit software program that generates programs that perform certain audit functions, based on auditor specifications, is referred to as a(n)
A) input controls matrix.
B) CAATS.
C) embedded audit module.
D) mapping program.
Answer:
Page Ref: 317
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Analytic
39) The use of a secure file library and restrictions on physical access to data files are control procedures used together to prevent
A) an employee or outsider obtaining data about an important client.
B) a data entry clerk from introducing data entry errors into the system.
C) a computer operator from losing or corrupting files or data during transaction processing.
D) programmers making unauthorized modifications to programs.
Answer:
Page Ref: 316
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic

40) An auditor might use which of the following to convert data from several sources into a single common format?
A) computer assisted audit techniques software
B) Windows Media Converter
C) concurrent audit technique
D) Adobe Professional
Answer:
Page Ref: 317
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

41) What is the primary purpose of computer audit software?
A) eliminate auditor judgment errors
B) assist the auditor in retrieving and reviewing information
C) detect unauthorized modifications to system program code
D) recheck all mathematical calculations, cross-foot, reprocess financial statements and compare to originals
Answer:
Page Ref: 317
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic
42) The scope of a(n) ________ audit encompasses all aspects of systems management.
A) operational
B) information systems
C) financial
D) internal control
Answer:
Page Ref: 318
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Analytic

43) Evaluating effectiveness, efficiency, and goal achievement are objectives of ________ audits.
A) financial
B) operational
C) information systems
D) all of the above
Answer:
Page Ref: 318
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

44) In the ________ stage of an operational audit, the auditor measures the actual system against an ideal standard.
A) evidence collection
B) evidence evaluation
C) testing
D) internal control
Answer:
Page Ref: 318
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

45) An increase in the effectiveness of internal controls would have the greatest effect on
A) reducing control risk.
B) reducing detection risk.
C) reducing inherent risk.
D) reducing audit risk.
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Analytic
46) An expansion of a firm’s operations to include production in Russia and China will have the effect of
A) increasing inherent risk.
B) reducing inherent risk.
C) increasing control risk.
D) reducing control risk.
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

47) An increase in the effectiveness of auditing software will have the effect of
A) increasing detection risk.
B) reducing detection risk.
C) increasing control risk.
D) reducing control risk.
Answer:
Page Ref: 305
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

48) An auditor examines all documents related to the acquisition, repair history, and disposal of a firm’s delivery van. This is an example of collecting audit evidence by
A) confirmation.
B) reperformance.
C) vouching.
D) analytical review.
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

49) An auditor manually calculates accumulated depreciation on a delivery van and compares her calculation with accounting records. This is an example collecting audit evidence by
A) confirmation.
B) reperformance.
C) vouching.
D) analytical review.
Answer:
Page Ref: 305
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
50) An auditor finds that employee absentee rates are significantly higher on Mondays and Fridays than on other work days. This is an example collecting audit evidence by
A) confirmation.
B) reperformance.
C) vouching.
D) analytical review.
Answer:
Page Ref: 306
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

51) An auditor creates a fictitious customer in the system and then creates several fictitious sales to the customer. The records are then tracked as they are processed by the system. The auditor is using
A) an integrated test facility.
B) the snapshot technique.
C) a system control audit review file.
D) continuous and intermittent simulation.
Answer:
Page Ref: 313
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic

52) An auditor sets an embedded audit module to flag all credit transactions in excess of $1,500. The flag causes the system state to be recorded before and after each transaction is processed. The auditor is using
A) an integrated test facility.
B) the snapshot technique.
C) a system control audit review file.
D) audit hooks.
Answer:
Page Ref: 313
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
53) An auditor sets an embedded audit module to record all credit transactions in excess of $1,500 and store the data in an audit log. The auditor is using
A) the snapshot technique.
B) a system control audit review file.
C) audit hooks.
D) continuous and intermittent simulation.
Answer:
Page Ref: 313
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

54) An auditor sets an embedded audit module to flag questionable online transactions, display information about the transaction on the auditor’s computer, and send a text message to the auditor’s cell phone. The auditor is using
A) the snapshot technique.
B) a system control audit review file.
C) audit hooks.
D) continuous and intermittent simulation.
Answer:
Page Ref: 313
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic

55) An auditor sets an embedded audit module to selectively monitor transactions. Selected transactions are then reprocessed independently, and the results are compared with those obtained by the normal system processing. The auditor is using
A) an integrated test facility.
B) the snapshot technique.
C) a system control audit review file.
D) continuous and intermittent simulation.
Answer:
Page Ref: 313
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic
56) Which of the following is not one of the types of internal audits?
A) reviewing corporate organizational structure and reporting hierarchies
B) examining procedures for reporting and disposing of hazardous waste
C) reviewing source documents and general ledger accounts to determine integrity of recorded transactions
D) comparing estimates and analysis made before purchase of a major capital asset to actual numbers and results achieved
Answer:
Page Ref: 304
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

57) When programmers are working with program code, they often employ utilities that are also used in auditing. For example, as program code evolves, it is often the case that blocks of code are superseded by other blocks of code. Blocks of code that are not executed by the program can be identified by
A) embedded audit modules.
B) scanning routines.
C) mapping programs.
D) automated flow charting programs.
Answer:
Page Ref: 314
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

58) When programmers are working with program code, they often employ utilities that are also used in auditing. For example, as program code evolves, it is often the case that variables defined during the early part of development become irrelevant. The occurrences of variables that are not used by the program can be found using
A) program tracing.
B) scanning routines.
C) mapping programs.
D) embedded audit modules.
Answer:
Page Ref: 314
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
59) Explain the differences between each type of audit risk.

60) Explain why the auditor’s role in program development and acquisition should be limited.

61) How and to whom does an auditor communicate the audit results?

62) Audit tests and procedures traditionally have been performed on a sample basis. Do options exist for auditors to test significantly more (or all) transactions?

63) When doing an information systems audit, auditors must review and evaluate the program development process. What errors or fraud could occur during the program development process?

64) Briefly describe tests that can be used to detect unauthorized program modifications.

65) Define and give examples of embedded audit modules.

66) How is a financial audit different from an information systems audit?

67) Why do all audits follow a sequence of events that can be divided into four stages, and what are the four stages?

68) Name and describe the different types of audits.
AACSB: Analytic

69) Describe the risk-based audit approach.

71) Describe the disadvantages of test data processing.

72) Describe how audit evidence can be collected.

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 12 The Revenue Cycle: Sales to Cash Collections

1) In organizations with at least basic segregation of duties, the credit manager reports to the ________ and the treasurer reports to the ________.
A) controller; vice president of finance
B) treasurer; controller
C) marketing manager; vice president of finance
D) treasurer; vice president of finance
Answer:
Page Ref: 331
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

2) In the revenue cycle, before a shipping notice is prepared, the shipping department personnel should match the inventory received from the warehouse to details from
A) picking tickets.
B) sales order and bill of lading.
C) sales order.
D) picking ticket and sales order.
Answer:
Page Ref: 345
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

3) Which is the best control to prevent invoicing customers for the quantity ordered, which was more than the quantity shipped due to items on backorder?
A) Use the information from the packing slip to prepare the sales invoice.
B) Use the information from the picking ticket to prepare the sales invoice.
C) Use the information from the bill of lading to prepare the sales invoice.
D) Use the information from the sales order to prepare the sales invoice.
Answer:
Page Ref: 350
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Reflective Thinking

4) The cashier deposits checks in the bank for Very Large Corporation (VLC) and also prepares payments to vendors. Of the following, who is best to reconcile the bank statement to VLC’s records on a regular basis?
A) Internal audit department
B) Treasurer
C) External auditor
D) Cashier
Answer:
Page Ref: 355
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

5) Which of the following documents normally triggers the billing process in the revenue cycle?
A) Packing slip received from the shipping department
B) Sales order received from the sales department
C) Picking ticket received from the sales department
D) Journal voucher received from the shipping department
Answer:
Page Ref: 348
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

6) Which of the following documents would normally trigger the process to record a customer payment?
A) Remittance advice
B) Customer monthly statement
C) Deposit slip
D) Sales invoice
Answer:
Page Ref: 353
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
7) Which document should always be included with a merchandise shipment to a customer?
A) Packing slip
B) Picking ticket
C) Remittance advice
D) Sales invoice
Answer:
Page Ref: 345
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

8) A monthly statement sent to customers serves a control purpose by
A) providing an opportunity for customers to verify the balance owed and activity on the account.
B) triggering the process to record a customer payment.
C) summarizing invoices and amounts due for customers.
D) reminding customers of the balance due and due date.
Answer:
Page Ref: 355
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

9) Accounting recognizes a sale when
A) inventory becomes the legal property of the customer.
B) cash is received from the customer.
C) a sales order is approved by sales, inventory control, and credit departments.
D) inventory is removed from the warehouse.
Answer:
Page Ref: 345
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

10) Which of the following is not one of the controls for the mail room where customer payments are commingled with other mail?
A) Requiring the controller to be personally present when mail is received and opened
B) Preparing a remittance list as mail is opened
C) Restrictively endorsing checks when received
D) Requiring two mail room clerks to open mail together
Answer:
Page Ref: 337
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
11) What is the primary objective of the revenue cycle?
A) to maximize revenue and minimize expense
B) to reduce outstanding accounts receivable balances through increased cash sales
C) to provide the right product in the right place at the right time at the right price
D) to sell as much product as possible and/or to maximize service billings
Answer:
Page Ref: 332
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

12) Which of the decisions below is not ordinarily found as part of the revenue cycle?
A) What credit terms should be offered?
B) How often should accounts receivable be subjected to audit?
C) How can customer payments be processed to maximize cash flows?
D) What are the optimal prices for each product or service?
Answer:
Page Ref: 332-333
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

13) Which of the following is not a basic activity of the revenue cycle?
A) sales order entry
B) shipping
C) receiving
D) billing
Answer:
Page Ref: 333
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

14) Retail stores could send their orders directly to the manufacturer’s sales order system in a format that would eliminate the need for data entry, using
A) Vendor Managed Inventory.
B) Electronic Data Interchange.
C) Point Of Sale.
D) Electronic Funds Transfer.
Answer:
Page Ref: 338
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
15) Matching customer account numbers and inventory item numbers to the numbers in the customer and inventory master files is an example of a
A) completeness test.
B) field check.
C) reasonableness test.
D) validity check.
Answer:
Page Ref: 339
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

16) During the sales order entry process, a ________ is performed to compare the quantity ordered with the standard amounts normally ordered.
A) completeness test
B) redundant data check
C) field check
D) reasonableness test
Answer:
Page Ref: 339
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

17) During the sales order entry process, a ________ is performed to verify that each transaction record contains all appropriate data items.
A) completeness test
B) redundant data check
C) field check
D) reasonableness test
Answer:
Page Ref: 339
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
18) When a customer places an order (on account) for a certain product, what should be done before the order is checked for inventory availability?
A) The customer’s available credit should be checked.
B) The sales order should be created and written to a file.
C) Shipping should be notified of an order in process.
D) A picking list should be generated for the warehouse.
Answer:
Page Ref: 335
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

19) How is credit approval generally handled for established customers with a documented payment history?
A) Specific authorization by the credit manager
B) General authorization by a sales clerk
C) A new credit application is requested
D) A formal credit check should be made for each sale
Answer:
Page Ref: 340
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

20) What is a typical procedure for processing sales orders from new customers or customers making a purchase that causes their credit limit to be exceeded?
A) General authorization to approve the order is given to sales clerks.
B) Specific authorization must be granted by the credit manager.
C) The sale should be rejected.
D) The sales clerk should order a report from a credit bureau before approving the order.
Answer:
Page Ref: 340
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
21) A company should check inventory quantities before accepting a sales order for all the following reasons except to
A) verify the accuracy of the perpetual inventory records.
B) inform the customer about availability and delivery times.
C) know which items may need to be back ordered.
D) update inventory records to reduce the quantity available by the number of items ordered.
Answer:
Page Ref: 341-342
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

22) Responding to customer inquiries and general customer service is an important aspect in the revenue cycle. Since customer service is so important, software programs have been created to help manage this function. These special software packages are called
A) EDI systems.
B) POS systems.
C) VMI systems.
D) CRM systems.
Answer:
Page Ref: 343
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

23) The best solution for maintaining accurate automated perpetual inventory system is to use
A) closed-loop verification when inventory is received from vendors and recorded.
B) point of sale devices integrated with inventory records.
C) periodic physical counts to reconcile with perpetual inventory records.
D) RFID tags.
Answer:
Page Ref: 342
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

24) This document is a legal contract that defines responsibility for goods that are in transit.
A) packing slip
B) bill of lading
C) picking list
D) back order
Answer:
Page Ref: 345
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

25) Two documents usually accompany goods shipped to a customer. What are the two documents?
A) a bill of lading and an invoice
B) a packing slip and a bill of lading
C) an invoice and a packing slip
D) an invoice and a sales order
Answer:
Page Ref: 345
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

26) What is the basic document created in the billing process?
A) bill of lading
B) sales order
C) packing list
D) sales invoice
Answer:
Page Ref: 349
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

27) A company uses the method for tracking accounts receivable where customers pay according to individual sales invoices. This describes the ________ method.
A) monthly statement
B) open-invoice
C) balance forward
D) cycle billing
Answer:
Page Ref: 350
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

28) A method for tracking accounts receivable that matches specific invoices and payments from the customer is called a(n) ________ method.
A) specific identification
B) balance forward
C) cycle billing
D) open-invoice
Answer:
Page Ref: 350
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

29) The document a customer returns with their payment and that identifies the source and the amount of the payment is called a
A) remittance advice.
B) remittance list.
C) credit memorandum.
D) debit memorandum.
Answer:
Page Ref: 350
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

30) In the ________ method of tracking accounts receivable, customers pay according to the amount showing on their monthly statement and payments are applied against the total account balance.
A) specific identification
B) open-invoice
C) balance forward
D) remittance advice
Answer:
Page Ref: 350
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
31) When a customer pays off the balance on an invoice, the payment is credited to the ________ file.
A) customer master
B) sales transaction
C) cash receipts master
D) All of the above are correct.
Answer:
Page Ref: 351
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

32) A type of business document in which part of the original document is returned to the source for further processing is called a ________ document.
A) feedback
B) returnable
C) closed-loop
D) turnaround
Answer:
Page Ref: 350
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

33) A document typically encountered in the revenue cycle that is both an output document and a source document is the
A) sales invoice.
B) customer purchase order.
C) sales order.
D) packing slip.
Answer:
Page Ref: 349
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
34) A ________ system prepares and mails monthly statements to customers throughout the entire month, instead of just at the end of the month.
A) continuous
B) open-invoice
C) cycle billing
D) balance forward
Answer:
Page Ref: 351
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

35) The accounts receivable department must know when customers pay their invoices, yet segregation of duties controls dictate that the collection and recording functions be kept separate from each other. What is a solution to this potential internal control problem?
A) Have customers send a remittance advice with their payment.
B) Have mailroom personnel prepare a remittance list which can be forwarded to accounts receivable.
C) Establish a lockbox arrangement with a bank.
D) all of the above
Answer:
Page Ref: 353-354
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

36) The benefits of a lockbox arrangement with a bank are maximized when
A) the bank is located nearby to the company, so remittance advices can be delivered to the company every day.
B) several banks around the country are used, in order to minimize the time payments spend in the mail.
C) an arrangement is made with only one bank, so all remittance advices can be batched for processing.
D) the bank deposits the payments and accesses the customer’s information system to record the payments.
Answer:
Page Ref: 354
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
37) An arrangement where a bank receives customer payments through the postal system, scans the remittance advices, and transmits payment data to the business electronically is known as
A) e-commerce.
B) an electronic lockbox.
C) electronic funds transfer (EFT).
D) electronic data interchange (EDI).
Answer:
Page Ref: 354
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

38) Customers that send their payments electronically directly to the company’s bank are using
A) electronic data interchange (EDI).
B) electronic funds transfer (EFT).
C) procurement cards.
D) an electronic lockbox.
Answer:
Page Ref: 354
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

39) A way to incorporate the advantages of Electronic Data Interchange with the Electronic Funds Transfer is
A) Financial Electronic Data Interchange.
B) e-commerce.
C) to use procurement cards.
D) an electronic lockbox.
Answer:
Page Ref: 354
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

40) Key differences exist when an integrated Enterprise Resource Planning system (ERP) replaces an existing AIS or legacy system. For example, ________ are more accurate and timely, enabling sales order entry staff to provide customers more accurate information about delivery dates.
A) inventory records
B) cash receipts
C) credit approval decisions
D) exception reports
Answer:
Page Ref: 342
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

41) When an ERP is used, it is assumed that there will be increases in efficiency and the effectiveness of the activities related to the revenue cycle. However, what must be in place and functioning well to fully realize these benefits?
A) an effective marketing staff
B) all the components of the expenditure cycle
C) adequate controls
D) adequate system flowchart documentation
Answer:
Page Ref: 335
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

42) The activities involved in soliciting and processing customer orders within the revenue cycle are known as the ________.
A) sales order entry process
B) shipping order process
C) revenue process
D) marketing process
Answer:
Page Ref: 337
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
43) To ensure proper segregation of duties, only the ________ has authority to issue credit memos.
A) accounts receivable supervisor
B) controller
C) credit manager
D) cashier
Answer:
Page Ref: 352
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

44) It has been discovered that credit sales have been made to customers with a poor credit rating. If this continues, the company will face increasing uncollectible receivables and losses due to bad debts. Separation of duties between ________ and ________ should help resolve the problem.
A) shipping; billing duties
B) credit approval; marketing
C) billing; credit approval
D) marketing; accounts receivable
Answer:
Page Ref: 340
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

45) Consider the following revenue cycle scenario: The company has been exposed to customer dissatisfaction and the suggested control procedure to be implemented is to install and use bar-code scanners. What is the threat?
A) The company may be shipping the wrong merchandise.
B) The company may be shipping the wrong quantities of merchandise.
C) The company may be shipping orders to the wrong address.
D) All of the above threats may apply to this scenario.
Answer:
Page Ref: 345
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking
46) Which of the following would be the least effective control to minimize the loss of inventory?
A) Secure the storage location of inventory.
B) Release inventory only with proper documentation.
C) Periodically back up all perpetual inventory records.
D) Reconcile the physical counts with and perpetual records.
Answer:
Page Ref: 345
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

47) Separating the shipping and billing functions is designed to reduce the threat of
A) failure to bill customers.
B) billing customers for wrong quantities.
C) billing customers before merchandise has been shipped.
D) shipping the wrong merchandise.
Answer:
Page Ref: 350
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

48) All of the following edit checks for online editing of accounts receivable transactions would probably be included except
A) validity checks on customer ID and invoice numbers.
B) check digit verification on the amount of the sale.
C) closed loop verification on the customer ID.
D) field checks on the values in dollar fields.
Answer:
Page Ref: 352
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking
49) When a proper segregation of duties exists in the area of handling cash receipts, the ________, who reports to the ________, actually handles the cash and is not the same person who posts cash receipts to customer accounts.
A) cashier; treasurer
B) cashier; controller
C) accountant; treasurer
D) accountant; controller
Answer:
Page Ref: 355
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

50) In a revenue cycle with proper controls, the ________ who reports to the ________, is not involved in any cash handling activities.
A) accounts receivable clerk; treasurer
B) accounts receivable clerk; controller
C) cashier; controller
D) cashier; treasurer
Answer:
Page Ref: 355
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

51) A serious exposure in the revenue cycle is loss of assets. What is the related threat and applicable control procedure that address this exposure?
A) shipping errors; reconciliation of sales order with picking ticket and packing slip
B) theft of cash; segregation of duties and minimization of cash handling
C) making sales that turn out to be uncollectible; force sales people to make collection calls on customers with past due balances
D) poor performance; preparation and review of performance reports
Answer:
Page Ref: 337
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
52) Which of the following duties could be performed by the same individual and not violate segregation of duty controls?
A) handling cash and posting to customer accounts
B) issuing credit memos and maintaining customer accounts
C) handling cash and authorizing credit memos
D) handling cash receipts and mailing vendor payments
Answer:
Page Ref: 355
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

53) To prevent the loss of valuable data in the revenue cycle, internal file labels can be used to
A) keep competitors from accessing files.
B) record off-site storage locations.
C) organize the on-site physical storage site.
D) reduce the possibility of erasing important files.
Answer:
Page Ref: 277, 335
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

54) The manager of Callow Youth Clothing was entering an order online from Sad Clown Pajamas. He ordered 100 one-size fits all pajama bottoms, but when he ordered 1000 one-size fits all pajama tops, the following error message popped up: “Did you mean to enter a quantity of 1000 for your order?” This message is the result of a
A) reasonableness test.
B) validity check.
C) limit check.
D) closed-loop verification.
Answer:
Page Ref: 339
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Reflective Thinking
55) The manager of Callow Youth Clothing was entering an order online from Sad Clown Pajamas. He entered all the items and quantities, completed the checkout and payment process, but the following error message popped up when he tried to exit the site: “Please enter your email address.” This message is likely the result of a
A) customer relationship management software application.
B) validity check.
C) completeness test.
D) closed-loop verification.
Answer:
Page Ref: 339
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Reflective Thinking

56) Sad Clown Pajamas is an Internet-based wholesaler. Customers enter their orders online. The manager of Callow Youth Clothing was entering an order when the following error message popped up: “Your total order exceeds your available credit. A Credit Department representative will contact you within 24 hours.” This message is the result of a
A) validity check.
B) reasonableness test.
C) limit check.
D) sign check.
Answer:
Page Ref: 340
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

57) In Petaluma, California, electric power is provided to consumers by the Power To The People Electrical Company, a local co-op. Each month PTTP mails bills to 70,000 households and then processes payments as they are received. The customers are provided with a remittance advice, which is a
A) warning that failure to pay by the due date will result in a late charge.
B) confirmation of the firm’s privacy policy.
C) turnaround document.
D) bill.
Answer:
Page Ref: 350
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
58) Laz Chance wears roller blades and headphones when he is at work at the Squishy Things Toy Company. He is a product packer. The headphones give him computer-generated instructions so he knows the location of each item and quantity that should be included in the order. These instructions are the equivalent of a
A) picking ticket.
B) bill of lading.
C) packing slip.
D) sales order.
Answer:
Page Ref: 342
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

59) The shipping department at Squishy Things Toy Company follows policies that determine which carrier will deliver orders according to the size, weight, and destination of the shipment. It maintains standing agreements with shippers that specify legal responsibility for the shipment while it is in transit. The terms of the agreements are documented on
A) picking tickets.
B) bills of lading.
C) packing slips.
D) RFID tags.
Answer:
Page Ref: 345
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

60) Sad Clown Pajamas is an Internet-based wholesaler. The manager of Callow Youth Clothing received an order from Sad Clown and found that the wrong product had been shipped. He repackaged the order and sent it back for a refund. When Sad Clown Pajamas received the returned product, they mailed a ______ to Callow Youth Clothing’s manager.
A) packing slip
B) letter requesting an explanation
C) remittance advice
D) credit memo
Answer:
Page Ref: 352
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
61) A customer service manager at Sad Clown Pajamas, Bob, received a call from the manager at Callow Youth Clothing, who informed Bob that Callow was entering bankruptcy liquidation and it was unlikely that they would be able to pay the outstanding balance on their account. Bob should
A) document the phone conversation and forward it to the billing department manager.
B) prepare a credit memo.
C) approve a credit memo.
D) document the phone conversation and forward it to the credit department manager.
Answer:
Page Ref: 352
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Reflective Thinking

62) Because it is the most fungible of all assets, the management of cash has always been the most difficult of all control issues. The most important of cash controls is
A) minimization of cash handling.
B) lockbox arrangements.
C) segregation of duties.
D) frequent reconciliation of records.
Answer:
Page Ref: 355
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

63) A sales clerk at an electronics store scanned the bar code for a low cost set of headphones and then substituted a high cost set of headphones for his friend, who paid the lower price. Which of the following controls would best help to prevent this sort of fraud?
A) Use of RFID tags
B) Physical inventory count
C) Segregation of duties
D) Limited physical access to bar codes
Answer:
Page Ref: 342
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
64) The accounts receivable management method typically used by credit card companies is
A) balance forward.
B) postbilling.
C) monthly statement.
D) open-invoice.
Answer:
Page Ref: 351
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

65) The accounts receivable clerk destroys all invoices for sales made to family and friends and does not record the sales in the accounts receivable subsidiary ledgers. The family and friends usually give the clerk cash as a”thank you”. Which procedure will not prevent or detect this fraud?
A) Send monthly statements to all customers with balances owed.
B) Reconcile sales invoices in the billing department to the total debits to accounts receivable subsidiary ledgers.
C) Sequentially prenumber all invoices and prepare a sequence check at the end of each day.
D) Reconcile the accounts receivable control account to the accounts receivable subsidiary ledger.
Answer:
Page Ref: 350
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

66) Which of the following poses an internal control problem?
A) Physical inspection of inventory quantity and condition is outsourced to a firm that specializes in this service.
B) Products are released from inventory after a warehouse employee and a shipping clerk both sign the pick list.
C) Sales representatives have authority to increase customers’ credit limits in $1,000 increments.
D) When customer payments are received in the mail, checks are sent to the cashier’s office and remittance advices are sent to the accounts receivable department.
Answer:
Page Ref: 340
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
67) For sales returns, the least effective control to prevent fraudulent processing of a credit memo is to
A) reconcile total of credit memos to total debits posted to customers’ subsidiary ledgers.
B) require approval for each credit memo by the credit manager.
C) sequentially prenumber all credit memos and perform a sequence check at the end of each day.
D) match each credit memo with a receiving report.
Answer:
Page Ref: 352
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

68) Describe the basic revenue cycle activities.

69) Explain how validity checks, completeness tests and reasonableness tests can be implemented to ensure accuracy of customer orders.

70) Define and describe benefits of a CRM system.

71) How can Electronic Data Interchange (EDI) facilitate the billing and accounts receivable process?

72) Describe typical credit approval procedures.

73) Describe the two methods to manage accounts receivable.

74) Describe cycle billing and identify how an organization might benefit by using cycle billing.

75) Failure to collect cash on credit sales is a threat in the revenue cycle. What controls can be used to help neutralize this threat?

76) Discuss ways in which technology can be used to streamline cash collections.

77) Describe four threats in the revenue cycle and identify appropriate controls for each threat.

78) Discuss the general control issue of the loss of data, as it relates to the revenue cycle.

79) Explain how to effectively segregate duties in the sales order activity.

80) Discuss the revenue cycle threat of stockouts, carrying costs, and markdowns.

81) You have been hired by a catalog company to computerize its sales order entry process. Approximately 70% of all orders are received over the telephone by a sales person. The other 30% of orders are received by a sales person through mail or fax. The catalog company wants the phone orders processed real-time. The mail and fax orders will be processed in batches of 50 orders. The following attributes are collected for every sales order:
Customer number (if the order is from a new customer, a new number needs to be assigned)
Customer name
Address
Payment method (credit card for phone and fax orders and check for mailed orders)
Credit card number and expiration date
Items ordered and quantity of each
Unit price of each item ordered
Identify and describe at least ten specific control policies and procedures you will implement for the sales order process. Be very specific describing the controls and number each new control you suggest.

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 13 The Expenditure Cycle: Purchasing to Cash Disbursements

1) The Squishy Things Toy Company was established in 1948. It recently signed a large contract with a chain of retail toy stores. As a condition of the contract, the Squishy will be required to track and forecast product sales by linking in to the chain’s sales database. Squishy will then be responsible for shipping products to the chain’s regional warehouses as needed. The relationship between Squishy and the chain is an example of
A) vendor-managed inventory.
B) sales force automation.
C) electronic data interchange.
D) optical character recognition.
Answer:
Page Ref: 382
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

2) Requiring all packing slips be reconciled to purchase orders before accepting a delivery of inventory would be most likely to prevent which of the following situations?
A) A supplier delivers more inventory than ordered at the end of the year and sends an invoice for the total quantity delivered.
B) An employee mails a fake invoice to the company, which is then paid.
C) The inventory records are incorrectly updated when a receiving department employee enters the wrong product number on the receiving report.
D) Receiving department employees steal inventory and then claim the inventory was received and delivered to the warehouse.
Answer:
Page Ref: 386
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

3) Comparing quantities on a vendor invoice to quantities on the receiving report would not prevent or detect which of the following situations?
A) Receiving and accepting inventory not ordered
B) Theft of inventory by receiving department employees
C) Update of wrong inventory items due to data entry error
D) Order for an excessive quantity of inventory
Answer:
Page Ref: 386
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

4) Which of the following would probably be the least effective control to mitigate the risk of paying an invoice payable to a phony vendor for inventory purchases, mailed to the company by an employee attempting to commit fraud?
A) Only pay from original invoices.
B) Cancel all invoices and supporting documentation when paid.
C) Strict access and authorization controls for the approved vendor master file.
D) Require three-way match for all inventory purchase invoices.
Answer:
Page Ref: 387
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

5) Which of the following would be the least effective control to prevent paying the same vendor invoice twice?
A) Allow only the accounts payable department to authorize payment for vendor invoices and allow only the cash disbursements department to cut and mail checks to vendors.
B) Only pay from original invoices.
C) Cancel each document in the voucher package once the check is prepared and mailed.
D) Only pay vendor invoices that have been matched and reconciled to a purchase order and a receiving report.
Answer:
Page Ref: 391
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

6) To accomplish the objectives set forth in the expenditure cycle, a number of key management decisions must be addressed. Which of the decisions below is not ordinarily found as part of the expenditure cycle?
A) How can cash payments to vendors be managed to maximize cash flow?
B) What is the optimal level of inventory and supplies to carry on hand?
C) Where should inventories and supplies be held?
D) What are the optimal prices for each product or service?
Answer:
Page Ref: 372
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

7) One of the basic activities in the expenditure cycle is the receiving and storage of goods, supplies, and services. What is the counterpart of this activity in the revenue cycle?
A) sales order entry process
B) shipping function
C) cash collection activity
D) cash payments activity
Answer:
Page Ref: 373
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

8) The traditional approach to inventory management to ensure sufficient quantity on hand to maintain production is known as
A) safety stock.
B) just-in-time production.
C) economic order quantity.
D) optimal inventory quantity.
Answer:
Page Ref: 378
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

9) Economic Order Quantity (EOQ) includes several variables that must be taken into consideration when calculating the optimal order size. One variable, the costs associated with holding inventory, is referred to as
A) ordering costs.
B) carrying costs.
C) the reorder point.
D) stockout costs.
Answer:
Page Ref: 378
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
10) The need to place an order for inventory is specified by the
A) company inventory policies.
B) economic order quantity.
C) stockout point.
D) reorder point.
Answer:
Page Ref: 378
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

11) When goods are being ordered from a vendor, which electronic files are either read or updated?
A) inventory, vendors, and accounts payable
B) vendors and accounts payable
C) open purchase orders and accounts payable
D) inventory, vendors, and open purchase orders
Answer:
Page Ref: 374
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

12) What is a key feature of materials requirements planning (MRP)?
A) minimize or entirely eliminate carrying and stockout costs
B) reduce required inventory levels by scheduling production rather than estimating needs
C) determine the optimal reorder point
D) determine the optimal order size
Answer:
Page Ref: 378
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
13) Materials requirements planning (MRP)
A) reduces the uncertainty about when materials are needed, thereby reducing the need to carry large levels of inventory.
B) is able to compute exactly the cost of purchasing by taking into account all costs associated with inventory carrying.
C) requires vendors to deliver inventory to the production site exactly when needed and in the correct quantities.
D) None of the above are correct.
Answer:
Page Ref: 378
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

14) The inventory management approach that attempts to minimize, if not eliminate, carrying and stockout costs is
A) materials requirements planning.
B) economic order quantity.
C) just-in-time inventory.
D) evaluated receipt settlement.
Answer:
Page Ref: 378
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Analytic

15) What aspect below best characterizes a Just-In-Time (JIT) inventory system?
A) frequent deliveries of smaller quantities of items to the work centers
B) frequent deliveries of large quantities to be held at the work centers
C) less frequent deliveries of large quantities of goods to central receiving
D) infrequent bulk deliveries of items directly to work centers
Answer:
Page Ref: 378-379
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
16) What is the key difference between the MRP and JIT inventory management approaches?
A) Only JIT reduces costs and improves efficiency.
B) MRP is especially useful for products such as fashion apparel.
C) JIT is more effectively used with products that have predictable patterns of demand.
D) MRP schedules production to meet estimated sales needs; JIT schedules production to meet customer demands.
Answer:
Page Ref: 379
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

17) MRP will be a preferred method over JIT when the
A) demand for inventory is fairly predictable.
B) demand for inventory is mostly unpredictable.
C) product has a short life cycle.
D) MRP is always a preferred method over JIT.
Answer:
Page Ref: 379
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

18) A key decision in ordering is selecting a suitable vendor. Which of the following would not be a major criterion in vendor selection?
A) prices of goods
B) quality of goods
C) credit rating of the vendor
D) ability to deliver on time
Answer:
Page Ref: 380
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

19) Once a vendor is selected for a product, the vendor’s identity is recorded in the
A) purchase requisition transaction file.
B) purchase requisition master file.
C) inventory transaction file.
D) inventory master file.
Answer:
Page Ref: 381
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
20) A purchase order is
A) a document formally requesting a vendor to sell a certain product at a certain price.
B) a request for delivery of certain items and quantities.
C) a contract between the buyer and vendor once accepted by the vendor.
D) All of the above are true.
Answer:
Page Ref: 381
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

21) Stepanek Sales and Service provides free coffee to employees. Stepanek arranged with Ingebrigtson’s Joe to deliver as many coffee packages, sugar, creamer, and filters as needed each week. Ingebrigtson’s sends a monthly invoice for Stepanek to pay. This arrangement is best described as a
A) blanket purchase order.
B) set purchase order.
C) fixed purchase order.
D) standard purchase order.
Answer:
Page Ref: 381
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

22) A major cost in the purchasing function is the number of purchase orders processed. One technique that may reduce purchasing-related expenses is to have suppliers compete with each other to meet demand at the lowest price. This name of this technique is
A) an EDI auction.
B) a trading exchange.
C) a reverse auction.
D) a supplier consortium.
Answer:
Page Ref: 382
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

23) One of the major responsibilities of the receiving department is
A) deciding if the delivery should be accepted.
B) verifying any purchase discounts for the delivery.
C) deciding on the location where the delivery will be stored until used.
D) updating inventory subsidiary ledgers.
Answer:
Page Ref: 384
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

24) Which of the following is generally not shown on a receiving report?
A) price of the items
B) quantity of the items
C) purchase order number
D) counted and inspected by
Answer:
Page Ref: 384
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

25) A receiving clerk notes that a delivery of 10 units has been received, but the purchase order specified 12 units. A debit memo will need to be prepared to adjust for the difference between the quantity ordered and received. Who should prepare this document?
A) the receiving clerk
B) the controller
C) the vendor
D) the purchasing department manager
Answer:
Page Ref: 385
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

26) Identify in which of the following scenarios a company could adjust the balance due the vendor by issuing a debit memo.
A) quantity different from that ordered
B) damage to the goods
C) goods that fail inspection for quality
D) All of the above are possible scenarios.
Answer:
Page Ref: 385
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

27) What is one of the best ways to improve the overall efficiency and effectiveness of the receipt and storage of ordered items?
A) requiring all suppliers to have the carrier verify quantities and item numbers before shipment
B) requiring all suppliers to include RFID tags on their items
C) requiring all suppliers to use EDI to expedite the receiving department function
D) requiring all delivery trucks to have satellite data terminals to expedite the receiving department function
Answer:
Page Ref: 385
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

28) Vendor invoices are approved by the ________, which reports to the ________.
A) purchasing department; controller
B) accounts payable department; treasurer
C) purchasing department; treasurer
D) accounts payable department; controller
Answer:
Page Ref: 387
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

29) The disbursement voucher and supporting documents are sent to the ________ for payment prior to the due date.
A) cashier
B) treasurer
C) controller
D) accounts payable department
Answer:
Page Ref: 390
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
30) A(n) ________ system posts an approved invoice to the vendor account and stores it in an open invoice file until payment is made by check.
A) nonvoucher
B) voucher
C) cycle
D) evaluated receipt settlement
Answer:
Page Ref: 387
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

31) A disbursement voucher contains
A) a list of outstanding invoices.
B) the net payment amount after deducting applicable discounts and allowances.
C) the general ledger accounts to be debited.
D) All of the above are correct.
Answer:
Page Ref: 387
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

32) One objective of accounts payable is to authorize payment only for goods or services actually ordered and received. The best way to process supplier invoices is to use
A) electronic funds transfer for small, occasional purchases from suppliers.
B) a nonvoucher system.
C) EDI for all small, occasional purchases from suppliers.
D) a disbursement voucher system.
Answer:
Page Ref: 387
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
33) What is not an advantage of using disbursement vouchers?
A) Disbursement vouchers reduce the number of checks written.
B) Disbursement vouchers can be prenumbered which simplifies the tracking of all payables.
C) Disbursement vouchers facilitate separating the time of invoice approval from the time of invoice payment.
D) There are no disadvantages to using disbursement vouchers.
Answer:
Page Ref: 387
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

34) Which of the following is not an advantage of a voucher system?
A) Several invoices may be included on one voucher, reducing the number of checks.
B) Disbursement vouchers may be pre-numbered and tracked through the system.
C) The time of voucher approval and payment can be kept separate.
D) It is a less expensive and easier system to administer than other systems.
Answer:
Page Ref: 387
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

35) Duties in the expenditure cycle should be properly segregated to promote internal control. This means that the authorization function is performed by ________, the recording function is performed by ________, and cash handling is performed by the ________.
A) accounts payable; purchasing; cashier
B) purchasing; accounts payable; cashier
C) purchasing; cashier; accounts payable
D) purchasing; accounts payable; treasurer
Answer:
Page Ref: 375
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
36) A voucher package should include
A) a purchase requisition, vendor invoice, and receiving report.
B) a purchase order, vendor invoice, and receiving report.
C) a purchase requisition, purchase order, and receiving report.
D) a bill of lading and vendor invoice.
Answer:
Page Ref: 387
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

37) Evaluated receipt settlement (ERS) approves payment of vendor invoices after reconciling the purchase order and the
A) vendor invoice.
B) sales invoice.
C) receiving report.
D) disbursement voucher.
Answer:
Page Ref: 388
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

38) All of the following are opportunities to improve efficiency of the accounts payable function except
A) use blanket purchase orders.
B) convert a manual AIS system to EDI and EFT.
C) streamline noninventory purchases.
D) use evaluated receipt settlement.
Answer:
Page Ref: 387-388
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

39) When purchasing miscellaneous supplies, companies can reduce costs, improve efficiency, and combat employee fraud by
A) using procurement cards.
B) implementing a JIT inventory system.
C) requiring employees to personally purchase items then reimbursing employees at the end of each month.
D) paying amounts out of petty cash.
Answer:
Page Ref: 389
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

40) If available, a 1% discount for payment within 10 days instead of 30 days represents an approximate savings of ________ % annually.
A) 1
B) 12
C) 18
D) 36
Answer:
Page Ref: 390
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

41) What is the best control to mitigate the threat of paying prices that are too high for goods ordered?
A) require the receiving department to verify the existence of a valid purchase order
B) use only approved suppliers and solicit competitive bids
C) only pay invoices that are supported by the original voucher package
D) use bar-code technology to eliminate data entry errors
Answer:
Page Ref: 382
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
42) What is probably the most effective control for the prevention of kickbacks to purchasing agents?
A) purchasing from approved vendors
B) diligent supervision in the purchasing department
C) a corporate policy to prohibit purchasing agents from accepting kickbacks
D) reviews of vendor performance
Answer:
Page Ref: 383
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

43) One of the threats associated with the process and activity of receiving and storing goods is
A) errors in counting.
B) kickbacks.
C) requests for unnecessary items.
D) errors in vendor invoices.
Answer:
Page Ref: 385
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

44) What is the best way to prevent the acceptance of unordered goods?
A) Order only from approved vendors.
B) Match the packing slip to a purchase order before accepting delivery.
C) Enforce an appropriate conflict of interest policy in place.
D) Require specific authorization from the purchasing manager before accepting any goods.
Answer:
Page Ref: 386
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

45) Which of the following is not a common control for ensuring inventory is secure and inventory counts are accurate?
A) control of physical access to the inventory storage areas
B) transfers of inventory with proper documentation
C) sending “blind” copies of purchase orders to inventory control for data entry
D) making physical counts of inventory at least once per year
Answer:
Page Ref: 376
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
46) Double-checking the accuracy of an invoice is a control that can help to neutralize a threat in the expenditure cycle. What activity would specifically be associated with this control?
A) ordering goods
B) receiving and storing goods
C) paying for goods and services
D) requesting goods be ordered
Answer:
Page Ref: 389
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

47) What control would best mitigate the threat of paying an invoice twice?
A) never authorize payment of a photocopy of an invoice
B) double-check mathematical accuracy of invoices
C) approval of purchase orders
D) maintaining adequate perpetual inventory records
Answer:
Page Ref: 391
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

48) Which control would best prevent payments made to fictitious vendors?
A) Allow payments only to approved vendors.
B) Restrict access to any payment or approval documents.
C) Have an independent bank reconciliation.
D) Make sure all documents are in order before approving payments.
Answer:
Page Ref: 392
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

49) In the expenditure cycle, good control dictates that expenditures should be paid by check. This may not be feasible when minor purchases are made. To facilitate quick payment for minor purchases, a(n) ________ should be set up and maintained using ________.
A) special bank account; disbursement vouchers
B) imprest fund; vouchers
C) cash box; small denomination bills
D) petty cash fund; procurement cards
Answer:
Page Ref: 392
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
50) A surprise count of an imprest petty cash fund should find the total of ________ equal to the amount authorized for the fund.
A) cash and credit memos
B) cash and vouchers
C) cash
D) cash and checks
Answer:
Page Ref: 392
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

51) What control should be put in place that assigns responsibility for EFT payments made to vendors?
A) Encrypt all EFT transmissions.
B) Time stamp all EFT transactions.
C) Establish a control group to monitor EFT transactions for validity and accuracy.
D) Number all EFT transactions.
Answer:
Page Ref: 391
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

52) Which of the following threats is not specific to the purchase requisition process of the expenditure cycle?
A) stockouts
B) purchasing from unauthorized vendors
C) requisitioning goods not needed
D) All of the above are threats in the purchase requisition process.
Answer:
Page Ref: 380
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
53) There is a symmetrical interdependence between a firm’s expenditure cycle and its suppliers’
A) production cycle.
B) revenue cycle.
C) expenditure cycle.
D) general ledger and reporting system.
Answer:
Page Ref: 372
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

54) The Squishy Things Toy Company was established in 1948. It recently signed a large contract with a chain of retail toy stores. As a condition of the contract, the Squishy will be required to track and forecast product sales by linking in to the chain’s sales database. Squishy will then be responsible for shipping products to the chain’s regional warehouses as needed. The technology that is used for communication between Squishy and the chain is
A) vendor-managed inventory.
B) sales force automation.
C) electronic data interchange.
D) optical character recognition.
Answer:
Page Ref: 372
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

55) The management at Sad Clown Pajamas, an Internet-based wholesaler, is considering a new inventory control system. The current system is inadequate because it results in stockouts that interrupt production and excess stocks of some materials that result in markdowns and high carrying costs. The new system, which will focus on ensuring that the amounts purchased minimize these costs, will employ
A) a just-in-time inventory system.
B) the economic order quantity.
C) a reorder point.
D) materials requirements planning.
Answer:
Page Ref: 378
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking
56) The management at Sad Clown Pajamas, an Internet-based wholesaler, is considering a new inventory control system. The current system is inadequate because it results in stockouts that interrupt production and excess stocks of some materials that result in markdowns and high carrying costs. The new system, which will focus on ensuring that orders are placed with sufficient lead time to prevent stockouts, will employ
A) a just-in-time inventory system.
B) the economic order quantity.
C) a reorder point.
D) materials requirements planning.
Answer:
Page Ref: 378
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

57) The management at Sad Clown Pajamas, an Internet-based wholesaler, is considering a new inventory control system. The current system is inadequate because it results in stockouts that interrupt production and excess stocks of some materials that result in markdowns and high carrying costs. The new system, which will focus on forecasting demand for Sad Clown’s products, will employ
A) a just-in-time inventory system.
B) the economic order quantity.
C) a reorder point.
D) materials requirements planning.
Answer:
Page Ref: 378
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

58) The management at Sad Clown Pajamas, an Internet-based wholesaler, is considering a new inventory control system. The current system is inadequate because it results in stockouts that interrupt production and excess stocks of some materials that result in markdowns and high carrying costs. The new system, which will focus on reducing or completely eliminating carrying costs, will employ
A) a just-in-time inventory system.
B) the economic order quantity.
C) a reorder point.
D) materials requirements planning.
Answer:
Page Ref: 378
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking
59) Bob Chum is the sales manager at Folding Squid Technologies. At lunch with the company CEO, he proudly announced that he had negotiated a(n) ________ with a client that defined a long-term commitment to buy components from Folding Squid.
A) purchase order
B) blanket purchase order
C) evaluated receipt settlement
D) voucher
Answer:
Page Ref: 381
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

60) Bob Chum is the sales manager at Folding Squid Technologies. At lunch with the company CEO, he proudly announced that he had received a ________ from a client to buy a large quantity of components from Folding Squid.
A) purchase order
B) blanket purchase order
C) voucher
D) purchase requisition
Answer:
Page Ref: 381
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

61) Bob Chum is the sales manager at Folding Squid Technologies. At lunch with the company CEO, he complained that a recent shipment from a vendor had been unsatisfactory and so had to be returned. That required the purchasing manager to send a ________ to the supplier.
A) purchase order
B) blanket purchase order
C) receiving report
D) debit memo
Answer:
Page Ref: 385
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
62) To minimize the number of checks that need to be written to pay vendor invoices a company should use a
A) voucher system.
B) just-in-time inventory system.
C) nonvoucher system.
D) evaluated receipt settlement system.
Answer:
Page Ref: 387
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

63) Evaluated receipt settlement increases efficiency by
A) eliminating the need for receiving reports.
B) eliminating the need for vendor invoices.
C) eliminating the need for purchase orders.
D) eliminating the need to prepare and mail checks.
Answer:
Page Ref: 388
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

64) In the expenditure cycle, Financial Electronic Data Interchange (FEDI) increases efficiency by
A) eliminating the need for receiving reports.
B) eliminating the need for vendor invoices.
C) eliminating the need for purchase orders.
D) eliminating the need to prepare and mail checks.
Answer:
Page Ref: 390
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

65) Procurement cards differ from corporate credit cards in which of the following ways?
A) Credit limits can be set for procurement cards, but not corporate credit cards.
B) Credit cards can be used to make purchases without an explicit sign off by supervisors, but procurement cards require a sign off.
C) Procurement cards can only be used with approved vendors, but credit cards can be used anywhere.
D) Procurement card invoices are sent separately for each card, whereas corporate credit cards are consolidated into a single invoice.
Answer:
Page Ref: 389
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

66) The purchasing manager at Folding Squid Technologies has responsibility for reviewing and authorizing purchase orders. He also reviews receiving reports, approves or corrects them, and authorizes the cashier to pay vendor invoices. Which of the following would correct control weaknesses, if any, related to these activities?
A) Vendor invoices should be reviewed by the purchasing manager to ensure that they are correct.
B) Accounts payable should reconcile purchase orders, receiving reports, and invoices.
C) Vendor invoices should be reviewed by accounts receivable and then cancelled when paid.
D) Controls are adequate under the current system.
Answer:
Page Ref: 387
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

67) The purchasing manager at Folding Squid Technologies has responsibility for reviewing and authorizing purchase orders. Receiving reports are prepared by shipping and receiving based on the relevant purchase order(s). Purchase orders, receiving reports, and vendor invoices are reconciled by accounts payable, which authorizes payment. Which of the following would correct control weaknesses, if any, related to these activities?
A) Vendor invoices should be reviewed by the purchasing manager to ensure that they are correct.
B) Accounts payable should authorize purchase orders.
C) Receiving reports should be reviewed and corrected by the purchasing manager.
D) Controls are adequate under the current system.
Answer:
Page Ref: 387
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

68) The receiving clerk at Folding Squid Technologies examines incoming shipments and reconciles their contents with the relevant purchase orders. A receiving report is then sent to accounts receivable and the vendor’s invoice is approved for payment. Which of the following would correct control weaknesses, if any, related to these activities?
A) The invoice should be approved for payment by the shipping clerk after the purchase order and receiving report are reconciled.
B) Accounts payable should reconcile the purchase order and the receiving report.
C) Invoices, purchase orders, and receiving reports should be reconciled by the receiving clerk.
D) Controls are adequate under the current system.
Answer:
Page Ref: 387
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

69) The receiving clerk at Folding Squid Technologies examines incoming shipments and checks their purchase order numbers. A receiving report is then sent to accounts payable, where it is reconciled with the relevant purchase orders and invoices and payment is authorized. Which of the following would correct control weaknesses, if any, related to these activities?
A) Vendor invoices should be approved for payment by the shipping clerk after the purchase order and receiving report are reconciled.
B) Vendor invoices should be approved for payment by the purchasing manager.
C) Purchase orders and receiving reports should be reconciled by the purchasing manager.
D) Controls are adequate under the current system.
Answer:
Page Ref: 387
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

70) Which of the controls below would be least effective to prevent ordering goods at higher than market prices?
A) Variance analysis of actual expenses to budgeted expenses
B) For high-dollar goods, solicit competitive bids from possible vendors
C) Only place orders with vendors on an approved vendor list
D) Frequent review of, and update to, vendor price lists stored in the AIS
Answer:
Page Ref: 382
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

71) The document below would be known as what by Alpha Omega Electronics?

A) Receiving report
B) Purchase order
C) Purchase requisition
D) Packing slip
Answer:
Page Ref: 384
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

72) Which of the following would be the best control to prevent receiving department employees from stealing inventory and claiming the ordered quantity wasn’t received from the vendor?
A) Reconcile quantity on packing slip to physical count when accepting delivery.
B) Restrict physical access to the receiving area.
C) Require all deliveries be made at the receiving area.
D) Require dual signatures on the move ticket when receiving delivers the inventory to the warehouse.
Answer:
Page Ref: 386
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

73) Define and describe the EOQ approach to inventory management.

74) Discuss the differences between EOQ, MRP, and JIT.

75) a) What is the major cost driver in the purchasing function? b) Describe how information technology can be used to control this cost driver.

76) Explain what is meant by the expenditure cycle as a “mirror image” of the revenue cycle.

77) Identify possible problems associated with receiving goods and appropriate actions in response to the problems.

78) How can information technology be used to improve the vendor invoice approval process?

79) Under what conditions is MRP more suitable than JIT and vice versa?

80) In the expenditure cycle, the majority of payments made are by check. What are some control issues related to payment of vendors by check?

81) Identify ten threats and applicable control procedures in the expenditure cycle.

82) What types of decision-making and strategic information should the AIS provide in the expenditure cycle?

83) How can using RFID tags or bar codes on goods or products provide significant benefit in the expenditure cycle?

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 14 The Production Cycle

1) The AIS compiles and feeds information among the business cycles. What is the relationship between the revenue and production cycles regarding the exchange of information?
A) The revenue cycle provides sales forecast and customer order information to the production cycle, but the production cycle sends information back to revenue about finished goods production.
B) The revenue cycle receives information from the production cycle about raw materials needs.
C) The production cycle sends cost of goods manufactured information back to the revenue cycle.
D) The production cycle does not exchange information with the revenue cycle.
Answer:
Page Ref: 406
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

2) Which of the following is a key feature of materials requirements planning (MRP-II)?
A) Reducing required inventory levels by scheduling production, rather than estimating needs
B) Minimizing or eliminating carrying and stockout costs
C) Determining the optimal reorder points for all materials
D) Determining economic order quantity for all materials
Answer:
Page Ref: 411
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

3) The production cycle is different than the revenue and expenditure cycles for all the following reasons except
A) there are no direct external data sources or destinations.
B) cost accounting is involved in all activities.
C) not all organizations have a production cycle.
D) very little technology exists to make activities more efficient.
Answer:
Page Ref: 406
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking
4) An MRP inventory system reduces inventory levels by
A) reducing the uncertainty about when materials are needed.
B) computing exact costs of purchasing and carrying inventory.
C) delivering materials to the production floor exactly when needed and in exact quantities.
D) none of the above
Answer:
Page Ref: 411
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

5) Which of the following is not a product design objective?
A) Design a product that meets customer requirements.
B) Design a quality product.
C) Minimize production costs.
D) Make the design easy to track for cost accounting purposes.
Answer:
Page Ref: 409
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

6) The operations list shows
A) the labor and machine requirements.
B) the steps and operations in the production cycle.
C) the time expected to complete each step or operation.
D) all of the above
Answer:
Page Ref: 410
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

7) Push manufacturing is officially known as
A) manufacturing resource planning (MRP).
B) just-in-time manufacturing system (JIT).
C) the economic order quantity (EOQ) system.
D) ahead-of-time production implementation (ATPI).
Answer:
Page Ref: 411
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
8) Pull manufacturing is officially known as
A) manufacturing resource planning (MRP).
B) just-in-time manufacturing system (JIT).
C) the economic order quantity (EOQ) system.
D) ahead-of-time production implementation (ATPI).
Answer:
Page Ref: 411
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

9) What is the main difference between MRP-II and JIT manufacturing systems?
A) The length of the planning horizon.
B) JIT uses long-term customer demand for planning purposes, but MRP-II uses short-term customer demand for planning purposes.
C) MRP-II relies on EDI, but JIT does not.
D) There are no significant differences between MRP-II and JIT.
Answer:
Page Ref: 411
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

10) A master production schedule is used to develop detailed
A) timetables of daily production and determine raw material needs.
B) reports on daily production and material usage.
C) daily reports on direct labor needs.
D) inventory charts.
Answer:
Page Ref: 412
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

11) The production cycle document that specifies the quantity of each product to be produced and when production should begin is the
A) bill of materials.
B) bill of lading.
C) master production schedule.
D) operations list.
Answer:
Page Ref: 412
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
12) What information is necessary to create the master production schedule?
A) engineering department specifications and inventory levels
B) engineering department specifications and sales forecasts
C) special orders information and engineering department specifications
D) sales forecasts, special orders information, and inventory levels
Answer:
Page Ref: 412
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

13) The document that authorizes the transfer of raw materials from the storeroom to the production floor is referred to as
A) a bill of materials.
B) a production order.
C) a materials requisition.
D) a move ticket.
Answer:
Page Ref: 412
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

14) ______ is an efficient way to track and process information about raw materials used in production.
A) A just-in-time inventory system
B) Identifying materials with bar codes or RFID tags
C) A materials resources planning inventory system
D) Job-order costing
Answer:
Page Ref: 414
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

15) The use of various forms of information technology in the production process is referred to as
A) computerized investments and machines.
B) computerized integration of machines.
C) computer-integrated manufacturing.
D) computer intense manufacturing.
Answer:
Page Ref: 416
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
16) Using technology such as robots and computer-controlled machinery to shift from mass production to custom order manufacturing is referred to as
A) computer integrated manufacturing (CIM).
B) lean manufacturing.
C) Six Sigma.
D) computer-aided design (CAD).
Answer:
Page Ref: 416
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

17) Which objective listed below is not a cost accounting objective for the production cycle?
A) provide information for planning, controlling, and evaluating the performance of production operations
B) provide cost data about products used in pricing and product mix decisions
C) collect and process the information used to calculate inventory and cost of goods sold amounts that appear in the financial statements
D) provide tests of audit control functions as part of the AIS
Answer:
Page Ref: 418
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

18) Which type of information below should not be maintained by the AIS in accounting for fixed assets?
A) identification/serial number
B) cost
C) improvements
D) market value
Answer:
Page Ref: 417
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
19) Direct labor must be tracked and accounted for as part of the production process. Traditionally, direct labor was tracked using ________ but an AIS enhancement is to use ________ to record and track direct labor costs.
A) job-time tickets; coded identification cards
B) move tickets; coded identification cards
C) employee earnings records; job-time tickets
D) time cards; electronic time entry terminals
Answer:
Page Ref: 419
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

20) Detailed data about reasons for warranty and repair costs is considered an applicable control used to mitigate the threat of
A) underproduction.
B) overproduction.
C) poor product design.
D) suboptimal investment of fixed assets.
Answer:
Page Ref: 410
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

21) For replacement of inventories and assets destroyed by fire or other disasters, an organization needs
A) stand-by facilities.
B) adequate insurance coverage.
C) source data automation.
D) All of the above are correct.
Answer:
Page Ref: 417
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Reflective Thinking
22) Overproduction or underproduction can be a threat to an organization. To which process or activity does this threat relate?
A) product design
B) planning and scheduling
C) production operations
D) cost accounting
Answer:
Page Ref: 415
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

23) What specific control can help restrict the rights of authorized users to only the portion of a database needed to complete their specific job duties?
A) an access control matrix
B) passwords and user IDs
C) closed-loop verification
D) specific authorization
Answer:
Page Ref: 408
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

24) To reduce the threat of theft or destruction of inventories and other fixed assets, the organization may wish to implement which of the following controls?
A) review and approval of fixed asset acquisitions
B) improved and more timely reporting
C) better production and planning systems
D) document all movement of inventory through the production process
Answer:
Page Ref: 416
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

25) The best control procedure for accurate data entry is
A) the use of on-line terminals.
B) an access control matrix.
C) passwords and user IDs.
D) automation of data collection.
Answer:
Page Ref: 409
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
26) Which of the following organization controls should be implemented and maintained to counteract the general threat that the loss of production data will greatly slow or halt production activity?
A) Store key master inventory and production order files on-site only to prevent their theft.
B) Back up data files only after a production run has been physically completed.
C) Access controls should apply to all terminals within the organization.
D) Allow access to inventory records from any terminal within the organization to provide efficient data entry.
Answer:
Page Ref: 420
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

27) The threat of loss of data exposes the company to
A) the loss of assets.
B) ineffective decision making.
C) inefficient manufacturing.
D) All of the above are correct.
Answer:
Page Ref: 409
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

28) What is the primary drawback to using a volume-driven base, such as direct labor or machine hours, to apply overhead to products in a traditional cost accounting system?
A) The cost accountant may not fully understand how to track direct labor or machine hours.
B) It is difficult for an AIS to incorporate such a measurement into its system.
C) It is difficult for an ERP to incorporate such a measurement into its integrated system.
D) Many overhead costs are incorrectly allocated to products since they do not vary with production volume.
Answer:
Page Ref: 420
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

29) ________ identifies costs with the corporation’s strategy for production of goods and services.
A) Activity-based costing
B) Job-order costing
C) Process costing
D) Manufacturing costing
Answer:
Page Ref: 420
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

30) In an Activity-Based Costing (ABC) system, a cause-and-effect relationship is known as a
A) cost stimulator.
B) overhead stimulator.
C) cost driver.
D) cost catalyst.
Answer:
Page Ref: 421
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

31) What does the first term in the throughput formula, productive capacity, represent?
A) the maximum number of units that can be produced given current technology
B) the percentage of total production time used to manufacture a product
C) the percentage of “good” units produced given current technology
D) the percentage of “bad” units produced given current technology
Answer:
Page Ref: 423
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

32) ________ are incurred to ensure that products are created without defects the first time.
A) External failure costs
B) Inspection costs
C) Internal failure costs
D) Prevention costs
Answer:
Page Ref: 423
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

33) ________ are associated with testing to ensure that products meet quality standards.
A) External failure costs
B) Inspection costs
C) Internal failure costs
D) Prevention costs
Answer:
Page Ref: 423
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

34) The cost of a product liability claim can be classified as a(n)
A) prevention cost.
B) inspection cost.
C) internal failure cost.
D) external failure cost.
Answer:
Page Ref: 423
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

35) Dolly Salem owns and operates a bakery in Charleston, South Carolina. She maintains a file of recipes that list the ingredients used to make her famous cakes and cookies. These recipes are examples of a(an)
A) bill of materials.
B) operations list.
C) production order.
D) materials requisition.
Answer:
Page Ref: 410
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
36) Dolly Salem owns and operates a bakery in Charleston, South Carolina. She maintains a file that lists the sequence of procedures required to make each of her famous cakes and cookies. These instructions are examples of a(an)
A) bill of materials.
B) operations list.
C) production order.
D) materials requisition.
Answer:
Page Ref: 410
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

37) Dolly Salem owns and operates a bakery in Charleston, South Carolina. Each morning she prepares a list that describes the quantity and variety of cakes and cookies that will be prepared during the day. This list is an example of a(an)
A) bill of materials.
B) operations list.
C) production order.
D) materials requisition.
Answer:
Page Ref: 412
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

38) Dolly Salem owns and operates a bakery in Charleston, South Carolina. Each afternoon, she prepares a shopping list that describes the quantity and variety of ingredients that she will purchase in the evening from a local food wholesaler. The shopping list is an example of a(an)
A) bill of materials.
B) operations list.
C) production order.
D) materials requisition.
Answer:
Page Ref: 412
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking
39) Wee Bee Trucking determines the cost per delivery by summing the average cost of loading, unloading, transporting, and maintenance. This is an example of ________ costing.
A) job-order
B) unit-based
C) activity-based
D) process
Answer:
Page Ref: 418
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

40) Wee Bee Trucking determines the cost per delivery by averaging total cost over number of deliveries. This is an example of ________ costing.
A) job-order
B) unit-based
C) activity-based
D) process
Answer:
Page Ref: 418
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

41) Wee Bee Trucking determines the cost per delivery by identifying variables as cost drivers, and allocating overhead accordingly. This is an example of ________ costing.
A) job-order
B) unit-based
C) activity-based
D) process
Answer:
Page Ref: 420
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
42) In activity-based costing, expenses associated with the purchase of health care insurance for employees are ________ overhead.
A) batch-related
B) product-related
C) companywide
D) expenditure-based
Answer:
Page Ref: 421
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

43) In activity-based costing, the expenses associated with planning and design of new products are ________ overhead.
A) batch-related
B) product-related
C) companywide
D) expenditure-based
Answer:
Page Ref: 421
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

44) At the end of each production run, preventive maintenance is done on the assembly line. The expenses associated with this maintenance are ________ overhead.
A) batch-related
B) product-related
C) companywide
D) department-based
Answer:
Page Ref: 420
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

45) Which of the following is not a benefit of activity-based costing?
A) Lower cost
B) Better decisions
C) Improved cost management
D) Identification of cost drivers
Answer:
Page Ref: 421
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
46) The expenses associated with a product recall are ________ costs.
A) prevention
B) inspection
C) internal failure
D) external failure
Answer:
Page Ref: 423
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

47) The expenses associated with quality assurance activities are ________ costs.
A) prevention
B) inspection
C) internal failure
D) external failure
Answer:
Page Ref: 423
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

48) The expenses associated with the use of clean rooms in the production of computer hard drives are ________ costs.
A) prevention
B) inspection
C) internal failure
D) external failure
Answer:
Page Ref: 423
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

49) The expenses associated with disposal of defective products are ________ costs.
A) prevention
B) inspection
C) internal failure
D) external failure
Answer:
Page Ref: 423
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
50) Labor productivity is measured by the quantity produced divided by the labor time required to produce it. All other things held constant, an increase in labor productivity will increase throughput by
A) increasing productive capacity.
B) increasing productive processing time.
C) increasing yield.
D) increasing all components of throughput.
Answer:
Page Ref: 423
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

51) In addition to identifying and dealing with defective products before they reach customers, quality management is concerned with initiating process changes that will reduce the number of defective units produced. All other things held constant, a decrease in the number of defective units will increase throughput by
A) increasing productive capacity.
B) increasing productive processing time.
C) increasing yield.
D) increasing all components of throughput.
Answer:
Page Ref: 423
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

52) Folding Squid Technologies has installed a new production monitoring system that is expected to reduce system breakdowns by 28%. This system will increase throughput by
A) increasing productive capacity.
B) increasing productive processing time.
C) increasing yield.
D) increasing all components of throughput.
Answer:
Page Ref: 423
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

53) Clint Smith operates a machine shop in Burbank, California. He places bids on small lot production projects submitted by firms throughout the Los Angeles area. Which of the following is most likely to be a cost driver for the allocation of utility costs?
A) Number of units produced
B) Number of labor hours
C) Number of projects completed
D) Sales revenue
Answer:
Page Ref: 421
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Reflective Thinking

54) Folding Squid Technologies initiated a just-in-time inventory system in 2010. Now the production manager, Chan Ziaou, wants to apply the same principles to the entire production process. His recommendation is for the company adopt a
A) lean manufacturing system.
B) master production scheduling system.
C) manufacturing resource planning system.
D) computer-integrated manufacturing system.
Answer:
Page Ref: 411
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
55) This document appears to be a

A) Materials Requisition.
B) Production Order.
C) Bill of Materials.
D) Move Ticket between production and warehouse functions.
Answer:
Page Ref: 412
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

56) How many side panels should the company budget for use in week two?

Bill of Materials
Finished Product: DVD Player
Part Number
105
125
148
155
173
195
199 Description
Control Unit
Back Panel
Side Panel
Top/Bottom Panel
Timer
Front Panel
Screw Quantity
1
1
2
2
1
1
6

Operations List for: Create Side Panel
Operation Number
105
106
124
142
155 Description
Cut to shape
Corner cut
Turn and shape
Finish
Paint Machine Number
ML15-12
ML15-9
S28-17
F54-5
P89-1 Standard Time (m:s)
2:00
3:15
4:00
7:10
9:30

57) How many labor hours should the company budget in week three to produce all side panels needed? Round to the nearest hour, if necessary.

Bill of Materials
Finished Product: DVD Player
Part Number
105
125
148
155
173
195
199 Description
Control Unit
Back Panel
Side Panel
Top/Bottom Panel
Timer
Front Panel
Screw Quantity
1
1
2
2
1
1
6

Operations List for: Create Side Panel
Operation Number
105
106
124
142
155 Description
Cut to shape
Corner cut
Turn and shape
Finish
Paint Machine Number
ML15-12
ML15-9
S28-17
F54-5
P89-1 Standard Time (m:s)
2:00
3:15
4:00
7:10
9:30

58) Identify and discuss the two documents that are the result of product design activities.

59) Explain what CIM means and its benefits.

60) What types of data are accumulated by cost accounting? What is the accountant’s role in cost accounting?

61) What role does the AIS play in the production cycle?

62) Discuss the role the accountant can play in the production cycle.

63) Identify and discuss the two common methods of production planning.

64) What are the two major types of cost accounting systems and what are the differences between the two?

65) Describe five threats in the production cycle and the applicable control procedures used to mitigate each threat.

66) Discuss two measures that can address the threats of inefficiencies and quality controls problems.

67) Discuss the criticisms of traditional cost accounting methods.

68) What is activity-based costing (ABC)? How does it compare with the traditional costing methods? What are the benefits of activity-based costing?

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 15 The Human Resources Management and Payroll Cycle

1) Which activity below is not performed by the HRM?
A) compensation
B) training
C) discharge
D) recruitment and hiring
Answer:
Page Ref: 435
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

2) The sales department administrative assistant has been assigning phone order sales to her brother-in-law, a company sales person. Company policy is to pay commissions only on orders directly received by sales people, not on orders received over the phone. The resulting fraudulent commission payments might best have been prevented by requiring that
A) sales commission statements be supported by sales order forms signed by the customer and approved by the sales manager.
B) sales order forms be prenumbered and accounted for by the sales department manager.
C) sales orders and commission statements be approved by the accounting department.
D) disbursement vouchers for commission payments be reviewed by the internal audit department and compared to sales commission statements and sales orders.
Answer:
Page Ref: 443
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

3) Which department should have the sole ability to provide information to the AIS about hiring, terminations, and pay rate changes?
A) payroll
B) timekeeping
C) production
D) HRM
Answer:
Page Ref: 436
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
4) Which of the following is not one of the major sources of input to the payroll system?
A) payroll rate changes
B) time and attendance data
C) checks to insurance and benefits providers
D) withholdings and deduction requests from employees
Answer:
Page Ref: 441
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

5) In the payroll system, checks are issued to
A) employees and to banks participating in direct deposit.
B) a company payroll bank account.
C) government agencies.
D) All of the above are correct.
Answer:
Page Ref: 441
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

6) Experts estimate that on average the costs associated with replacing an employee are about ________ that of the employee’s annual salary.
A) one-quarter
B) one-half
C) one and one-half
D) twice
Answer:
Page Ref: 438
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

7) For recording time spent on specific work projects, manufacturing companies usually use a
A) job time ticket.
B) time card.
C) time clock.
D) labor time card.
Answer:
Page Ref: 443
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

8) Regarding the use of incentives, commissions and bonuses in payroll, which of the following statements is false?
A) Using incentives, commissions, and bonuses requires linking the payroll system and the information systems of sales and other cycles in order to collect the data used to calculate bonuses.
B) Bonus/incentive schemes must be properly designed with realistic, attainable goals that can be objectively measured.
C) Incentive schemes can result in undesirable behavior.
D) All of the above are true.
Answer:
Page Ref: 443
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

9) What is not a desired result of an employee bonus/incentive system?
A) Employees may recommend unnecessary services to customers in order to exceed set sales quotas and earn a bonus.
B) Employees may look for ways to improve service.
C) Employees may analyze their work environment and find ways to cut costs.
D) Employees may work harder and may be more motivated to exceed target goals to earn a bonus.
Answer:
Page Ref: 444
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

10) These are used to transmit time and attendance data directly to the payroll processing system.
A) Badge readers
B) Electronic time clocks
C) Magnetic cards
D) none of the above
Answer:
Page Ref: 444
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
11) Payroll deductions fall into the broad categories of ________ and ________.
A) payroll tax withholdings; voluntary deductions
B) unemployment; social security taxes
C) unemployment taxes; income taxes
D) voluntary deductions; income taxes
Answer:
Page Ref: 447
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

12) Which of the following deductions is not classified as a voluntary deduction?
A) pension plan contributions
B) social security withholdings
C) insurance premiums
D) deductions for a charity organization
Answer:
Page Ref: 447
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

13) Which type of payroll report contains information such as the employees’ gross pay, payroll deductions, and net pay in a multicolumn format?
A) payroll register
B) deduction register
C) employee earnings statement
D) federal W-4 form
Answer:
Page Ref: 447
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

14) Which type of payroll report lists the voluntary deductions for each employee?
A) payroll register
B) deduction register
C) earnings statement
D) federal W-4 form
Answer:
Page Ref: 447
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
15) Which type of payroll report includes the details of the current paycheck and deductions as well as year-to-date totals?
A) payroll register
B) deduction register
C) earnings statement
D) federal W-4 form
Answer:
Page Ref: 447
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

16) Why is a separate payroll account used to clear payroll checks?
A) for internal control purposes to help limit any exposure to loss by the company
B) to make bank reconciliation easier
C) banks don’t like to commingle payroll and expense checks
D) All of the above are correct.
Answer:
Page Ref: 450
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

17) One good way to eliminate paper paychecks is to
A) pay in cash only.
B) pay with money orders.
C) use direct deposit.
D) use Electronic Funds Transfer.
Answer:
Page Ref: 449
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

18) What step can be taken to reduce the distribution of fraudulent paychecks?
A) have internal audit investigate unclaimed paychecks
B) allow department managers to investigate unclaimed paychecks
C) immediately mark “void” across all unclaimed paychecks
D) match up all paychecks with time cards
Answer:
Page Ref: 450
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
19) Companies that specialize in processing payroll are known as
A) paycheck distribution companies.
B) payroll service bureaus.
C) professional employer organizations.
D) semi-governmental organizations.
Answer:
Page Ref: 451
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

20) This organization provides payroll processing as well as other HRM services, such as employee benefit design and administration.
A) Cashier
B) Payroll service bureau
C) Professional employer organization
D) Paycheck distribution companies
Answer:
Page Ref: 451
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

21) Which of the following is not a benefit of using a payroll service bureau or a professional employer organization?
A) Freeing up of computer resources
B) Increased internal control
C) Reduced costs
D) Wider range of benefits
Answer:
Page Ref: 452
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
22) Many companies offer their employees a “cafeteria” approach to voluntary benefits in which employees can pick and choose the benefits they want. This plan is normally called a(n)
A) elective plan.
B) menu options benefit plan.
C) flexible benefit plan.
D) buffet plan.
Answer:
Page Ref: 451
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

23) Pay rate information is stored in
A) employees’ personnel files.
B) employee subsidiary ledgers.
C) the payroll master file.
D) electronic time cards.
Answer:
Page Ref: 442
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

24) The payroll transaction file would contain
A) entries to add new hires.
B) time card data.
C) changes in tax rates.
D) All of the above are correct.
Answer:
Page Ref: 443
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

25) The document that lists each employee’s gross pay, payroll deductions, and net pay in a multicolumn format is called
A) an employee earnings statement.
B) the payroll register.
C) a deduction register.
D) an employee time sheet summary.
Answer:
Page Ref: 447
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
26) As the payroll system processes each payroll transaction, the system should also perform which activity listed below?
A) allocate labor costs to appropriate general ledger accounts
B) use cumulative totals generated from a payroll to create a summary journal entry to be posted to the general ledger
C) both A and B above
D) The HRM system should not perform either activity A or B.
Answer:
Page Ref: 447
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

27) Direct deposit of employee paychecks is one way an organization can improve efficiency and reduce payroll-processing costs. Which statement regarding direct deposit is false?
A) The cashier does not authorize the transfer of funds from the organization’s checking account to a payroll checking account.
B) The cashier does not have to sign employee paychecks.
C) Employees who are part of a direct deposit program receive a copy of their paycheck indicating the amount deposited.
D) Employees who are part of a direct deposit program receive an earnings statement on payday rather than a paper check.
Answer:
Page Ref: 449
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

28) The employer pays a portion of some payroll taxes and employee benefits. Both the employee and employer pay which benefit or tax listed below?
A) social security taxes
B) federal income taxes
C) state income taxes
D) none of the above
Answer:
Page Ref: 450
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
29) When using electronic documents, ________ increase the accuracy of data entry.
A) access controls
B) separation of duties
C) general controls
D) application controls
Answer:
Page Ref: 444
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

30) The key to preventing unauthorized changes to the payroll master file is
A) hiring totally honest people to access and make changes to this file.
B) segregation of duties between the preparation of paychecks and their distribution.
C) segregation of duties between the authorization of changes and the physical handling of paychecks.
D) having the controller closely review and then approve any changes to the master file.
Answer:
Page Ref: 452
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Analytic

31) Which of the following is not a potential effect of inaccurate data on employee time cards?
A) increased labor expenses
B) erroneous labor expense reports
C) damaged employee morale
D) inaccurate calculation of overhead costs
Answer:
Page Ref: 444
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

32) Which control would be most appropriate to address the problem of inaccurate payroll processing?
A) encryption
B) direct deposit
C) cross-footing of the payroll register
D) an imprest payroll checking account
Answer:
Page Ref: 449
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Reflective Thinking
33) What is the purpose of a general ledger payroll clearing account?
A) to check the accuracy and completeness of payroll recording and its allocation to cost centers
B) to make the bank reconciliation easier
C) to make sure that all employees are paid correctly each week
D) to prevent the cashier from having complete control of the payroll cycle
Answer:
Page Ref: 449
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

34) A “zero balance check” refers to which of the following control procedures?
A) a type of batch total
B) cross-footing the payroll register
C) the payroll clearing account shows a zero balance once all entries are posted
D) trial balance showing that debits equal credits
Answer:
Page Ref: 449
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

35) All of the following are controls that should be implemented in a payroll process, except
A) supervisors distribute paychecks since they should know all employees in their department.
B) someone independent of the payroll process should reconcile the payroll bank account.
C) sequential numbering of paychecks and accounting for the numbers.
D) restrict access to blank payroll checks and documents.
Answer:
Page Ref: 450
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

36) What is the best control to reduce the risk of losing payroll data?
A) passwords
B) physical security controls
C) backup and disaster recovery procedures
D) encryption
Answer:
Page Ref: 441
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
37) The threat of violation of employment laws relates directly to which activity?
A) payroll processing
B) collecting employee time data
C) hiring and recruiting
D) all of the above
Answer:
Page Ref: 441
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

38) What is a potential threat to the specific activity of payroll processing?
A) hiring unqualified employees
B) poor system performance
C) violations of employment laws
D) unauthorized changes to the payroll master file
Answer:
Page Ref: 443
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

39) The results of an internal audit finds that there is a problem with inaccurate time data being entered into the payroll system. What is an applicable control that can help prevent this event from occurring in the future?
A) proper segregation of duties
B) automation of data collection
C) sound hiring procedures
D) review of appropriate performance metrics
Answer:
Page Ref: 444
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

40) Which of the following is a control that can be implemented to help prevent paychecks being issued to a “phantom” or “ghost” employee?
A) The cashier should sign all payroll checks.
B) Sequentially prenumber all payroll checks.
C) Use an imprest account to clear payroll checks.
D) Paychecks should be physically distributed by someone who does not authorize time data or record payroll.
Answer:
Page Ref: 450
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

41) The average annual middle-management salary at Folding Squid Technologies is $60,000. If the average turnover rate for middle management is ten employees per year, what is the approximate average annual cost of turnover?
A) $300,000
B) $600,000
C) $900,000
D) $1,200,000
Answer:
Page Ref: 438
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

42) Which of the following will contribute to the efficiency of a payroll system?
A) Segregation of check distribution from payroll duties
B) Prompt redeposit of unclaimed paychecks
C) A separate payroll bank account
D) Direct deposit of checks
Answer:
Page Ref: 449
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
43) Which of the following will limit a firm’s potential loss exposure from paycheck forgery?
A) Segregation of check distribution from payroll duties
B) Prompt redeposit of unclaimed paychecks
C) A separate payroll bank account
D) Direct deposit of checks
Answer:
Page Ref: 450
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

44) Which of the following is a control that addresses the threat of unauthorized changes to the payroll master file?
A) Field checks
B) Batch totals
C) Segregation of duties
D) Sound hiring procedures
Answer:
Page Ref: 443
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

45) Which of the following documents would be likely to yield the greatest cost saving by converting from paper to electronic?
A) Payroll register
B) Earnings statement
C) Deduction register
D) Time card
Answer:
Page Ref: 444
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
46) For the payroll register below, all the following data entry controls would be useful except

A) Validity check on Fed. Tax
B) Sequence check on Employee No.
C) Limit check on Hours
D) Field check on Pay Rate
Answer:
Page Ref: 449
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

47) For the payroll register below, all the following processing controls would be useful except

A) Concurrent update control
B) Cross-footing balance test
C) Mathematical accuracy test
D) Hash total on Employee No.
Answer:
Page Ref: 449
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
48) Describe the basic activities in an HRM/payroll cycle.

49) Identify the two types of payroll deductions and give two examples of each type.

50) Why are accurate cumulative earnings records important?

51) Explain the functions of the payroll register, deduction register, and earnings statement.

52) What is the difference between a payroll service bureau and a professional employer organization?

53) Discuss the various types and sources of input into the HRM/payroll cycle.

54) Describe benefits and threats of incentive and bonus programs.

55) Explain benefits to companies and to employees of using electronic direct deposit for payroll.

56) What factors should be considered in outsourcing payroll to a payroll service bureau? Discuss the advantages and disadvantages of using a payroll service bureau to process a payroll.

57) Discuss the threat of unauthorized changes to the payroll master file and its consequences.

58) What controls are available to address the threat of payroll errors?

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 16 General Ledger and Reporting System

1) The general ledger and reporting system consists of the ________ involved in ________ the general ledger and ________ reports.
A) business transactions; updating; processing
B) data processing; business transactions for; printing
C) information processing; updating; creating
D) business transactions; data processing; preparing
Answer:
Page Ref: 463
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

2) Which item below is not considered a major input to the general ledger and reporting system?
A) summary entries from the major subsystems
B) reports from managers
C) adjusting entries
D) financing and investing activities
Answer:
Page Ref: 463
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

3) Who provides the adjusting entries for a well-designed general ledger and reporting system?
A) various user departments
B) the treasurer’s area
C) the other major AIS subsystems
D) the controller’s area
Answer:
Page Ref: 463
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
4) The general ledger and reporting system is designed to provide information for which of the following user groups?
A) internal users
B) external users
C) inquiry processing by internal or external users
D) all of the above
Answer:
Page Ref: 465
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

5) The general ledger system of an organization should be designed to serve the information requirements of both internal and external users. This means that the system should support
A) producing expansive regular periodic reports to cover all information needs.
B) the real-time inquiry needs of all users.
C) producing regular periodic reports and respond to real-time inquiry needs.
D) access by investors and creditors of the organization to general ledger balances.
Answer:
Page Ref: 465
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

6) How is general ledger updating accomplished by the various accounting subsystems?
A) Individual journal entries for each accounting subsystem transaction update the general ledger every 24 hours.
B) Summary journal entries that represent the results of all transactions for a certain time period are used to update the general ledger.
C) The controller or treasurer must approve accounting subsystem journal entries before any updating may occur.
D) Nonroutine transactions are entered into the system by the treasurer’s office.
Answer:
Page Ref: 467
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Analytic
7) When updating the general ledger, sales, purchases, and production are examples of ________ entries, and issuance or retirement of debt and the purchase or sale of investment securities are examples of ________ entries.
A) adjusting; controller originated
B) accounting subsystem; treasurer originated
C) adjusting; special journal
D) controller generated; special journal
Answer:
Page Ref: 467
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

8) Entries to update the general ledger are often documented by which of the following?
A) general journal
B) subsidiary journal
C) subsidiary ledgers
D) journal vouchers
Answer:
Page Ref: 467
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

9) Adjusting entries that reflect events that have already occurred, but for which no cash flow has taken place are classified as
A) accruals.
B) deferrals.
C) revaluations.
D) corrections.
Answer:
Page Ref: 470
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
10) Recording interest earned on an investment is an example of which type of adjusting journal entry?
A) accrual entry
B) deferral entry
C) revaluation entry
D) correcting entry
Answer:
Page Ref: 470
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

11) An adjusting entry made at the end of an accounting period that reflects the exchange of cash prior to performance of a related event is classified as a(n)
A) accrual entry.
B) deferral entry.
C) revaluation entry.
D) correcting entry.
Answer:
Page Ref: 471
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

12) Depreciation expense and bad debt expense are examples of which type of adjusting journal entry?
A) deferrals
B) accruals
C) revaluations
D) estimates
Answer:
Page Ref: 471
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

13) Adjusting entries that are made to reflect differences between the actual and recorded value of an asset or a change in accounting principle are called
A) reconciliations.
B) revaluations.
C) estimates.
D) accruals.
Answer:
Page Ref: 471
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

14) Adjusting entries that are made to counteract the effects of errors found in the general ledger are called
A) accruals.
B) corrections.
C) deferrals.
D) estimates.
Answer:
Page Ref: 471
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

15) Corrections are entries made to correct errors found in ________.
A) all journals
B) special journals
C) the general ledger
D) the financial statements
Answer:
Page Ref: 471
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

16) Immediately after the adjusting entries are posted, the next step in the general ledger and reporting system is to prepare
A) an adjusted trial balance.
B) closing entries.
C) financial statements.
D) an unadjusted trial balance.
Answer:
Page Ref: 471
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

17) Financial statements are prepared in a certain sequence. Which statement is prepared last in the sequence?
A) the adjusted trial balance
B) the income statement
C) the balance sheet
D) the statement of cash flows
Answer:
Page Ref: 471
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

18) A listing of journal vouchers by numerical sequence, account number, or date is an example of
A) a general ledger control report.
B) a budget report.
C) a batch to be processed.
D) responsibility accounting.
Answer:
Page Ref: 469
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

19) If you believe not all adjusting entries were posted in the general ledger, you should prepare a general ledger control report listing journal vouchers in
A) numerical sequence.
B) chronological order.
C) general ledger account number order.
D) any order, since you have to review them all anyway.
Answer:
Page Ref: 469
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Reflective Thinking
20) If you believe a general ledger account was not adjusted properly or at all, you should prepare a general ledger control report listing journal vouchers in
A) numerical sequence.
B) chronological order.
C) general ledger account number order.
D) any order, since you have to review them all anyway.
Answer:
Page Ref: 469
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Reflective Thinking

21) The managerial report that shows planned cash inflows and outflows for major investments or acquisitions is the
A) journal voucher list.
B) statement of cash flows.
C) operating budget.
D) capital expenditures budget.
Answer:
Page Ref: 477
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

22) The operating budget
A) compares estimated cash flows from operations with planned expenditures.
B) shows cash inflows and outflows for each capital project.
C) depicts planned revenues and expenditures for each organizational unit.
D) is used to plan for the purchase and retirement of property, plant, and equipment.
Answer:
Page Ref: 477
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

23) Budgets and performance reports should be developed on the basis of
A) responsibility accounting.
B) generally accepted accounting principles.
C) financial accounting standards.
D) managerial accounting standards.
Answer:
Page Ref: 477
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic
24) Performance reports for cost centers should compare actual versus budget ________ costs.
A) controllable
B) uncontrollable
C) fixed
D) variable
Answer:
Page Ref: 477
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

25) Performance reports for sales deparments should compare actual versus budget
A) revenue.
B) cost.
C) return on investment.
D) profit.
Answer:
Page Ref: 477
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

26) Departments that mostly provide services to other units and charge those units for services rendered should be evaluated as ________ centers.
A) cost
B) profit
C) investment
D) revenue
Answer:
Page Ref: 477
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Analytic

27) As responsibility reports are rolled up into reports for higher level executives, they
A) become less detailed.
B) become more detailed.
C) become narrower in scope.
D) look about the same.
Answer:
Page Ref: 477
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Reflective Thinking
28) Variances for variable costs will be misleading when the planned output differs from budgeted output. A solution to this problem would be
A) calling all costs fixed.
B) to use flexible budgeting.
C) better prediction of output.
D) to eliminate the budgeting process.
Answer:
Page Ref: 478
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

29) Concerning XBRL, which of the following statements is not true?
A) XBRL is a variant of XML.
B) XBRL is specifically designed for use in communicating the content of financial data.
C) XBRL creates unique tags for each data item.
D) XBRL’s adoption will require accountants and systems professionals tag data for their clients.
Answer:
Page Ref: 472
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

30) The benefits of XBRL include:
A) organizations can publish financial information only once, using standard XBRL tags.
B) tagged data is readable and interpretable by computers, so users don’t need re-enter data into order to work with it.
C) Both are benefits of XBRL.
D) Neither are benefits of XBRL.
Answer:
Page Ref: 472
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
31) Communications technology and the Internet can be used to reduce the time and costs involved in disseminating financial statement information. Users of such financial information still struggle in that many recipients have different information delivery requirements and may have to manually reenter the information into their own decision analysis tools. The ideal solution to solve these problems and efficiently transmit financial information via the Internet is to use
A) HTML code.
B) XML.
C) pdf file.
D) XBRL.
Answer:
Page Ref: 472
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

32) Which of the following statements is not true about an XBRL instance document?
A) An instance document includes instruction code as to how the document should be physically arranged and displayed.
B) An instance document contains facts about specific financial statement line items.
C) An instance document uses separate tags for each specific element.
D) An instance document can be used to tag financial and nonfinancial elements.
Answer:
Page Ref: 472
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic

33) Which of the following are appropriate controls for the general ledger and reporting system?
A) using well-designed documents and records
B) online data entry with the use of appropriate edit checks
C) prenumbering documents and accounting for the sequence numbers
D) All of the above are appropriate.
Answer:
Page Ref: 468
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
34) A type of data entry control that would ensure that adjusting entries are posted to existing general ledger accounts is called a(n) ________ check.
A) validity
B) existence
C) closed loop verification
D) reasonableness
Answer:
Page Ref: 468
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

35) One way of ensuring that recurring adjusting journal entries are made each month would be to
A) make all the entries a month in advance.
B) rotate the responsibility among the accounting staff.
C) program the entries to be made automatically.
D) create a standard adjusting journal entry file.
Answer:
Page Ref: 471
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

36) Which of the following tasks are facilitated by maintaining a strong and secure audit trail?
A) tracing a transaction from original source document to the general ledger to a report
B) tracing an item in a report back through the general ledger to the original source document
C) tracing changes in general ledger accounts from beginning to ending balances
D) All of the above are facilitated by the audit trail.
Answer:
Page Ref: 469-470
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

37) Which of the following balanced scorecard dimensions provides measures on how efficiently and effectively the organization is performing key business processes?
A) financial
B) internal operations
C) innovation and learning
D) customer
Answer:
Page Ref: 479
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

38) Which of the following is not one of the principles of proper graph design for bar charts?
A) Include data values with each element.
B) Use 3-D rather than 2-D bars to make reading easier.
C) Use colors or shades instead of patterns to represent different variables.
D) Use titles that summarize the basic message.
Answer:
Page Ref: 481
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

39) Information about financing and investing activities for use in making general ledger entries is typically provided by the
A) budget department.
B) controller.
C) treasurer.
D) chief executive officer.
Answer:
Page Ref: 463
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

40) Adjusting entries that are made to recognize revenue that has been received but not yet earned are classified as
A) estimates.
B) deferrals.
C) accruals.
D) revaluations.
Answer:
Page Ref: 471
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

41) Adjusting entries that reflect a change in accounting principle used to value inventories are classified as
A) corrections.
B) estimates.
C) deferrals.
D) revaluations.
Answer:
Page Ref: 471
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

42) Cheryl Liao is an accountant at Folding Squid Technologies. While making an adjusting entry to the general ledger, she received the following error message, “The account number referenced in your journal entry does not exist. Do you want to create a new account?” This message was the result of a
A) validity check.
B) closed loop verification.
C) zero-balance check.
D) completeness test.
Answer:
Page Ref: 468
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

43) Cheryl Liao is an accountant at Folding Squid Technologies. While making an adjusting entry to the general ledger, she received the following error message, “Your journal entry must be a numeric value. Please reenter.” This message was the result of a
A) validity check.
B) field check.
C) zero-balance check.
D) completeness test.
Answer:
Page Ref: 468
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
44) Cheryl Liao is an accountant at Folding Squid Technologies. While making an adjusting entry to the general ledger, she received the following error message when she tried to save her entry, “The amounts debited and credited are not equal. Please correct and try again.” This message was the result of a
A) validity check.
B) field check.
C) zero-balance check.
D) completeness test.
Answer:
Page Ref: 468
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

45) Cheryl Liao is an accountant at Folding Squid Technologies. While making an adjusting entry to the general ledger, she received the following error message when she tried to save her entry, “The data you have entered does not include a source reference code. Please enter this data before saving.” This message was the result of a
A) validity check.
B) field check.
C) zero-balance check.
D) completeness test.
Answer:
Page Ref: 468
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

46) IFRS is an acronym for what?
A) International Financial Reporting Standards
B) Internal Forensic Response System
C) Input and Financial Reporting Standards
D) Internal Fault Recovery System
Answer:
Page Ref: 471
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
47) Which of the following is true about IFRS?
A) Financial statements likely must be prepared using IFRS beginning in 2015.
B) The switch to IFRS is required by the Sarbanes-Oxley Act.
C) IFRS is only slightly different than US GAAP.
D) The switch to IFRS is cosmetic onlythere isn’t any real impact on AIS.
Answer:
Page Ref: 471
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

48) Which of the following scenarios will not be allowed under IFRS?
A) A landscaping and garden retail store keeps piles of river rock, gravel, paving stones, and small decorative rocks in a fenced area on the side of the store. The store uses the most recent inventory costs when calculating cost of goods sold, since new inventory is piled on top of the older inventory.
B) A grocery store strictly enforces a shelf rotation policy, so that older inventory is always at the front and sold first. The store uses the oldest inventory costs to calculate cost of goods sold.
C) A farm chemical supplier maintains a large holding tank of chemicals, into which deliveries are periodically combined with the older chemicals. The supplier averages the cost of all inventory to calculate cost of goods sold.
D) All of the above are acceptable under IFRS.
Answer:
Page Ref: 472
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Reflective Thinking

49) Which of the following is true about accounting for fixed assets?
A) Depreciation expense under IFRS will likely be higher than under GAAP, because acquisitions of assets with multiple components must be separately depreciated under IFRS, whereas under GAAP assets could be bundled and depreciated over the longest of the useful life for any of the components.
B) IFRS doesn’t allow capitalization of any asset that separately accounts for less than 20% of total assets.
C) Depreciation expense under IFRS will likely be less than under GAAP, because standards for depreciable lives on asset classes are much longer than under GAAP.
D) IFRS and GAAP account for fixed assets in much the same way.
Answer:
Page Ref: 472
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Reflective Thinking

50) Which of the following statements is true about the chart below?

A) The x-axis is in reverse chronological order, which violates a principle of proper graph design.
B) The chart appears to conform to the principles of proper graph design.
C) The vertical axis doesn’t appear to start at the origin (zero).
D) The chart used 2-D bars instead of 3-D, which violates a principle of proper graph design.
Answer:
Page Ref: 481
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Analytic

51) Explain the purpose of a journal voucher file.

52) What is responsibility accounting?

53) How is a balanced scorecard used to assess organizational performance?

54) How is an audit trail used in the general ledger and reporting system?

55) Explain the benefits of XBRL.

56) Discuss the value and role of budgets as managerial reports.

57) Describe three threats in the general ledger and reporting system and identify corresponding controls for each threat.

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 17 The REA Data Model

1) Which of the following statements about REA modeling and REA diagrams is false?
A) REA is an acronym for Resources, Entities, and Agents.
B) REA data modeling does not include traditional accounting elements such as ledgers, chart of accounts, debits and credits.
C) REA data modeling could be referred to as an events-based model.
D) REA diagrams must include at least two activities, which together represent a give-get economic exchange.
Answer:
Page Ref: 496
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

2) What is the standard cardinality pattern for a relationship between an event and an agent?
A) 1:1
B) 0:1
C) 0:N
D) 1:N
Answer:
Page Ref: 506
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Reflective Thinking

3) The REA data model approach facilitates efficient operations by all the following except
A) standardizing source document format.
B) identifying non-value added activities.
C) storing financial and nonfinancial data in the same database.
D) organizing data to simplify data retrieval and analysis.
Answer:
Page Ref: 496
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
4) The process of defining a database so that it faithfully represents all aspects of the organization including its interactions with the external environment is called
A) data modeling.
B) data designing.
C) data development.
D) data definition.
Answer:
Page Ref: 494
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

5) In which stage(s) of the database design process does data modeling occur?
A) only in the systems analysis stage
B) only in the design stage
C) in both the systems analysis and design stages
D) neither the systems analysis nor the design stages
Answer:
Page Ref: 494
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

6) A(n) ________ diagram graphically depicts a database’s contents by showing entities and relationships.
A) data flow
B) flowchart
C) entity-relationship
D) REA
Answer:
Page Ref: 494
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

7) On an entity-relationship (E-R) diagram, anything about which an organization wants to collect and store information is called
A) a data model.
B) an entity.
C) a schema.
D) a tuple.
Answer:
Page Ref: 494
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
8) An entity-relationship (E-R) diagram represents entities as ________ and the relationships between them as lines and ________.
A) circles; squares
B) squares; diamonds
C) rectangles; diamonds
D) rectangles; circles
Answer:
Page Ref: 495
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

9) An entity-relationship (E-R) diagram
A) can represent the contents of any database.
B) are only used in conjunction with REA models.
C) can show a limited number of entities and relationships.
D) are used only to design new databases.
Answer:
Page Ref: 495
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

10) The REA data model
A) is used in many areas of business and science.
B) was developed solely for use in designing accounting information systems.
C) classifies data into relationships, entities and accounts.
D) all of the above
Answer:
Page Ref: 496
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

11) Which of the following is not one of the rules in creating an REA data model?
A) Each event is linked to at least one resource that it affects.
B) Each event is linked to at least one other event.
C) Each event is linked to at least two participating agents.
D) All of the above are important rules.
Answer:
Page Ref: 497
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
12) Which is a true statement about the REA data model?
A) The REA data model classifies entities into three distinct categories.
B) The term REA is an acronym that stands for resources, entities, and agents.
C) Using an REA data model is not helpful when creating an R-E diagram.
D) The “E” in the REA data model stands for things that have an economic value to the organization.
Answer:
Page Ref: 496
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

13) An REA diagram must link every event to at least one ________ and two ________.
A) resource; agents
B) agent; resources
C) transaction; entities
D) resource; relationships
Answer:
Page Ref: 497
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

14) Each event in an REA model will in most cases have at least one ________ agent and one ________ agent involved with the event.
A) internal; resource
B) external; entity
C) internal; employee
D) internal; external
Answer:
Page Ref: 501
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

15) Relationships that affect the quantity of a resource are sometimes referred to as ________ relationships.
A) commitment
B) exchange
C) stockflow
D) duality
Answer:
Page Ref: 497
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
16) The “give” event represents an activity which
A) includes a promise to engage in future economic exchanges.
B) increases the organization’s stock of an economic resource.
C) reduces the organization’s stock of a resource that has economic value.
D) none of the above
Answer:
Page Ref: 497
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

17) The “get” event represents an activity which
A) includes a promise to engage in future economic exchanges.
B) increases the organization’s stock of an economic resource.
C) reduces the organization’s stock of a resource that has economic value.
D) none of the above
Answer:
Page Ref: 497
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

18) Which of the following statements is true about the development of an REA model?
A) Events that pertain to the entry of data are included in the REA model.
B) The objective is to model basic value-chain activities.
C) REA diagrams model individual transactions and data collections.
D) Information retrieval events are modeled as events in the REA model.
Answer:
Page Ref: 501
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

19) Developing an REA diagram for a specific transaction cycle begins by identifying
A) relevant events.
B) agents involved.
C) resources affected.
D) relationship cardinalities.
Answer:
Page Ref: 499
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
20) Which of the following is false about cardinalities?
A) Cardinalities describe the nature of the relationship between two entities.
B) No universal standard exists for representing information about cardinalities in REA diagrams.
C) The minimum cardinality can be zero or one.
D) The maximum cardinality can be zero, one, or many.
Answer:
Page Ref: 502-503
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

21) The minimum cardinality of a relationship in an REA diagram can be either
A) 0 or 1.
B) 0 or N.
C) 1 or N.
D) none of the above
Answer:
Page Ref: 503
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

22) The maximum cardinality of a relationship in an REA diagram can be either
A) zero or one.
B) one or many.
C) zero or many.
D) none of the above
Answer:
Page Ref: 503
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

23) How many types of relationships are possible between entities?
A) one
B) two
C) three
D) an infinite number
Answer:
Page Ref: 504
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
24) A relationship in which cardinalities have zero minimums and N maximums would most likely be an
A) agent-event relationship.
B) resource-event relationship.
C) event-event relationship.
D) All of the above are equally likely.
Answer:
Page Ref: 504
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

25) Concerning REA diagrams, which of the following is false?
A) Each organization will have its own unique REA diagram.
B) An REA diagram for a given organization will change over time.
C) Data modeling and REA diagram development involve complex and repetitive processes.
D) Redrawing an REA diagram several times during development is uncommon.
Answer:
Page Ref: 508
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

26) Data modeling is an element of
A) systems analysis.
B) conceptual design.
C) both A and B
D) none of the above
Answer:
Page Ref: 494
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
27) Which of the following graphical symbols represents a minimum cardinality of zero and a maximum cardinality of one?
A)

B)

C)

D)

Answer:
Page Ref: 502
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

28) Which of the following graphical symbols represents a minimum cardinality of zero and a maximum cardinality of many?
A)

B)

C)

D)

Answer:
Page Ref: 502
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
29) Which of the following graphical symbols represents a minimum cardinality of one and a maximum cardinality of one?
A)

B)

C)

D)

Answer:
Page Ref: 502
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

30) Which of the following graphical symbols represents a minimum cardinality of one and a maximum cardinality of many?
A)

B)

C)

D)

Answer:
Page Ref: 502
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

31) Which of the following transactions is represented by the diagram below?

A) An automobile salvage business holds weekly auctions at which it sells its entire inventory.
B) A grocery store sells products to consumers.
C) A hobbyist restores antique cars. When a car is finished, she sells it on eBay.
D) A firm sells movies to consumers through an online downloading service.
Answer:
Page Ref: 506-507
Objective: Learning Objective 4
Difficulty : Difficult
AACSB: Reflective Thinking
32) Which of the following transactions is represented by the diagram below?

A) An automobile salvage business holds weekly auctions at which it sells its entire inventory.
B) A grocery store sells products to consumers.
C) A hobbyist restores antique cars. When a car is finished, she sells it on eBay.
D) A firm sells movies to consumers through an online downloading service.
Answer:
Page Ref: 506-507
Objective: Learning Objective 4
Difficulty : Difficult
AACSB: Reflective Thinking

33) Which of the following transactions is represented by the diagram below?

A) An automobile salvage business holds weekly auctions at which it sells its entire inventory.
B) A grocery store sells products to consumers.
C) A hobbyist restores antique cars. When a car is finished, she sells it on eBay.
D) A firm sells movies to consumers through an online downloading service.
Answer:
Page Ref: 506-507
Objective: Learning Objective 4
Difficulty : Difficult
AACSB: Analytic

34) Which of the following transactions is represented by the diagram below?

A) An automobile salvage business holds weekly auctions at which it sells its entire inventory.
B) A grocery store sells products to consumers.
C) A hobbyist restores antique cars. When a car is finished, she sells it on eBay.
D) A firm sells movies to consumers through an online downloading service.
Answer:
Page Ref: 506-507
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Reflective Thinking
35) Which of the following transactions is represented by the diagram below?

A) Cash and carry consumer retail sales
B) Consumer retail sales paid in installments to the seller
C) Business to business sales of nondurable goods
D) Business that allows customers to carry a balance and make installment payments
Answer:
Page Ref: 505
Objective: Learning Objective 4
Difficulty : Difficult
AACSB: Reflective Thinking

36) Which of the following transactions is represented by the diagram below?

A) Cash and carry consumer retail sales
B) Consumer retail sales paid in installments to the seller
C) Business to business sales of nondurable goods
D) Business that allows customers to carry a balance and make installment payments
Answer:
Page Ref: 505
Objective: Learning Objective 4
Difficulty : Difficult
AACSB: Reflective Thinking

37) Which of the following transactions is represented by the diagram below?

A) Cash and carry consumer retail sales
B) Consumer retail sales paid in installments to the seller
C) Business to business sales of nondurable goods
D) Business that allows customers to carry a balance and make installment payments
Answer:
Page Ref: 505
Objective: Learning Objective 4
Difficulty : Difficult
AACSB: Reflective Thinking
38) Which of the following transactions is represented by the diagram below?

A) Cash and carry consumer retail sales
B) Consumer retail sales paid in installments to the seller
C) Business to business sales of nondurable goods
D) Business that allows customers to carry a balance and make installment payments
Answer:
Page Ref: 505-506
Objective: Learning Objective 4
Difficulty : Difficult
AACSB: Reflective Thinking

39) Which of the following transactions is represented by the diagram below?

A) Vendors send a bill for each inventory item purchased which is payable on receipt.
B) A single purchase of inventory is paid for with multiple payments.
C) Inventory vendors send a monthly bill for merchandise delivered. The seller does not accept or allow installment payments.
D) Some inventory purchases are paid for with multiple payments and some payments may apply to multiple purchases.
Answer:
Page Ref: 505
Objective: Learning Objective 4
Difficulty : Difficult
AACSB: Reflective Thinking

40) Which of the following transactions is represented by the diagram below?

A) Vendors send a bill for each inventory item purchased which is payable on receipt.
B) A single purchase of inventory is paid for with multiple payments.
C) Inventory vendors send a monthly bill for merchandise delivered. The seller does not accept or allow installment payments.
D) Some inventory purchases are paid for with multiple payments and some payments may apply to multiple purchases.
Answer:
Page Ref: 505
Objective: Learning Objective 4
Difficulty : Difficult
AACSB: Reflective Thinking
41) Which of the following transactions is represented by the diagram below?

A) Vendors send a bill for each inventory item purchased which is payable on receipt.
B) A single purchase of inventory is paid for with multiple payments.
C) Inventory vendors send a monthly bill for merchandise delivered. The seller does not accept or allow installment payments.
D) Some inventory purchases are paid for with multiple payments and some payments may apply to multiple purchases.
Answer:
Page Ref: 505
Objective: Learning Objective 4
Difficulty : Difficult
AACSB: Reflective Thinking

42) Which of the following transactions is represented by the diagram below?

A) Each sale is associated with a single order and there is a time lag between the time an order is taken and delivery of the product.
B) Each sale can be comprised of multiple orders and each order can be associated with multiple sales or no sales.
C) Each sale can be comprised of multiple orders and each order can be associated with one or more multiple sales.
D) Each sale is associated with a single order and there is no time lag between the time an order is taken and delivery of the product.
Answer:
Page Ref: 505
Objective: Learning Objective 4
Difficulty : Difficult
AACSB: Reflective Thinking

43) Which of the following transactions is represented by the diagram below?

A) Each sale is associated with a single order and there is a time lag between the time an order is taken and delivery of the product.
B) Each sale can be comprised of multiple orders and each order can be associated with multiple sales or no sales.
C) Each sale can be comprised of multiple orders and each order can be associated with one or more sales.
D) Each sale is associated with a single order and there is no time lag between the time an order is taken and delivery of the product.
Answer:
Page Ref: 505
Objective: Learning Objective 4
Difficulty : Difficult
AACSB: Reflective Thinking

44) Which of the following transactions is represented by the diagram below?

A) Each sale is associated with a single order and there is a time lag between the time an order is taken and delivery of the product.
B) Each sale can be comprised of multiple orders and each order can be associated with multiple sales or no sales.
C) Each sale can be comprised of multiple orders and each order can be associated with one or more sales.
D) Each sale is associated with a single order and there is no time lag between the time an order is taken and delivery of the product.
Answer:
Page Ref: 505
Objective: Learning Objective 4
Difficulty : Difficult
AACSB: Reflective Thinking

45) Which of the following transactions is represented by the diagram below?

A) Each sale is associated with a single order and there is a time lag between the time an order is taken and delivery of the product.
B) Each sale can be comprised of multiple orders and each order can be associated with multiple sales or no sales.
C) Each sale can be comprised of multiple orders and each order can be associated with one or more sales.
D) Each sale is associated with a single order and there is no time lag between the time an order is taken and delivery of the product.
Answer:
Page Ref: 505
Objective: Learning Objective 4
Difficulty : Difficult
AACSB: Reflective Thinking

46) A relationship is diagrammed below using the [Min, Max] notation. Which of the diagrams below represents the same relationship using the “crow’s fee” notation?

A)

B)

C)

D)

Answer:
Page Ref: 502-503
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic

47) Cosgrove Art & Antiques sells unique art and antiques exclusively at antique shows. Cosgrove purchases inventory from individuals and other dealers at garage sales, flea markets, antique malls, and estate sales. Each time Cosgrove makes a purchase, she records the person’s name, address, date, specific items purchased and price paid, and total amount spent. Later at home, Cosgrove cleans, researches and prices the inventory items. She assigns an inventory number to each item and records the “asking” price. Cosgrove buys price tags and display supplies from a company that sells at flea market and antique shows. All inventory and supplies purchases are paid immediately with cash, or with checks from a bank account in the business’ name, to which sales are also deposited. Several times a year Cosgrove rents a booth at an antique show. A deposit is always required, with the balance due at the start of the show. Cosgrove records the deposit and final payment, along with the show organizer’s name and address, in the same worksheet on which purchases of inventory and supplies are recorded.

A well-planned and correctly drawn REA diagram for Cosgrove Art & Antiques, related to purchasing inventory and supplies, renting booths, and paying for all items, would
A) include eight unique entities.
B) include nine unique entities.
C) include seven unique entities.
D) include ten unique entities.
Answer:
Page Ref: 499
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Reflective Thinking
48) Cosgrove Art & Antiques sells unique art and antiques exclusively at antique shows. Cosgrove purchases inventory from individuals and other dealers at garage sales, flea markets, antique malls, and estate sales. Each time Cosgrove makes a purchase, she records the person’s name, address, date, specific items purchased and price paid, and total amount spent. Later at home, Cosgrove cleans, researches and prices the inventory items. She assigns an inventory number to each item and records the “asking” price. Cosgrove buys price tags and display supplies from a company that sells at flea market and antique shows. All inventory and supplies purchases are paid immediately with cash, or with checks from a bank account in the business’ name, to which sales are also deposited. Several times a year Cosgrove rents a booth at an antique show. A deposit is always required, with the balance due at the start of the show. Cosgrove records the deposit and final payment, along with the show organizer’s name and address, in the same worksheet on which purchases of inventory and supplies are recorded.

A well-planned and correctly drawn REA diagram for Cosgrove Art & Antiques, related to purchasing inventory and supplies, renting booths, and paying for all items, would
A) reflect nine 1:N relationships.
B) reflect two M:N relationships.
C) reflect ten 1:N relationships.
D) include two 1:1 relationships.
Answer:
Page Ref: 502
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Reflective Thinking

49) Cosgrove Art & Antiques sells unique art and antiques exclusively at antique shows. Cosgrove purchases inventory from individuals and other dealers at garage sales, flea markets, antique malls, and estate sales. Each time Cosgrove makes a purchase, she records the person’s name, address, date, specific items purchased and price paid, and total amount spent. Later at home, Cosgrove cleans, researches and prices the inventory items. She assigns an inventory number to each item and records the “asking” price. Cosgrove buys price tags and display supplies from a company that sells at flea market and antique shows. All inventory and supplies purchases are paid immediately with cash, or with checks from a bank account in the business’ name, to which sales are also deposited. Several times a year Cosgrove rents a booth at an antique show. A deposit is always required, with the balance due at the start of the show. Cosgrove records the deposit and final payment, along with the show organizer’s name and address, in the same worksheet on which purchases of inventory and supplies are recorded.

A well-planned and correctly drawn REA diagram for Cosgrove Art & Antiques, related to purchasing inventory and supplies, renting booths, and paying for all items, would
A) reflect minimum cardinalities of 1 for the relationship between Vendor and Cash Disbursement entities.
B) reflect the same number of 0 and 1 minimum cardinalities.
C) reflect more maximum cardinalities of M than of 1.
D) reflect maximum cardinalities of M for the relationship between Inventory and Purchase entities.
Answer:
Page Ref: 502
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Reflective Thinking
50) Cosgrove Art & Antiques sells unique art and antiques exclusively at antique shows. Cosgrove purchases inventory from individuals and other dealers at garage sales, flea markets, antique malls, and estate sales. Each time Cosgrove makes a purchase, she records the person’s name, address, date, specific items purchased and price paid, and total amount spent. Later at home, Cosgrove cleans, researches and prices the inventory items. She assigns an inventory number to each item and records the “asking” price. Cosgrove buys price tags and display supplies from a company that sells at flea market and antique shows. All inventory and supplies purchases are paid immediately with cash, or with checks from a bank account in the business’ name, to which sales are also deposited. Several times a year Cosgrove rents a booth at an antique show. A deposit is always required, with the balance due at the start of the show. Cosgrove records the deposit and final payment, along with the show organizer’s name and address, in the same worksheet on which purchases of inventory and supplies are recorded.

A well-planned and correctly drawn REA diagram for Cosgrove Art & Antiques, related to purchasing inventory and supplies, renting booths, and paying for all items, what entities would reflect economic duality?
A) Purchases and Cash Disbursements
B) Booth Rental and Cash Disbursements
C) Inventory and Purchases
D) Cash and Cash Disbursements
Answer:
Page Ref: 498
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Reflective Thinking

51) Cosgrove Art & Antiques sells unique art and antiques exclusively at antique shows. Cosgrove purchases inventory from individuals and other dealers at garage sales, flea markets, antique malls, and estate sales. Each time Cosgrove makes a purchase, she records the person’s name, address, date, specific items purchased and price paid, and total amount spent. Later at home, Cosgrove cleans, researches and prices the inventory items. She assigns an inventory number to each item and records the “asking” price. Cosgrove buys price tags and display supplies from a company that sells at flea market and antique shows. All inventory and supplies purchases are paid immediately with cash, or with checks from a bank account in the business’ name, to which sales are also deposited. Several times a year Cosgrove rents a booth at an antique show. A deposit is always required, with the balance due at the start of the show. Cosgrove records the deposit and final payment, along with the show organizer’s name and address, in the same worksheet on which purchases of inventory and supplies are recorded.

Draw an REA diagram for Cosgrove Art & Antiques, related to purchasing inventory and supplies, renting booths, and paying for all items.

52) Describe data modeling.

53) Describe an REA data model.

54) Define cardinality.

55) Describe the three basic rules that apply to the REA model pattern.

56) Describe the steps in developing an REA diagram.

57) Explain how an AIS system can be viewed as a set of “give-to-get” exchanges.

58) Define minimum and maximum cardinalities.

59) Describe the possible relationships between entities, in terms of cardinalities.

60) Explain specifically what is meant by the following statement, “Accountants can and should participate in all stages of the database design process.”

61) A dental office employs three dentists and five dental hygienists. One of the dentists is a very recent dental school graduate and can’t yet see patients on her own until she passes boards and obtains a license. Dentists perform all procedures personally, except for regular cleaning and x-rays, which are performed exclusively by dental hygienists. Three of the five dental hygienists perform only regular cleaning and x-rays. The other two hygienists each assist a specific dentist during procedures, as well as performing regular cleaning and x-rays. One of the hygienists will be assigned to the new dentist when she begins seeing patients. Hygienists usually ‘shadow’ other hygienists and dentists for two weeks prior to seeing patients.

Patients schedule appointments directly with dentists and hygienists, depending on the type of dental service needed. Patients do not have to choose a dentist until they need service other than routine cleaning or x-rays. Patients are assigned to a specific dental hygienist when they schedule their first appointment. The customer master file has 549 records. Diagram the agents described, relationships between agents, and the cardinality pairs for each relationship.

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 18 Implementing an REA Model in a Relational Database

1) Integrating separate REA diagrams developed for individual transaction cycles into a single, comprehensive enterprise-wide data model
A) is possible.
B) requires understanding what the cardinalities in each separate diagram reveal about the organization’s business policies and activities.
C) provides a single comprehensive enterprise-wide model of the organization.
D) All of the above are true.
Answer:
Page Ref: 525
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

2) The primary key for a Sales-Inventory table that consists of the Sales Invoice Number and the Inventory Item Number, is known as a
A) concatenated key.
B) condensed key.
C) double key.
D) dual key.
Answer:
Page Ref: 532
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

3) When using an REA diagram to develop a database, many-to-many relationships must be
A) broken into multiple one-to-one relationships.
B) combined into a single one-to-one relationship.
C) combined into a one-to-many relationship.
D) broken into multiple one-to-many relationships.
Answer:
Page Ref: 530
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
4) The type of relationship between two entities is determined by
A) maximum cardinalities only.
B) minimum cardinalities only.
C) minimum and maximum cardinalities.
D) median cardinalities.
Answer:
Page Ref: 543
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

5) Which of the following is not one of the steps in implementing an REA diagram in a relational database?
A) implement many-to-many relationships with foreign keys
B) create tables for entities
C) assign attributes to tables and identify primary keys
D) implement one-to-many relationships with foreign keys
Answer:
Page Ref: 530
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

6) An integrated REA diagram merges multiple copies of ________ and ________ entities but retains multiple copies of ________ entities.
A) resource; event; agent
B) event; agent; resource
C) resource; agent; event
D) None of the above. An integrated REA diagram merges multiple copies of all entities.
Answer:
Page Ref: 528
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

7) An integrated REA diagram could contain multiple copies of
A) customers.
B) sales.
C) inventory.
D) sales-inventory.
Answer:
Page Ref: 528
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
8) An integrated REA diagram merges multiple copies of some entities in order to
A) minimize the repetition of agent entities.
B) maximize the legibility of the diagram by avoiding the need to have relationship lines cross one another.
C) Both A and B are true.
D) Both A and B are false.
Answer:
Page Ref: 528
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Reflective Thinking

9) Combining REA diagrams for individual transaction cycles into a single, enterprise-wide model adds two more rules to the three basic principles for drawing REA diagrams. Which of the following is not one of those two new rules?
A) Every resource must be linked to at least one event that increments that resource and to at least one event that decrements that resource.
B) If a specific event can be linked to more than one other type of event, but cannot be linked simultaneously to all of those other events, then the minimum cardinality between that event and every other event with which it may be associated must be 0.
C) If a specific event can be linked to more than one other type of event, but cannot be linked simultaneously to all of those other events, then the maximum cardinality between that event and every other event with which it may be associated must be 0.
D) All of the above are new rules for drawing integrated REA diagrams.
Answer:
Page Ref: 530
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

10) Concerning a correctly drawn enterprise-wide REA diagram, which of the following statements is not true?
A) Every event must be linked to at least one resource.
B) Merging two transaction cycles on a common event may affect the minimum cardinalities between the merged event and the other events.
C) Events can only be merged if they share the same resources and events.
D) Creating a set of tables from an REA diagram automatically results in a well-structured relational database.
Answer:
Page Ref: 530
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
11) Which of the following is not one of the three steps to implementing an REA diagram in a relational database?
A) Assign attributes to appropriate tables.
B) Create a table for each distinct entity in the diagram and for each many-to-many relationship.
C) Every event must be linked to at least one resource.
D) Use foreign keys to implement one-to-one and one-to-many relationships.
Answer:
Page Ref: 530
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

12) REA diagrams for different organizations may be similar, but will likely result in different relationship cardinalities because of
A) differences in business policies.
B) different designers of REA diagrams.
C) different methods of drawing REA diagrams.
D) errors in drawing REA diagrams.
Answer:
Page Ref: 530
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

13) What is the first step to implementing an REA diagram in a relational database?
A) Assign attributes to appropriate tables.
B) Create a table for each distinct entity in the diagram and for each many-to-many relationship.
C) Identify cardinalities.
D) Use foreign keys to implement one-to-one and one-to-many relationships.
Answer:
Page Ref: 530
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
14) Concerning REA diagrams and relational databases, which of the following is true?
A) A well-designed relational database is the starting point for creating an REA diagram.
B) A well-designed REA diagram minimizes update, insert or delete anomaly problem when the diagram is implemented into a relational database.
C) REA diagrams and database design are generic across organizations.
D) The design of a relational database is specific to the organization being modeled.
Answer:
Page Ref: 530
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

15) Concerning the creation of tables from an REA diagram, which of the following is false?
A) A properly designed relational database has a table for each distinct entity in an REA diagram.
B) A properly designed relational database has a table for each many-to-many relationship in an REA diagram.
C) To reduce confusion, table names should not duplicate REA diagram entities’ names.
D) Many-to-many relationships will be shown in tables with hyphenated concatenations of the entities’ names.
Answer:
Page Ref: 530-532
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

16) When assigning attributes to each table,
A) the database designer must interview users to identify which facts should be included in the database.
B) the database designer must interview management to identify which facts should be included in the database.
C) the database designer must use the REA diagram to help determine in which tables those facts belong.
D) the database designer must do all of the above.
Answer:
Page Ref: 532
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
17) The primary key for M:N relationship tables
A) is a single attribute.
B) always consists of two attributes.
C) is the primary key of the most important entity linked to that relationship.
D) does not exist. Many-to-many relationship tables only use foreign keys.
Answer:
Page Ref: 532
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

18) Attributes other than the primary key are
A) included to satisfy transaction processing requirements.
B) included to meet management’s information needs.
C) both A and B
D) none of the above
Answer:
Page Ref: 532
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

19) Concerning tables for M:N relationships, which of the following statements is false?
A) Non-key attributes may be included.
B) Multiple attribute primary keys are used.
C) Single attribute primary keys may be used.
D) Concatenated keys are used.
Answer:
Page Ref: 532
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

20) Nonfinancial information should be collected because
A) it may indicate events that may affect resources.
B) it can be used to plan other activities.
C) it can be used in transaction processing.
D) both A and B
Answer:
Page Ref: 536-537
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
21) Concerning the creation of tables from an REA diagram, which of the following is false?
A) M:N relationships must be implemented as separate tables.
B) 1:N relationships are implemented with the primary key of the 1 side becoming a foreign key on the N side.
C) 1:1 relationships are implemented with the primary key of either entity included as a foreign key in the table representing the other entity.
D) All of the above are true.
Answer:
Page Ref: 533-534
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

22) Which of the following is not part of a “final accuracy check” when creating relational tables from an REA diagram?
A) Every attribute in every table is single-valued (i.e., each table is a flat file).
B) Every event must be linked to at least one resource.
C) Every table must have a primary key.
D) Other non-key attributes in each table must be either a fact about the thing designated by the primary key or foreign keys used to link that table to another table.
Answer:
Page Ref: 535
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

23) When comparing REA diagrams used to design an AIS with a traditionally designed AIS,
A) traditional AIS information, such as journals and ledgers no longer exist.
B) similar information is present as in a traditional AIS, but stored in a different format.
C) queries are used to input data into the AIS.
D) an REA designed AIS cannot recreate a traditional journal.
Answer:
Page Ref: 535
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

24) Concerning the use of REA diagrams to retrieve information from a database
A) although neither journals nor ledgers appear explicitly in an REA diagram, each can be created through appropriate queries.
B) the information normally found in a journal is contained in the tables used to record data about events.
C) much of the information about an organization’s assets that is traditionally recorded in ledgers is stored in resource tables in an REA-based relational database.
D) all of the above
Answer:
Page Ref: 535
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

25) Much of the information about an organization’s assets that is traditionally recorded in ledgers is stored in ________ tables in an REA-based relational database.
A) Account
B) Agent
C) Event
D) Resource
Answer:
Page Ref: 536
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

26) In an REA-based relational database, the information normally found in a ________ is contained in the tables used to record data about ________.
A) journal, events
B) journal, resources
C) ledger, events
D) ledger, resources
Answer:
Page Ref: 535
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
27) Concerning REA models, which of the following is false?
A) Many financial statement accounts are represented as resources in the REA model.
B) Accounts such as Accounts Receivable show up as entities in the REA model.
C) Some accounts represent an imbalance between two related events in the REA model.
D) Much of the information about an organization’s assets that is traditionally recorded in ledgers is stored in resource tables in an REA-based relational database.
Answer:
Page Ref: 536
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

28) Because information about temporal imbalances between two ________, such as accounts receivable and accounts payable, is needed so frequently, such calculated values are sometimes stored as ________ in the appropriate tables.
A) events, agents
B) events, attributes
C) resources, agents
D) resources, attributes
Answer:
Page Ref: 536
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

29) Concerning the generation of financial statements from an REA-based relational database, which of the following is false?
A) It is possible to use a completed REA diagram to guide the writing of queries to produce the information that would be included in financial statements.
B) Many financial statement items can be displayed by querying a single table.
C) It is unnecessary to understand the REA data model to know which tables need to be included in each query to generate the correct answers to financial statement questions.
D) A major advantage of the REA data model is that it integrates non-financial and financial data.
Answer:
Page Ref: 536
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
30) In comparing the REA model to the traditional AIS, which of the following is false?
A) Traditional AISs contain only data about the financial aspects of transactions.
B) A major advantage of the REA data model is that it integrates non-financial and financial data in the AIS and makes both types of data easily accessible to management.
C) In the REA model, many financial statement items can be displayed by querying a single table.
D) Accounts in the traditional AIS are analogous to resources in the REA-based relational database.
Answer:
Page Ref: 536
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

31) The major benefits of using the REA model as the basis for designing an AIS include all of the following except
A) the REA data model integrates non-financial and financial data in the AIS.
B) the REA data model makes both non-financial and financial data easily accessible to management.
C) the REA data model provides the basis for building the kind of flexible AIS that is responsive to management’s changing information needs.
D) the REA data model reduces the need for accountants to understand the underlying accounting journals and ledgers.
Answer:
Page Ref: 536
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

32) Concerning REA diagrams for individual transaction cycles, which of the following is false?
A) They depict basic give-to-get economic duality relationships.
B) They usually provide only a partial view of resources.
C) They need to be combined in order to provide a comprehensive enterprise-wide data model.
D) They show both how resources are acquired and how they are used.
Answer:
Page Ref: 528
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
33) Concerning enterprise-wide REA diagrams, which of the following is false?
A) Merging two or more REA diagrams that contain the same resource entity does not require any changes to the cardinality pairs in the individual diagrams.
B) Merging two or more diagrams that contain a common event entity, however, often requires changing the minimum cardinalities associated with the other events to 0, to reflect the fact that the merged event may be connected to any one of several different events, but not to all of them simultaneously.
C) The minimum cardinalities associated with agents may also have to be changed to 0.
D) All of the above are true.
Answer:
Page Ref: 530
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

34) Concatenated keys are
A) only needed when combining two or more REA diagrams.
B) foreign keys used to implement 1:N or 1:1 relationships.
C) multiple attribute keys used to implement 1:N relationships.
D) required to implement M:N relationships.
Answer:
Page Ref: 532
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

35) How many tables are needed to implement an REA data model that has six distinct entities, three M:N relationships and four 1:N relationships in a relational database?
A) 6
B) 9
C) 11
D) 13
Answer:
Page Ref: 530
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
36) How many tables are needed to implement an REA data model that has five distinct entities, two M:N relationships and three 1:N relationships in a relational database?
A) 5
B) 7
C) 8
D) 10
Answer:
Page Ref: 530
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

37) When combining two REA diagrams by merging common entities, changes in the cardinality of the merged entity is needed when it is a(n)
A) agent.
B) event.
C) relationship.
D) resource.
Answer:
Page Ref: 529
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

38) Information traditionally found in journals are stored where in an REA database?
A) Event entity
B) Agent entity
C) Relationship
D) Resource entity
Answer:
Page Ref: 535
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

39) Which table is most likely to have a concatenated key?
A) customer
B) sales
C) customer-sales
D) accounts receivable
Answer:
Page Ref: 532
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
40) Integrating separate REA diagrams into a single comprehensive enterprise-wide model of the organization requires understanding what the ________ in each separate diagram reveal about the organization’s business policies and activities.
A) cardinalities
B) data
C) events
D) transactions
Answer:
Page Ref: 525
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

41) When integrating separate REA diagrams,
A) common resources are placed between the events that affect them.
B) each resource is connected to two agents.
C) resources are duplicated to show the give and get of economic duality relationships.
D) resources are merged if both events in the stockflow relationship are modeled.
Answer:
Page Ref: 529
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

42) In which of the following cases is the number of tables required to represent the relationship equal to three?
A)

B)

C)

D)

Answer:
Page Ref: 530
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
43) Which entity is likely to be part of both the revenue cycle and the expenditure cycle?
A) Receive Goods
B) Customer
C) Receive Cash
D) Inventory
Answer:
Page Ref: 529
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

44) In which of the following cases is the relationship between entities not implemented by foreign keys?
A)

B)

C)

D)

Answer:
Page Ref: 530
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

45) Which entity is likely to be part of both the payroll cycle and the expenditure cycle?
A) Receive Goods
B) Customer
C) Disburse Cash
D) Inventory
Answer:
Page Ref: 528
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
46) Which entity is likely to be part of both the payroll cycle and the revenue cycle?
A) Cash
B) Customer
C) Receive Goods
D) Inventory
Answer:
Page Ref: 528
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

47) Which entity is likely to be part of the payroll cycle, expenditure cycle, and the revenue cycle?
A) Customer
B) Cash
C) Supplier
D) Inventory
Answer:
Page Ref: 528
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

48) Which of the following is a redundant entity that would be merged when two cycles are combined?
A) Customer
B) Employee
C) Vendor
D) Inventory
Answer:
Page Ref: 528
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

49) In an integrated REA diagram, every event must be linked to
A) at least two resources.
B) at least two agents.
C) at least one other event.
D) at least two other events.
Answer:
Page Ref: 530
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
50) In an integrated REA diagram, every resource must be must be linked to
A) at least two events.
B) at least two agents.
C) at least one other resource.
D) at least two other resources.
Answer:
Page Ref: 530
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

51) In an integrated REA diagram, every agent must be must be linked to
A) at least one resource.
B) at least two resources.
C) at least one event.
D) at least two events.
Answer:
Page Ref: 530
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

52) In a relational database, which of the following attributes would typically be included in the table that stores data about the Customer entity?
A) Invoice number
B) Credit limit
C) Product code
D) Backorder
Answer:
Page Ref: 532
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

53) In a relational database, which of the following attributes would typically be included in the table that stores data about the Vendor entity?
A) Invoice number
B) Outstanding balance
C) Product code
D) Inventory
Answer:
Page Ref: 532
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
54) In a relational database, which of the following attributes would typically be represented by a foreign key in the table that stores data about a Receive Inventory entity?
A) Purchase order number
B) Payment terms
C) Product code
D) Date
Answer:
Page Ref: 533
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

55) In a relational database, which of the following attributes would typically be represented by a foreign key in the table that stores data about a Disburse Cash entity?
A) Amount
B) Date
C) Vendor number
D) Product number
Answer:
Page Ref: 533
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

56) A query that extracts, for a given time period, the total amount of all sales events for which there is no corresponding receive cash event will yield
A) a cash account ledger.
B) a credit sales journal.
C) an accounts receivable ledger.
D) an accounts payable journal.
Answer:
Page Ref: 536
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
57) A query that extracts, for a given time period, all sales events for which there is no corresponding receive cash event on the date of the sales event will yield
A) a cash account ledger.
B) a credit sales journal.
C) an accounts receivable ledger.
D) an accounts payable journal.
Answer:
Page Ref: 535
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic

58) A query that extracts, for a given time period, all purchases for which there is no corresponding disburse cash event will yield
A) a cash account ledger.
B) a credit sales journal.
C) an accounts receivable ledger.
D) an accounts payable journal.
Answer:
Page Ref: 535
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

59) Implementation of this REA diagram into a relational database would require how many tables?

A) 12
B) 13
C) 8
D) 9
Answer:
Page Ref: 530
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

60) Which of the following would be true when implementing this REA diagram into a relational database?

A) The primary key for Employee would be a foreign key for Cash Receipts.
B) The primary key for Cash Receipts would be a foreign key for Cash.
C) The primary key for Parts would be a foreign key for Service Request.
D) The primary key for Sales would be a foreign key for Service Request.
Answer:
Page Ref: 530
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
61) Cosgrove Art & Antiques sells unique art and antiques exclusively at antique shows. Cosgrove purchases inventory from individuals and other dealers at garage sales, flea markets, antique malls, and estate sales. Each time Cosgrove makes a purchase, she records the person’s name, address, date, specific items purchased and price paid, and total amount spent. Later at home, Cosgrove cleans, researches and prices the inventory items. She assigns an inventory number to each item and records the “asking” price. Cosgrove buys price tags and display supplies from a company that sells at flea market and antique shows. All inventory and supplies purchases are paid immediately with cash, or with checks from a bank account in the business’ name, to which sales are also deposited. Several times a year Cosgrove rents a booth at an antique show. A deposit is always required, with the balance due at the start of the show. Cosgrove records the deposit and final payment, along with the show organizer’s name and address, in the same worksheet on which purchases of inventory and supplies are recorded.

Which of the following would not be an attribute in the Purchases table?
A) Address of place purchase was made
B) Person’s name from whom the purchase was made.
C) Date of purchase
D) Total amount of purchase
Answer:
Page Ref: 532
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Reflective Thinking
62) Cosgrove Art & Antiques sells unique art and antiques exclusively at antique shows. Cosgrove purchases inventory from individuals and other dealers at garage sales, flea markets, antique malls, and estate sales. Each time Cosgrove makes a purchase, she records the person’s name, address, date, specific items purchased and price paid, and total amount spent. Later at home, Cosgrove cleans, researches and prices the inventory items. She assigns an inventory number to each item and records the “asking” price. Cosgrove buys price tags and display supplies from a company that sells at flea market and antique shows. All inventory and supplies purchases are paid immediately with cash, or with checks from a bank account in the business’ name, to which sales are also deposited. Several times a year Cosgrove rents a booth at an antique show. A deposit is always required, with the balance due at the start of the show. Cosgrove records the deposit and final payment, along with the show organizer’s name and address, in the same worksheet on which purchases of inventory and supplies are recorded.

Which of the following would not be an attribute in the Inventory table?
A) Total amount of purchase
B) Price paid
C) Asking price
D) Inventory number
Answer:
Page Ref: 532
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Reflective Thinking
63) Cosgrove Art & Antiques sells unique art and antiques exclusively at antique shows. Cosgrove purchases inventory from individuals and other dealers at garage sales, flea markets, antique malls, and estate sales. Each time Cosgrove makes a purchase, she records the person’s name, address, date, specific items purchased and price paid, and total amount spent. Later at home, Cosgrove cleans, researches and prices the inventory items. She assigns an inventory number to each item and records the “asking” price. Cosgrove buys price tags and display supplies from a company that sells at flea market and antique shows. All inventory and supplies purchases are paid immediately with cash, or with checks from a bank account in the business’ name, to which sales are also deposited. Several times a year Cosgrove rents a booth at an antique show. A deposit is always required, with the balance due at the start of the show. Cosgrove records the deposit and final payment, along with the show organizer’s name and address, in the same worksheet on which purchases of inventory and supplies are recorded.

Which of the following would be an attribute in the table for booth rental?
A) Organizer’s name
B) Deposit paid
C) Balance paid
D) Organizer’s address
Answer:
Page Ref: 532
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Reflective Thinking

64) Explain the five rules for drawing integrated REA diagrams.

65) Explain a completeness check.

66) Explain where in the REA model you can find the information normally found in a ledger.

67) Explain where in the REA model you can find the information normally found in a journal.

68) What are the advantages of the REA data model over the traditional AIS model?

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 19 Special Topics in REA Modeling

1) Explicitly identifying the different employees who participate in each event by their job functions is helpful when verifying
A) internal controls.
B) job descriptions.
C) proper supervision.
D) segregation of duties.
Answer:
Page Ref: 555
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

2) Many companies sell software, music, or digital photographs over the Internet. They give up a digital copy of those resources, but not the actual resource itself. How will this company’s REA model differ from those selling traditional inventory?
A) These companies do not need an Inventory table.
B) The structure of Inventory table is completely different from that of mass-produced merchandise.
C) The Inventory table is only different in that it doesn’t need attributes such as quantity-on-hand, quantity-available, reorder point, and standard reorder quantity.
D) The Inventory table need not include information about the standard list price of each item and its description.
Answer:
Page Ref: 553
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

3) In an expanded revenue cycle REA diagram, sales order number is most likely to be a foreign key in
A) Call on Customer.
B) Fill Customer Order.
C) Ship Order.
D) Take Customer Order.
Answer:
Page Ref: 549
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

4) In an expanded revenue cycle REA diagram, sales order number is most likely to be a primary key in
A) Call on Customers.
B) Fill Customer Order.
C) Ship Order.
D) Take Customer Order.
Answer:
Page Ref: 549
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

5) In an expanded revenue cycle REA diagram, customer number is least likely to be a foreign key in
A) Call on Customers.
B) Customers.
C) Fill Customer Order.
D) Take Customer Order.
Answer:
Page Ref: 549
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

6) In an expanded revenue cycle REA diagram, picking ticket number is most likely to be a primary key in
A) Call on Customers.
B) Fill Customer Order.
C) Ship Order.
D) Take Customer Order.
Answer:
Page Ref: 549
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
7) In an expanded revenue cycle REA diagram, picking ticket number is most likely to be a foreign key in
A) Customers.
B) Fill Customer Order.
C) Ship Order.
D) Take Customer Order
Answer:
Page Ref: 549
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

8) In an REA model, rental transactions differ from sales transactions in that
A) each rental has a part number.
B) each rental has a unique serial number.
C) rental transactions require completely different REA models than sales transactions.
D) All of the above are ways in which rental transactions differ from sales transactions.
Answer:
Page Ref: 553
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

9) Concerning the relationship from the Rent Item to the Receive Cash events: The minimum cardinality is ________ because customers typically pay first, prior to taking possession of the item. The maximum cardinality is ________ because there may be additional charges imposed when the item is returned.
A) 0,1
B) 1,1
C) 1,N
D) N,M
Answer:
Page Ref: 554
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
10) The relationship between the Rent Item and Return Item events is most likely 1:1 for all except which of the following reasons?
A) A return must be for a rented item.
B) A rented item can only be returned once.
C) Rented items are accounted for separately.
D) All rented items must be returned.
Answer:
Page Ref: 554
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

11) In an expenditure cycle diagram, which of the following is an example of an event that larger organizations might want to include in their extended REA model?
A) Request
B) Order
C) Ship Order
D) Fill Order
Answer:
Page Ref: 549
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

12) Concerning cost data, which of the following is false?
A) Cost information is stored in several tables.
B) Standard cost is stored as an attribute of the Inventory table because it is the same for all units of a given inventory item for a fiscal year.
C) In contrast, the actual cost of inventory is stored in a relationship table because prices can vary over time.
D) Actual cost can be stored as an attribute of the Inventory table for organizations that value inventory based on the most recent amount paid.
Answer:
Page Ref: 550-551
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
13) Which is the most likely primary key for the Inventory–Request_Goods table?
A) Product number
B) Product number – Purchase order number
C) Product number – Purchase requisition number
D) Purchase requisition number
Answer:
Page Ref: 551
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

14) Which is the most likely primary key for the Pay for Goods table?
A) Cash transaction number
B) Check number
C) Invoice number
D) Receiving report number, check number
Answer:
Page Ref: 551
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

15) For a service business, the minimum cardinalities between Sales event and Inventory entity are most likely both 0 for all except which of the following reasons?
A) Service businesses don’t sell inventory, they only use inventory to perform services.
B) A sale doesn’t have to include any inventory.
C) Inventory can exist that hasn’t been part of a sale yet.
D) Some services only require labor.
Answer:
Page Ref: 552
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Analytic

16) The minimum cardinality from the Sales event to the Services entity is most likely 1 because
A) every sale includes performing a service.
B) a service is only recorded once a sale has occurred.
C) only 1 service is provided for each sale.
D) the minimum cardinality would not be 1; it would most likely be 0.
Answer:
Page Ref: 552
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
17) A dental office would likely model the relationships between the Sales event and both the Services and Supplies Resource entities as
A) M:N
B) 1:1
C) 1:N
D) 0:1
Answer:
Page Ref: 552
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

18) In a relational database, details about activities such as Cleaning, X-Rays, Fillings, Root Canals, Crowns, and Extractions would all be stored in which table?
A) Services
B) Sales
C) Inventory
D) Those activities would be stored as part of a relationship, not a table.
Answer:
Page Ref: 552
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

19) M:N agent-event relationships occur whenever an activity is performed by ________ employee and management wants to retain the ability to monitor ________ performance.
A) more than one; group
B) more than one; individual
C) one; group
D) one; individual
Answer:
Page Ref: 555
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

20) The minimum cardinalities between a location, such as Warehouse, and a resource, like Inventory, will likely be 0 for all except which of the following reasons?
A) One specific inventory item could be stored at several different warehouses.
B) A warehouse could be currently empty.
C) Not all kinds of inventory are stored at each warehouse.
D) Inventory could include products not yet available for sale.
Answer:
Page Ref: 555
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

21) Since the same inventory items may be stored in several different warehouses, the maximum cardinality from Inventory to Warehouse is most likely ________.
A) 0
B) N
C) 1
D) determined by the number of warehouses compared to the number of inventory items
Answer:
Page Ref: 555
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

22) Relationships between resources and agents, such as Inventory and Supplier, reflect the best practice of identifying preferred and alternative suppliers for specific inventory items. Similar relationships between resources and employees can be used to model ________ and ________.
A) cost; revenue
B) performance; behavior
C) responsibility; accountability
D) segregation of duties; internal control
Answer:
Page Ref: 555
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Reflective Thinking
23) Warehouse number is most likely to be a foreign key in:
A) Order Inventory
B) Disburse Cash
C) Receive Inventory
D) Inventory
Answer:
Page Ref: 551
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Analytic

24) Supplier number is least likely to be a foreign key in:
A) Order Inventory
B) Disburse Cash
C) Receive Inventory
D) Warehouse
Answer:
Page Ref: 551
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

25) Financial Institution number is most likely to be a foreign key in:
A) Cash
B) Disburse Cash
C) Receive Inventory
D) Warehouse
Answer:
Page Ref: 551
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

26) The cardinality pair from the Financial Institution entity to the Cash resource has a ________ minimum and an ________ maximum because companies will probably only keep information about financial institutions with which they have accounts but may have more than one account at the same financial institution.
A) 0; N
B) 0; 1
C) 1; N
D) M; N
Answer:
Page Ref: 551
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
27) Supplier number is most likely to be a foreign key in:
A) Inventory–Request_Inventory
B) Receive Inventory
C) Supplier
D) Warehouse
Answer:
Page Ref: 551
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

28) In an REA diagram for HRM/payroll cycles, the ________ entity is linked to almost every other entity in the diagram.
A) Employee
B) Job title
C) Payroll
D) Worker I.D.
Answer:
Page Ref: 559
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

29) In the human resources REA model, the relationship between Skills and Employees is typically modeled as M:N because
A) one employee may possess many skills, and one skill may be possessed by more than one employee.
B) many employees possess skills, and many skills are possessed by employees.
C) employees can be trained to learn all skills, and all skills are possessed by at least one employee.
D) the relationship would be 1:N not M:N, because most employees are hired for a specific job that requires a specific skill, even though a specific job could be done by many employees.
Answer:
Page Ref: 559
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Analytic
30) The ________ entity stores much of the data typically found in the employee (payroll) master file.
A) Time Worked
B) Employee
C) HR
D) Payroll
Answer:
Page Ref: 559
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

31) In an REA diagram for the HR/Payroll cycle, the relationship between Employees and Training is typicallty M:N for all except which of the following reasons?
A) One employee may attend the same training event more than once.
B) Each employee may attend more than one training event.
C) Each training event may have more than one employee attend.
D) One training event may be offered more than once.
Answer:
Page Ref: 559
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

32) In an REA diagram for the HR/Payroll cycle, the ________ relationship between Skills and Recruiting reflects the fact that one specific advertisement may list several specific skills and, over time, there may be several advertisements for one specific skill.
A) 1:1
B) 1:N
C) M:N
D) 0:N
Answer:
Page Ref: 560
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
33) The Interview event stores detailed data about each job interview. Since hiring only happens once, but there may have been several interviews, Interview is linked to the Hire Employees event in a(n) ________ relationship.
A) 1:N
B) 1:1
C) M:N
D) 0:N
Answer:
Page Ref: 560
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

34) When modeling the issuance of debt, the maximum cardinality from Disburse Cash to Issue Debt is 1 because
A) interest is usually only paid at the maturity date.
B) one check is written for the total interest due.
C) the Issue Debt event is not related to Disburse Cash event; cash is received, not given.
D) the minimum cardinality would be 1, but the maximum cardinality should be N.
Answer:
Page Ref: 561
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Analytic

35) The temporal difference between Request Inventory and Order Inventory is reflected by the
A) Request Inventory minimum cardinality of 1.
B) Request Inventory maximum of N.
C) Order Inventory maximum of N.
D) Order Inventory minimum of 0.
Answer:
Page Ref: 561
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Reflective Thinking

36) The relationship between the Disburse Cash and Issue Stock events is modeled as being M:N for all except which of the following reasons?
A) One dividend check could be paid to shareholders that purchased stock at different times.
B) Shareholders could receive several dividend checks over time.
C) Checks must be written to each shareholder for dividend payments.
D) Stock can be issued more than once over a period of time.
Answer:
Page Ref: 561
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

37) The relationship between the Acquire Services and Disburse Cash events is modeled as ________ to reflect the common situation in which the organization obtains the use of a specific service for a particular period of time and makes a payment each month for the services it acquired and used that month.
A) 1:1
B) 1:N
C) M:N
D) none of the above
Answer:
Page Ref: 553
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

38) It is not necessary to connect the Time Used entity to specific business events, however, doing so facilitates
A) evaluating performance at a very detailed level.
B) general performance evaluation.
C) evaluating the quality of the services received.
D) determining productivity of employees, such as how many customer calls were made, or how many sales were made.
Answer:
Page Ref: 560
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Analytic
39) An REA diagram for the production cycle models the relationships between the Perform Job Operations event and the Job Operations List entity, as 1:N because
A) time standards change over time.
B) one specific activity has only one standard time for completion.
C) activities are only performed once on work in process jobs.
D) many activities are usually required for specific work in process jobs.
Answer:
Page Ref: 558
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Analytic

40) Data about actual raw materials used in production is stored in the ________ entity.
A) Finished goods
B) Raw materials
C) Raw materials issuance
D) Work-in-process
Answer:
Page Ref: 557
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

41) The ________ entity is used to collect and summarize data about the raw materials, labor, and machine operations used during production of inventory.
A) Finished Goods Inventory
B) Raw Materials
C) Issue Raw Materials
D) Work-in-Process
Answer:
Page Ref: 558
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

42) In the table called Perform Machine Operations, which is the most likely primary key?
A) Equipment number
B) Job Operation number
C) Machine Operation Number
D) Machine Operations List Number
Answer:
Page Ref: 557
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
43) Employee number is most likely to be a foreign key in
A) Perform Job Operations.
B) Perform Machine Operations.
C) Machine Operations List.
D) Work in Process.
Answer:
Page Ref: 557
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

44) There are four main events of interest included in a typical production cycle REA diagram. Which of the following is not one of them?
A) Issuance of raw materials
B) Order raw materials
C) Use of labor in production
D) Use of machinery and equipment in production
Answer:
Page Ref: 556
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

45) One of the benefits of an integrated enterprise-wide data model is that
A) auditors can use it to guide the development of queries to validate the completeness and accuracy of transaction processing.
B) journals and ledgers will be more accurate than in a traditional AIS data model.
C) workers can understand information flows better.
D) all of the above are benefits of an integrated enterprise-wide data model.
Answer:
Page Ref: 562
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
46) Which of the following diagrams represents the cardinality pairs for a typical, hierarchical organization?
A)

B)

C)

D)

Answer:
Page Ref: 559
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

47) Which of the following diagrams represents the cardinality pairs for a CPA firm where managers drop off tax files in a ‘check out’ area, and any available employee can check out the file and complete the return for the manager. Of course, employees are always working on more than one return at a time, and all managers are dropping off files.
A)

B)

C)

D)

Answer:
Page Ref: 560
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
48) Which of the following diagrams represents the cardinality pairs in a situation where a specific skill is taught at training sessions held periodically, but training is not offered for all skills?
A)

B)

C)

D)

Answer:
Page Ref: 559
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

49) Which of the following accurately represents typical cardinalities for two entities in the finance cycle?
A)

B)

C)

D)

Answer:
Page Ref: 561
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
50) Which of the following accurately represents typical cardinalities for two entities in the finance cycle?
A)

B)

C)

D)

Answer:
Page Ref: 561
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

51) Which of the following diagrams represents the cardinality pairs in a situation where a finished product requires one or more machine operations, and machines usage is recorded to specific production runs?
A)

B)

C)

D)

Answer:
Page Ref: 556
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

52) Which of the following diagrams represents the cardinality pairs in a situation where a finished product requires one or more labor operations, and labor usage is recorded to specific production runs?
A)

B)

C)

D)

Answer:
Page Ref: 556
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

53) Which of the following diagrams represents the cardinality pairs in a situation where a specific production run results in a specific finished good, and a specific finished good is produced periodically?
A)

B)

C)

D)

Answer:
Page Ref: 556
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
54) Which of the following diagrams represents the cardinality pairs in a situation where some services are offered that have not been performed, other services have been performed many times, and sometimes several services are provided together for a client?
A)

B)

C)

D)

Answer:
Page Ref: 552
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

55) Which of the following accurately represents typical cardinalities for two entities in the production cycle?
A)

B)

C)

D)

Answer:
Page Ref: 556
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
56) Which of the following accurately represents typical cardinalities for two entities in the HR/Payroll cycle?
A)

B)

C)

D)

Answer:
Page Ref: 559
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

57) Which of the following diagrams represents the cardinality pairs in a situation where interviews are conducted individually and potential employees are able to interview for more than one position, or the same position at different times?
A)

B)

C)

D)

Answer:
Page Ref: 559
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
58) Which of the following diagrams represents the cardinality pairs in a situation where many people will apply for a specific position, and some of the applicants have applied in the past?
A)

B)

C)

D)

Answer:
Page Ref: 559
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

59) Which of the following diagrams represents the cardinality pairs in a situation where supervisors conduct individual performance evaluations with each of the employees they supervise?
A)

B)

C)

D)

Answer:
Page Ref: 559
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
60) Which of the following diagrams represents the cardinality pairs in a situation where a business that rents power tools (not all of which get rented) writes separate rental agreements for each tool, so renters don’t have to return all items at the same time?
A)

B)

C)

D)

Answer:
Page Ref: 554
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

61) Which of the following diagrams represents the cardinality pairs in a situation where rented items must be returned intact, and several rented items could be returned at the same time?
A)

B)

C)

D)

Answer:
Page Ref: 554
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
62) Which of the following diagrams represents the cardinality pairs in a situation where deliveries are frequently made to the specific warehouse where the goods will be stored?
A)

B)

C)

D)

Answer:
Page Ref: 550
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

63) Which of the following diagrams represents the cardinality pairs in a situation where one or more warehouses are currently empty due to downsizing, and production of new products has been delayed due to difficulty obtaining materials?
A)

B)

C)

D)

Answer:
Page Ref: 550
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Analytic
64) Which of the following diagrams represents the cardinality pairs in a situation where goods don’t have to be requisitioned, but if they are, requisitions are approved and processed before purchase orders are issued?
A)

B)

C)

D)

Answer:
Page Ref: 550
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Analytic

65) Which of the following diagrams represents the cardinality pairs in a situation where customer orders are filled one by one, but not all ordered items may be available at all times?
A)

B)

C)

D)

Answer:
Page Ref: 548
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Analytic

66) Give an example of an M:N Agent-Event relationship.

67) Why is the event Issue Debt often modeled as a separate event entity?

68) Why might an REA diagram show relationships between agents?

69) Why might an REA diagram show relationships between resources and agents?

70) Why is cost information stored in several relational tables?

71) What are the benefits of an integrated enterprise-wide data model?

72) Describe the relationships between Recruiting event and Skills, and between Recruiting event and Job Applicants.

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 20 Introduction to Systems Development; Systems Analysis

1) A system change that results in an improved product or service and helps lower costs provided a(n)
A) competitive advantage.
B) improved business process.
C) productivity gain.
D) technological change.
Answer:
Page Ref: 580
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

2) An antiquated information system used by an office supply manufacturer caused customer dissatisfaction since it took two days to process a telephone order. After the system was upgraded and redesigned, the time to process a telephone order was reduced to three minutes. This is a prime example of
A) a competitive advantage.
B) a technological change.
C) an improved business process.
D) growth.
Answer:
Page Ref: 579
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

3) What is the correct sequence of the phases in the systems development life cycle?
A) conceptual design, physical design, system analysis, implementation and conversion, and operations and maintenance
B) conceptual design, system analysis, physical design, implementation and conversion
C) system analysis, conceptual design, physical design, implementation and conversion, and operations and maintenance
D) system analysis, physical design, conceptual design, and operations and maintenance
Answer:
Page Ref: 581
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
4) In which phase of the systems development life cycle are the broad needs of the users converted into detailed specifics that are coded and tested?
A) conceptual design
B) implementation and conversion
C) physical design
D) systems analysis
Answer:
Page Ref: 582
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

5) The purpose of systems analysis is to
A) identify the problem to be solved by the new (or redesigned) system and the causes of the problem in the current system.
B) determine design specifications for the new (or redesigned) system.
C) communicate information needs to consider during business process reengineering.
D) discover any violations of policies established by the information systems steering committee.
Answer:
Page Ref: 582
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Reflective Thinking

6) Which of the following statements about systems development is true?
A) Planning throughout the systems development life cycle promotes coordination between systems and strategic plans.
B) Organizations should conduct systems development activities at least once every five years.
C) The systems development steps are critical for profit-oriented businesses, but are too expensive and time consuming for most not-for-profit organizations.
D) Diligently following the steps and suggestions in the systems development life cycle ensures the final system will meet user needs and be implemented at or below the budgeted cost.
Answer:
Page Ref: 583
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Reflective Thinking

7) Which of the following about planning for systems development is false?
A) Project plans are developed for each new system and each system modification, and together the project plans comprise the master plan.
B) A project development plan includes an economic feasibility analysis and a schedule of activities.
C) The master plan identifies system goals, who will develop the system, and the resources that will be needed.
D) The master plan includes details about organizational goals, existing systems and resources, projects being conducted, and predictions of future needs and requirements.
Answer:
Page Ref: 583
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

8) Which of the following activities is performed during the systems development life cycle?
A) assessing the ongoing feasibility of the project
B) managing the behavioral reactions to change
C) planning
D) All of the above activities are performed during the life cycle.
Answer:
Page Ref: 582
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

9) Which group of individuals listed below can be the most effective in generating employee support and encouraging the development and acceptance of an AIS project?
A) accountants
B) information systems steering committee
C) management
D) project development team
Answer:
Page Ref: 582
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
10) Who of the following is responsible for ensuring that the new system will meet the needs of users?
A) accountants
B) the information system steering committee
C) the project development team
D) the system analysts and programmers
Answer:
Page Ref: 583
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

11) Who is responsible for preparing the specifications that are used to create the programs?
A) management
B) programmers
C) systems analysts
D) the information systems steering committee
Answer:
Page Ref: 583
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

12) One step in the systems development life cycle (SDLC) identifies and evaluates design alternatives and to develop design specifications. This step is called
A) conceptual design.
B) implementation and conversion.
C) physical design.
D) systems analysis.
Answer:
Page Ref: 582
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

13) In which step of the SDLC do all of the elements of the system come together?
A) conceptual design
B) implementation and conversion
C) physical design
D) systems analysis
Answer:
Page Ref: 582
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
14) What is the role of the information systems steering committee?
A) It is a team of systems specialists, managers, accountants, and auditors that guides project development.
B) Since AIS development spans functional and divisional boundaries, an executive-level group is established to plan and oversee the IS function.
C) The group takes an active role in designing system controls and periodically monitoring and testing the system to verify the controls are implemented and functioning properly.
D) None of the descriptions above are appropriate.
Answer:
Page Ref: 582
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

15) Which group of professionals is responsible for planning and monitoring a project to ensure timely and cost-effective completion?
A) information systems steering committee
B) management
C) project development team
D) system analysts
Answer:
Page Ref: 583
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

16) All of the following are benefits of planning and managing systems development except
A) controlling costs.
B) ensuring that the system is consistent with the organization’s goals.
C) guaranteeing use of the system.
D) helping keep the organization abreast of technological change.
Answer:
Page Ref: 583
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
17) In which plan within planning systems development is the prioritized list of projects contained?
A) project development plan
B) scheduled project plan
C) the master plan
D) all of the above
Answer:
Page Ref: 583
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

18) What is the basic building block of information systems planning?
A) the master plan
B) the project development plan
C) systems analysis
D) adaptability
Answer:
Page Ref: 583
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

19) A planning horizon of at least ________ years is reasonable for any master plan; however, the plan should be updated at least ________ each year.
A) 3; twice
B) 5; twice
C) 7; once
D) 5; once
Answer:
Page Ref: 583
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

20) ________ requires that all activities and the precedent and subsequent relationships among them be identified.
A) CASE
B) The Gantt chart
C) The PERT diagram
D) The SDLC cycle
Answer:
Page Ref: 583-584
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
21) A network of arrows and nodes representing project activities that require an expenditure of time and resources and the completion of initiation of activities, respectively, is called
A) a Gantt chart.
B) a PERT diagram.
C) a SDLC cycle.
D) CASE.
Answer:
Page Ref: 584
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

22) Which planning technique does not show the relationships among various activities?
A) Gantt chart
B) PERT
C) the critical path method
D) VAN
Answer:
Page Ref: 585
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

23) In which phase of the systems development life cycle is the feasibility study first performed?
A) conceptual design
B) implementation and conversion
C) physical design
D) system analysis
Answer:
Page Ref: 585
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic
24) A federal law demands that certain information about foreign customers should be maintained in the information system. In which part of a feasibility study should this requirement be considered?
A) economic feasibility
B) legal feasibility
C) operational feasibility
D) technical feasibility
Answer:
Page Ref: 586
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

25) Which of the following parts of a feasibility study is generally considered the most important and is frequently re-analyzed?
A) economic feasibility
B) operational feasibility
C) scheduling feasibility
D) technical feasibility
Answer:
Page Ref: 586
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

26) What is the basic model used to create a framework for economic feasibility analysis?
A) the capital budgeting model
B) the cash budgeting model
C) the cost/benefit model
D) All of the above models are used to create a framework.
Answer:
Page Ref: 587
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

27) What is most difficult to quantify when assessing economic feasibility?
A) benefits
B) costs
C) Costs, benefits, and the payback period are all of equal difficulty.
D) the payback period
Answer:
Page Ref: 587
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic
28) When using the payback method to determine economic feasibility of projects, the company usually accepts the project with the
A) longest payback period.
B) mid-range payback period.
C) payback period that is equal to the project’s economic life.
D) shortest payback period.
Answer:
Page Ref: 587
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

29) There are several important aspects to be considered during a feasibility study. The aspect that asks the question, “Can people use the system and will they use it?” is called
A) economic feasibility.
B) operational feasibility.
C) scheduling feasibility.
D) technical feasibility.
Answer:
Page Ref: 586
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

30) Accountants can contribute to feasibility study analysis by evaluating cost savings and other benefits versus operating costs and other cash outflows. This is better known as
A) the “best guess” model of benefit analysis.
B) the “value added” benefit model.
C) the capital budgeting model.
D) the estimated benefits model.
Answer:
Page Ref: 587
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Analytic

31) The capital budgeting technique where estimated future cash flows are discounted back to the present is referred to as
A) the future value method.
B) the internal rate of return.
C) the net present value method.
D) the payback method.
Answer:
Page Ref: 587
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

32) The type of user resistance in which data are erroneously entered into a system is called
A) acceptance.
B) aggression.
C) avoidance.
D) projection.
Answer:
Page Ref: 589
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

33) Continuing to use a manual system instead of the new AIS is a form of resistance known as
A) acceptance.
B) aggression.
C) avoidance.
D) projection.
Answer:
Page Ref: 589
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

34) One behavioral problem occurs when there is insufficient explanation of why a change must take place. This problem is a result of
A) communication.
B) natural resistance to change.
C) the manner in which the change is introduced.
D) top management support of change.
Answer:
Page Ref: 588
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

35) Major resistance to change takes one of several forms. What is the name of the form of resistance where the new system is blamed for any and every unpleasant occurrence?
A) aggression
B) avoidance
C) procrastination
D) projection
Answer:
Page Ref: 589
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

36) One behavioral problem occurs when there is insufficient explanation of why a change must take place. In order to curtail this resistance from occurring within the organization, what guideline should be implemented and followed?
A) attempt to meet the users’ needs
B) avoid emotionalism
C) keep communication lines open
D) keep the system simple
Answer:
Page Ref: 590
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

37) A good rule to follow to prevent behavioral problems associated with implementing a new system is “Avoid complex systems that cause radical changes.” What expression is used to describe this system design rule?
A) allay fears and stress new opportunities
B) keep the system simple and humanize it
C) control users’ expectations
D) test the system
Answer:
Page Ref: 590
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic
38) During what step in systems analysis is an examination made of each development activity to define the problem to be solved?
A) information needs and systems requirements
B) the feasibility study
C) the initial investigation
D) the systems survey
Answer:
Page Ref: 590
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic

39) When is a proposal to conduct a systems analysis prepared?
A) after a written request for systems development is prepared
B) after the development team completes the survey of the existing AIS
C) after the initial investigation of the project is approved
D) before the initial investigation
Answer:
Page Ref: 591
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic

40) During which phase of systems analysis does modeling of the existing system occur?
A) information needs and system requirements
B) the feasibility study
C) the initial investigation
D) the systems survey
Answer:
Page Ref: 591
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic

41) Which data gathering method is most helpful to deal with the question: “Why?”
A) interviews
B) observation by the analyst
C) questionnaires
D) system documentation
Answer:
Page Ref: 592
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

42) Significant system changes were implemented two months ago. The changes were well-planned, well-designed, thoroughly tested before and after conversion, and several employee training sessions were conducted. Still, the changes haven’t resulted in any productivity increases, cost savings, or process improvements. Management is puzzled and needs to find out why the system isn’t successful. The best action for management to take is
A) conduct face-to-face interviews with managers, key personnel, and randomly selected employees from each functional area impacted by the system changes in an attempt to discover why the changes aren’t effective.
B) make sure the system changes were well documented and review the documentation to see if perhaps some important feature or process was overlooked during the design phase.
C) email a series of questions to all employees, asking for input about further changes that would bring about the desired results.
D) advise employees that consultants will be conducting observation sessions over the next two weeks to determine if employees have fully implemented changes and whether there is any evidence of resistance to the changes.
Answer:
Page Ref: 592
Objective: Learning Objective 6
Difficulty : Difficult
AACSB: Reflective Thinking

43) Which method of data gathering is most likely to result in information that represents the personal biases and opinions of the person giving the information?
A) a questionnaire
B) an interview
C) observation by the analyst
D) system documentation
Answer:
Page Ref: 592
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

44) When the information is brief and well defined, which is the best data-gathering approach to use?
A) a questionnaire
B) an interview
C) observation by the analyst
D) system documentation
Answer:
Page Ref: 592
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

45) Which is the best data-gathering approach to use when information must be obtained from many different people?
A) a questionnaire
B) an interview
C) observation by the analyst
D) system documentation
Answer:
Page Ref: 592
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

46) The ________ method of gathering information helps to determine how a system actually works.
A) interview
B) observation
C) questionnaire
D) system documentation
Answer:
Page Ref: 592
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

47) The ________ method of gathering information helps to determine how a system should work.
A) interview
B) observation
C) questionnaire
D) system documentation
Answer:
Page Ref: 593
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic
48) What are the best strategies for determining system requirements?
A) analyze existing systems, ask users what they need, prototyping, and monitoring
B) ask users what they need, analyze existing systems, develop concept of new system, and prototyping
C) ask users what they need, analyze existing systems, examine existing system utilization, and prototyping
D) ask users what they need, analyze existing systems, examine existing system utilization, and develop concept of new system
Answer:
Page Ref: 595
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic

49) When would a company go through a systems development life cycle?
A) only when major changes are needed
B) only when minor changes are needed
C) Usually a company only goes through one complete systems development life cycle, after which the only phase that is repeated is the operations and maintenance phase.
D) whenever minor or major changes are needed
Answer:
Page Ref: 579
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

50) What report serves as a repository of data from which systems designers can draw information?
A) the executive steering committee report
B) the initial investigation report
C) the systems analysis report
D) the systems survey report
Answer:
Page Ref: 596
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic
51) Which group is responsible for preparing a systems analysis report?
A) computer analysts
B) management
C) the project development team
D) the steering committee
Answer:
Page Ref: 596
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

52) In which systems analysis step do analysts conduct an extensive study of the present system to gain a thorough understanding of how it works?
A) feasibility study
B) information needs and requirements
C) systems analysis report
D) systems survey
Answer:
Page Ref: 591
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic

53) The question of what the project should and should not accomplish is determined in what step of systems analysis?
A) feasibility study
B) initial investigation
C) systems analysis report
D) systems survey
Answer:
Page Ref: 590
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic

54) A Logical model used to gather information about an existing system
A) comes only after a physical model of the existing system is created.
B) describes how a system actually works, rather than how it should work.
C) illustrates how a system functions by describing the flow of documents and computer processes.
D) illustrates what is being done, regardless of how that flow is actually accomplished.
Answer:
Page Ref: 593
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic
55) The system objective concerned that crucial information be produced first, and then less important items as time permits is known as
A) flexibility.
B) reliability.
C) timeliness.
D) usefulness.
Answer:
Page Ref: 595
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

56) A prototype
A) is expensive to create and is therefore only created once user needs are well-defined.
B) is making an internal and external review of the system to be analyzed, noting that users may not use the existing AIS as intended.
C) is typically created during the physical design phase of systems development.
D) can be used to help users identify and communicate their system needs.
Answer:
Page Ref: 595
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic

57) A project development team at Midwest Construction was assigned the task of improving the efficiency of the firm’s accounting information system. As part of the ________ step in the systems development life cycle, the team has determined that implementation of the new system will yield an internal rate of return of 24.8%.
A) systems analysis
B) operations and maintenance
C) implementation and conversion
D) conceptual design
Answer:
Page Ref: 581
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic
58) A project development team at Midwest Construction was assigned the task of improving the efficiency of the firm’s accounting information system. As part of the ________ step in the systems development life cycle, the team has determined that the objectives of the project can be accomplished by installing a new computer system or by upgrading the existing system.
A) systems analysis
B) implementation and conversion
C) physical design
D) conceptual design
Answer:
Page Ref: 582
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic

59) A project development team at Midwest Construction was assigned the task of improving the efficiency of the firm’s accounting information system. As part of the ________ step in the systems development life cycle, the team has initiated an end user training program in preparation for switching over to the new system.
A) systems analysis
B) operations and maintenance
C) implementation and conversion
D) physical design
Answer:
Page Ref: 582
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

60) A project development team at Midwest Construction was assigned the task of improving the efficiency of the firm’s accounting information system. As part of the ________ step in the systems development life cycle, the team defined the procedures to back up and secure system data.
A) operations and maintenance
B) implementation and conversion
C) physical design
D) conceptual design
Answer:
Page Ref: 582
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic
61) Refer to the diagram below, where the numbers next to the arrows refer to the number of days required for completion of the corresponding activity. What is the critical path?

A) A-B-D-F
B) A-C-E-F
C) A-B-D-E-F
D) A-C-B-D-F
E) A-C-B-D-E-F
Answer:
Page Ref: 584
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic

62) Refer to the diagram below, where the numbers next to the arrows refer to the number of days required for completion of the corresponding activity. What is the critical path?

A) A-B-D-F
B) A-C-E-F
C) A-B-D-E-F
D) A-C-B-D-F
E) A-C-B-D-E-F
Answer:
Page Ref: 584
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic
63) Refer to the diagram below, where the numbers next to the arrows refer to the number of days required for completion of the corresponding activity. What is the critical path?

A) A-B-D-F
B) A-C-E-F
C) A-B-D-E-F
D) A-C-B-D-F
E) A-C-B-D-E-F
Answer:
Page Ref: 584
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic

64) Three months after a new telephone system with voice mail was installed at Modest Expectations College in Pennsylvania, several senior faculty members were contacted by a telecommunications secretary and were told that their voice mail boxes were full. This is an example of dealing with change by
A) deterrence.
B) projection.
C) avoidance.
D) aggression.
Answer:
Page Ref: 589
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic
65) Shortly after a new automated quality assurance system went online, production output declined by three percent. The production manager, a long time employee, blamed the new system. He argued that “after we laid off Tom and Jimmy and put this machine in, things just slowed down. Nothing seems to work right anymore.” This is an example of dealing with change by
A) deterrence.
B) projection.
C) avoidance.
D) aggression.
Answer:
Page Ref: 589
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Analytic

66) On March 18, 2008, a newly installed robotic painting system broke down. A technician was called to repair the system. She found that a shoe had been shoved into the system’s innards. This is an example of dealing with change by
A) deterrence.
B) projection.
C) avoidance.
D) aggression.
Answer:
Page Ref: 589
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic

67) Refer to the table below, which shows the results of payback, net present value, and internal rate of return analysis of four projects. Which is preferred by the payback criterion?

A) Project A
B) Project B
C) Project C
D) Project D
Answer:
Page Ref: 587
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic
68) Refer to the table below, which shows the results of payback, net present value, and internal rate of return analysis of four projects. Which is preferred by the net present value criterion?

A) Project A
B) Project B
C) Project C
D) Project D
Answer:
Page Ref: 587
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

69) Refer to the table below, which shows the results of payback, net present value, and internal rate of return analysis of four projects. Which is preferred by the internal rate of return criterion?

A) Project A
B) Project B
C) Project C
D) Project D
Answer:
Page Ref: 587
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic
70) Refer to the table below, which shows the results of payback, net present value, and internal rate of return analysis of four projects. Which is preferred by the internal rate of return criterion?

A) Project A
B) Project B
C) Project C
D) Project D
Answer:
Page Ref: 587
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

71) Refer to the table below, which shows the results of payback, net present value, and internal rate of return analysis of four projects. Which is preferred by the net present value criterion?

A) Project A
B) Project B
C) Project C
D) Project D
Answer:
Page Ref: 587
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic
72) Refer to the table below, which shows the results of payback, net present value, and internal rate of return analysis of four projects. Which is preferred by the payback criterion?

A) Project A
B) Project B
C) Project C
D) Project D
Answer:
Page Ref: 587
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

73) Dysfunctional employee behavior in response to implementation of a new computerized information system is likely to be the result of
A) poor human resource policies.
B) lack of communication and training.
C) weak system controls.
D) inadequate compensation policies.
Answer:
Page Ref: 588
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Analytic

74) The least time-consuming method of collecting data for use in a systems survey is
A) observation.
B) interviews.
C) questionnaires.
D) reviewing system documentation.
Answer:
Page Ref: 592
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic
75) Which of the following is the most important and frequently analyzed aspect of a feasibility study?
A) Economic feasibility
B) Technical feasibility
C) Legal feasibility
D) Operational feasibility
Answer:
Page Ref: 586
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Analytic

76) Which of the following aspect of a feasibility study is concerned with meeting external reporting requirements?
A) Technical feasibility
B) Legal feasibility
C) Scheduling feasibility
D) Operational feasibility
Answer:
Page Ref: 586
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

77) Which of the following aspect of a feasibility study is concerned with human resources?
A) Technical feasibility
B) Legal feasibility
C) Scheduling feasibility
D) Operational feasibility
Answer:
Page Ref: 586
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic
78) Identify the main reasons why companies change existing systems?

79) Who makes up the project development team and what is the team’s purpose?

80) Describe the five phases of systems analysis.

81) Describe the four primary objectives of a systems survey conducted during systems analysis.

82) Identify and briefly discuss the points at which a “go/no go” decision is made in the systems analysis process.

83) Describe the physical design stage of the systems development life cycle.

84) Describe the importance of the master plan in systems development.

85) Identify and discuss the role of the groups that influence the development and implementation of an AIS.

86) Describe economic feasibility analysis. What techniques are used in economic feasibility analysis?

87) Discuss the relative advantages and disadvantages of the four different methods for gathering data during a systems survey.

88) Identify and describe the five types of feasibility that must be considered throughout the system development life cycle.

89) What are some of the reasons why behavioral problems occur when a new AIS is introduced?

90) For each of the following items, discuss which of the four data gathering methods would be most appropriate and why.
a. Eliciting 300 employees’ opinions on a new incentive program to replace the current bonus program.
b. Identifying how the credit approval process for new customers is supposed to be conducted and by whom.

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 21 AIS Development Strategies

1) Which statement below regarding the development of an AIS is false?
A) A newly designed AIS always meets user needs for a time period.
B) Changes to the AIS are often difficult to make after requirements have been frozen into specifications.
C) The development process can take so long that the system no longer meets company needs.
D) Users are sometimes unable to specify their needs adequately.
Answer:
Page Ref: 613
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

2) When canned software is used for systems acquisition, the conceptual design phase of the SDLC
A) involves a make-or-buy decision.
B) is combined with the physical design phase.
C) is eliminated.
D) is the same.
Answer:
Page Ref: 614
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

3) When canned software is used for systems acquisition, the physical design phase of the SDLC
A) does not involve designing and coding, although modifications may be made.
B) is combined with the conceptual design phase.
C) is eliminated.
D) is the same as for developing custom software.
Answer:
Page Ref: 614
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
4) When canned software is used for systems acquisition, the implementation and conversion phase of the SDLC does not
A) involve the documentation step.
B) require the company to have trained IS personnel.
C) require the develop and test software step.
D) include A and C above.
Answer:
Page Ref: 614
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

5) When canned software is used for systems acquisition, the maintenance aspect of the operations and maintenance phase of the SDLC
A) is more costly.
B) is not necessary and is eliminated.
C) is usually the responsibility of the vendor.
D) requires trained personnel.
Answer:
Page Ref: 614
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

6) Software development companies write commercial software that can be used by a variety of organizations. Sometimes these companies combine both software and hardware together to sell as one package. Such a package is commonly referred to as
A) a turnkey system.
B) a value-added system.
C) an application service package.
D) canned software.
Answer:
Page Ref: 614
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
7) What is a major problem with “canned software”?
A) A commercial software development company has developed it.
B) Canned software is sold on the open market to a broad range of users with similar requirements.
C) Canned software may not meet all of a company’s information or data processing needs.
D) Canned software may offer easy availability and lower costs.
Answer:
Page Ref: 614
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

8) Which statement is true regarding canned software and the SDLC?
A) Canned software cannot be modified to meet unique user needs.
B) Companies that buy, rather than develop, AIS software can still follow the SDLC process.
C) Most canned software meets all of a company’s information or data processing needs.
D) The SDLC process does not apply to purchasing canned software.
Answer:
Page Ref: 614
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

9) The reasons for ________ are to simplify the decision-making process, reduce errors, provide timesavings, and avoid potential disagreements.
A) leasing
B) outsourcing
C) prototyping
D) sending out a request for a proposal
Answer:
Page Ref: 614
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
10) Total costs are usually lower, and less time is required for vendor preparation and company evaluation, when requests for proposal are solicited based on
A) exact equipment needs.
B) generalized software needs.
C) specific hardware and software specifications.
D) None of the above are correct.
Answer:
Page Ref: 615
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

11) Information provided on a Request For Proposal given to vendors should include
A) a budget for software and hardware.
B) detailed specifications for the AIS.
C) timeframe required for completion of the project.
D) All of the above are correct.
Answer:
Page Ref: 615
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

12) The system performance evaluation approach that evaluates systems based on the weighted score of criteria and points totaled is called
A) benchmark problem.
B) point scoring.
C) prototyping.
D) requirements costing.
Answer:
Page Ref: 616
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

13) The approaches to evaluating vendor proposals that do not incorporate dollar estimates of costs or benefits are known as
A) benchmark problem and point scoring.
B) point scoring and requirement costing.
C) requirement costing and benchmark problem.
D) All methods mentioned above include dollar estimates.
Answer:
Page Ref: 616
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
14) A request for proposal sent to software vendors is an important tool since it can reduce errors. Which statement below supports this reason?
A) All responses are in the same format and based on the same information.
B) Both parties possess the same expectations and pertinent information is captured in writing.
C) The chances of overlooking important factors are reduced.
D) The same information is provided to all vendors.
Answer:
Page Ref: 614
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

15) What is the first step a company should take when evaluating requests for proposals?
A) Carefully compare proposals against the proposed AIS requirements.
B) Determine how much of a given proposal meets the desired AIS requirements.
C) Eliminate proposals that are missing important information or fail to meet minimum requirements.
D) Invite vendors to demonstrate their systems.
Answer:
Page Ref: 615
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

16) The ________ method calculates and compares the processing times of different AIS to compare system performance.
A) benchmark problem
B) mandatory requirements
C) point scoring
D) requirements costing
Answer:
Page Ref: 616
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

17) What is a drawback to using the requirement costing method of software and hardware evaluation?
A) Dollar estimates of costs and benefits are not included.
B) Intangible factors such as reliability and vendor support are overlooked.
C) The weights and points used are assigned subjectively.
D) There is no drawback to using the requirements costing method.
Answer:
Page Ref: 616
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

18) A costly and labor-intensive approach to systems acquisition is creating
A) canned software.
B) custom software.
C) modified software.
D) turnkey software.
Answer:
Page Ref: 617
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

19) Which of the following is not appropriate for end user development?
A) performing statistical analyses
B) preparing schedules and lists
C) retrieving information from databases
D) updating database records
Answer:
Page Ref: 618
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

20) What is the basic function of a help desk?
A) control access to corporate data
B) provide technical maintenance and support
C) train end users and assist with application development
D) All of the above are basic functions of a help desk.
Answer:
Page Ref: 619
Objective: Learning Objective 3
Difficulty : Difficult
AACSB: Analytic

21) Why do so many organizations develop their own software, when many canned software packages are available?
A) An organization may have unique requirements.
B) Canned software packages are often less expensive than software developed in house.
C) The organization’s size and complexity necessitates the in-house development of software.
D) A and C above are correct.
Answer:
Page Ref: 617
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

22) Which of the following is not a guideline used to select an outside developer for custom system?
A) The outside developer should have an in-depth understanding of how the company conducts its business.
B) The outside developer should have experience in the company’s industry.
C) The outside developer should possess a good understanding of business in general.
D) The outside developer should be able to complete the system independently, without requiring frequent contact to ask questions.
Answer:
Page Ref: 617
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

23) What term is used to refer to users becoming involved in the hands-on development, control, and employment of information systems?
A) amateur user computing (AUC)
B) competitive intra-organization systems development approach (CIOSDA)
C) end-user computing (EUC)
D) novice information systems development (NISD)
Answer:
Page Ref: 617
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
24) End-user development is inappropriate for some types of systems. What is an example of a system that end users should not be allowed to develop?
A) a payroll processing program
B) a program that performs “what-if” statistical modeling
C) developing an application using prewritten software such as a spreadsheet or database system
D) preparing a schedule or list such as a depreciation schedule
Answer:
Page Ref: 618
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

25) What is an important risk to be considered when allowing end users to develop a system?
A) IS personnel may not have enough work to do.
B) Systems are implemented that have not been adequately tested.
C) Systems are usually easy to use and modify.
D) Users control development process and decide what systems are created and implemented.
Answer:
Page Ref: 618
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

26) Which of the following about end-user computing is true?
A) System users know best what they need, so should be able to create their own applications.
B) End-users, while knowledgeable about their job, are not trained to create systems applications, and should not be allowed to do so.
C) It is inefficient and costly to ask the IS department to create basic applications that only a few users need to use.
D) In most companies, the IS department doesn’t want end-users to create their own applications, for fear IS won’t have enough work to do.
Answer:
Page Ref: 618
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
27) What would be one duty of second-line help desk personnel?
A) handling complicated queries requiring research
B) provide callers with scripted answers
C) using expert systems to quickly find answers
D) None of the duties listed above pertain to second-line help desk personnel.
Answer:
Page Ref: 619
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

28) How does outsourcing improve an organization’s utilization of assets?
A) by allowing a company to completely eliminate its IS department, which will reduce its payroll costs
B) by allowing the company to sell assets to outsourcers and improve their cash position
C) by eliminating the expense of keeping up with the latest technology and, thus, eliminate the drain on cash reserves
D) Both B and C above are correct.
Answer:
Page Ref: 620
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

29) Which of the following is not a benefit of outsourcing?
A) access to greater expertise and more advanced technology
B) greater control
C) improved development time
D) lower costs
Answer:
Page Ref: 621
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Analytic

30) A company that has outsourced its AIS function can lose a fundamental understanding of its AIS needs and the strategic uses of AIS with the passing of time. What is this risk called?
A) focus reduction
B) loss of control
C) reduced competitive advantage
D) unfulfilled goals
Answer:
Page Ref: 621
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Analytic
31) Which advantage of outsourcing, given below, may tend to cause resistance on the part of in-house IS staff and other organization employees?
A) Outsourcing allows a company to better use its assets and scarce resources.
B) Outsourcing can lower a company’s overall IS costs.
C) Outsourcing facilitates downsizing.
D) Outsourcing helps eliminate the peaks and valleys of system usage.
Answer:
Page Ref: 620
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

32) The risk of outsourcing concerned with unauthorized disclosure of sensitive information is the risk of
A) a locked-in system.
B) a loss of control.
C) a reduced competitive advantage.
D) inflexibility.
Answer:
Page Ref: 621
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

33) Business Process Management views business processes as
A) strategic organizational assets.
B) a series of small tasks to be closely managed.
C) related activities that, once perfected, should be managed on an exception basis.
D) subsets of organizational strategy that should not be owned by any specific person or department.
Answer:
Page Ref: 622
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Analytic

34) Which of the following is not an element of managing a business process “end to end”?
A) identifying process experts to oversee specific functions across units
B) designating a process owner
C) setting performance standards
D) establishing control and monitoring processes
Answer:
Page Ref: 622
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Analytic
35) Which of the following is not true about business process management (BPM) and enterprise resource planning (ERP) systems?
A) ERP systems encompass all functions and processes in an organization, but BPM systems are implemented at process or unit levels in an organization.
B) BPM systems are process-centered, but ERP systems are data-centered.
C) Organizations can use both ERP and BPM systems at the same time.
D) ERP and BPM systems rely heavily technology for communication and coordination.
Answer:
Page Ref: 622
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Analytic

36) Which of the following is not one of the ways in which a Business Process Management System can improve internal control?
A) Innovative technology allows access and authorization controls to be programmed at the transaction level.
B) Documents or transactions that require approval can be electronically routed to a manager.
C) Process rules are used to alert users when actions must be taken.
D) All actions and processes are monitored and documented in a process log for periodic review.
Answer:
Page Ref: 622
Objective: Learning Objective 5
Difficulty : Difficult
AACSB: Analytic

37) The basic premise of ________ is that it is easier for people to express what they like or dislike about an existing system than to imagine what they would like in a system.
A) modified software
B) outsourcing agreements
C) prototyping
D) turnkey systems
Answer:
Page Ref: 623
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic
38) Which statement below regarding prototyping is false?
A) Prototypes are considered “first drafts,” which are quickly built and intended to be discarded when the real system is finished.
B) Developers who use prototyping still go through the systems development life cycle.
C) Prototypes help developers and end users make conceptual and physical design decisions.
D) Prototyping allows developers to condense and speed up parts of the analysis and design phases.
Answer:
Page Ref: 624
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic

39) What is the emphasis of the first step involved in developing a prototype?
A) develop a good prototype into a fully functional system
B) speed and low cost rather than efficiency of operation
C) users identify changes to be made in an iterative process
D) what output should be produced rather than how it should be produced
Answer:
Page Ref: 623
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

40) The development of which type of system listed below would not benefit from the creation of a prototype?
A) decision support systems
B) executive information systems
C) expert systems
D) systems that cross a number of organizational boundaries
Answer:
Page Ref: 624
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic

41) What is a disadvantage to prototyping?
A) developers may shortchange the testing and documentation process
B) errors are likely to be detected and eliminated early in the development process
C) prototyping may be less costly than other approaches
D) prototyping usually produces a better definition of user needs than other approaches
Answer:
Page Ref: 625
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

42) Which is not a problem with CASE technology?
A) cost
B) incompatibility
C) lack of system documentation
D) unmet expectations
Answer:
Page Ref: 626
Objective: Learning Objective 7
Difficulty : Easy
AACSB: Analytic

43) Which of the following were CASE tools not designed to do?
A) replace skilled designers
B) plan, analyze, design, program, and maintain an information system
C) automate important aspects of the software development process
D) enhance the efforts of managers in understanding information needs
Answer:
Page Ref: 625
Objective: Learning Objective 7
Difficulty : Easy
AACSB: Analytic

44) Benathir Donathat, director of the project committee, has received approval from management for implementation of a new accounting information system. After putting out an RFP, the committee settled on a vendor that will deliver all hardware and software required on a lease basis. The committee decided to go with
A) canned software.
B) a turnkey system.
C) an outsourced system.
D) an end-user developed system.
Answer:
Page Ref: 614
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

45) Benathir Donathat, director of the project committee, has received approval from management for implementation of a new accounting information system. After putting out an RFP, the committee settled on a Web-based application service provider that will manage all hardware and software required by the system, with fees based on usage. The committee decided to go with
A) canned software.
B) a turnkey system.
C) an outsourced system.
D) an end-user developed system.
Answer:
Page Ref: 619
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

46) Benathir Donathat, director of the project committee, has received approval from management for implementation of a new accounting information system. After putting out an RFP, the committee settled on a vendor that will provide an industry standard software package and post-sale technical support. The committee decided to go with
A) canned software.
B) a turnkey system.
C) an outsourced system.
D) an end-user developed system.
Answer:
Page Ref: 614
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

47) Firms should consider developing custom software only if
A) it will be used for critical functions like accounts receivable.
B) it will contribute to development of a significant competitive advantage.
C) the firm has the necessary expertise available in-house.
D) the available canned software is very expensive.
Answer:
Page Ref: 617
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic
48) End-user computing is likely to result in a(n)
A) well tested system.
B) well documented system.
C) rapidly developed system.
D) efficient system.
Answer:
Page Ref: 618
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

49) What is a benchmark problem?
A) A difficulty encountered when attempting to bring an accounting information system up to industry best practices
B) A method used to compare the efficiency of alternative accounting information systems
C) The cost-benefit tradeoff defined by the relationship between increased costs and increased benefits from a system
D) A method used to test the compatibility of a new accounting information system with existing hardware and software
Answer:
Page Ref: 616
Objective: Learning Objective 1
Difficulty : Difficult
AACSB: Analytic

50) Which of the following is a method for comparing alternative vendor proposals for development of an accounting information system when the vendors differ with regard to their ability to meet the project criteria?
A) Point scoring
B) Resource clearing
C) Requirements costing
D) Multi-objective optimization.
Answer:
Page Ref: 616
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
51) Where is the responsibility for the development of end-user computing applications typically placed?
A) End users
B) Help desk
C) Information Technology Services Department
D) Programmers
Answer:
Page Ref: 617
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

52) Callow Youth Clothing (CYC) declared bankruptcy in 2007 and has since closed 27 stores, which amounts to over half of its retail outlets. One of the conditions specified for emergence from bankruptcy is a reduction in the cost of operating the firm’s accounting information system. Which of the following may be recommended?
A) Replace the existing system with one of a smaller scale.
B) Customize the existing system.
C) Outsource system operations.
D) Purchase a canned software system.
Answer:
Page Ref: 620
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Reflective Thinking

53) Software as a Service (SaaS) refers to Web-based computing services provided by a(an)
A) application service provider (ASP).
B) Internet service provider (ISP).
C) end-user system (EUS).
D) help desk.
Answer:
Page Ref: 614
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
54) Firms should consider preparing a software prototype if the software
A) will be used for a critical function like accounts receivable.
B) automates an unstructured or semi-structured task.
C) can be produced using expertise available in-house.
D) is available as a canned package.
Answer:
Page Ref: 624
Objective: Learning Objective 6
Difficulty : Difficult
AACSB: Analytic

55) Firms should consider preparing a software prototype if the application
A) will be used for a critical function like inventory management.
B) automates a structured task.
C) can be produced using outside developers.
D) inputs and outputs are not clearly defined.
Answer:
Page Ref: 624
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic

56) Which of the following is an advantage of CASE?
A) It exhibits a high degree of cross-system compatibility.
B) It is an inexpensive technology that is accessible to small businesses.
C) Documentation is generated automatically.
D) It enhances the congruence between user expectations and the final system.
Answer:
Page Ref: 626
Objective: Learning Objective 7
Difficulty : Moderate
AACSB: Analytic

57) As part of the development process for a new job bidding software system for Halide Construction, LLC, Jon Chelide prepared and distributed diagrams that represent input and output screenshots. The diagrams are an example of
A) CASE.
B) an operational prototype.
C) a RFP.
D) a nonoperational prototype.
Answer:
Page Ref: 624
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic
58) As part of the development process for a new job bidding software system for Halide Construction, LLC, Jon Chelide prepared and distributed functional programs that simulate the system’s input and output interface. These programs are an example of
A) CASE.
B) an operational prototype.
C) a RFP.
D) a nonoperational prototype.
Answer:
Page Ref: 624
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic

59) In which of the following cases is outsourcing likely to be the best solution to the firm’s data processing needs?
A) Sad Clown Pajamas produces and wholesales clothing products to retailers worldwide. Eighty percent of its sales orders are taken during the months of October and November. Sad Clown requires a system that will manage online ordering and fulfillment.
B) Modest Expectations Investment Services manages highly diverse portfolios and provides personal services to high income investors worldwide. The firm needs a system that will pull together selected investment data from a large variety of sources and allow account managers to prepare customized reports for customers.
C) J.D. Yacht is in the business of buying businesses, managing them for no more than two years, and then selling them at a profit. The firm requires a flexible system that will allow them to effectively manage the various types of businesses it controls.
D) Halide Construction, LLC, manages the design and construction of desalinization plants and requires a system that will allow it to manage the process from bid to billing.
Answer:
Page Ref: 620
Objective: Learning Objective 4
Difficulty : Difficult
AACSB: Reflective Thinking
60) Describe the difficulties that could be encountered when developing an AIS.

61) What are the three methods to obtain a new information system? What is a turnkey system?

62) What guidelines should be followed when contracting with an outside developer to create custom software?

63) Describe the purposes of a help desk.

64) Describe outsourcing and identify the two types of outsourcing agreements.

65) Describe computer-aided software (or systems) engineering (CASE) and identify the advantages and disadvantages of CASE?

66) Explain the concept of an application service provider.

67) Identify the ways an organization can gain full advantage of using a Request For Proposal (RFP).

68) Discuss how an organization can develop custom software.

69) What are the advantages and disadvantages of custom software and of canned software for meeting application software needs?

70) Describe end-user computing and the advantages and risks involved.

71) Describe prototyping and identify when prototyping is appropriate. Identify the steps involved in prototyping. Discuss the advantages and disadvantages of prototyping.

72) Discuss how information system outsourcing can provide the organization with both a business solution and asset management.

73) Describe each of the four important principles underlying Business Process Management (BPM).

Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 22 Systems Design, Implementation, and Operation

1) Developing a general framework for implementing user requirements and solving problems identified in the analysis phase occurs in which phase of the SDLC?
A) conceptual systems design
B) implementation and conversion
C) operations and maintenance
D) physical design
Answer:
Page Ref: 641
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

2) Who is responsible for evaluating the design alternatives and selecting the one that best meets the organization’s needs?
A) design team
B) implementation committee
C) steering committee
D) systems analysts
Answer:
Page Ref: 641
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

3) Which of the following lists represent the sequence of elements in developing the conceptual design specifications?
A) input, data storage, processing procedures and operations, and output
B) input, output, data storage, and processing procedures and operations
C) output, data storage, input, and processing procedures and operations
D) processing procedures and operations, input, data storage, and output
Answer:
Page Ref: 643
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

4) The project team wants to find the most efficient way to collect data in order to prepare a report on sales per store. Which element in design specifications will deal with the decision?
A) data collection
B) input
C) output
D) processing procedures
Answer:
Page Ref: 643
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic

5) One of the purposes of the ________ is to guide physical systems design activities.
A) conceptual systems design report
B) physical systems design report
C) program design
D) systems analysis report
Answer:
Page Ref: 643
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

6) The decision about how often to produce a certain report is part of which conceptual design specification element?
A) data storage
B) input
C) output
D) processing procedures and operations
Answer:
Page Ref: 643
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

7) Which of the following is not a reason for preparing the conceptual systems design report?
A) It can be used to guide physical systems design activities.
B) It communicates how management and user information needs will be met.
C) It discusses the design alternatives that were not selected for the project.
D) It helps the steering committee assess system feasibility.
Answer:
Page Ref: 643
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

8) Which consideration below is not considered important to output design?
A) format
B) location
C) medium
D) source
Answer:
Page Ref: 643
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic

9) All of the following reports have pre-specified content and format except
A) demand reports.
B) scheduled reports.
C) special-purpose analysis reports.
D) triggered exception reports.
Answer:
Page Ref: 644
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

10) For file and database design, it is advantageous to have
A) all data in compatible format.
B) easy access to the system.
C) a printout of the data dictionary.
D) copies of necessary reports.
Answer:
Page Ref: 644
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

11) Physical input design considerations include
A) which transactions to enter.
B) layout of source documents.
C) types of data input and optimal input methods.
D) cost of collecting and storing data.
Answer:
Page Ref: 645
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

12) Program design
A) spans all five stages of the system development life cycle.
B) includes writing computer code.
C) includes debugging logic errors.
D) is described by all the above.
Answer:
Page Ref: 645-646
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

13) Which of the following statements below is correct about modules of computer code created during program design?
A) Modules interact with each other directly and also through the control module.
B) Modules interact with each other directly.
C) Modules interact with only the control module.
D) Modules primarily, but not always, interact with the control module.
Answer:
Page Ref: 646
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

14) Which of the following statements is true?
A) Structured programming divides programs into well-defined segments to reduce complexity.
B) Structured programming is used to debug logic errors in programs.
C) Structured programming is accomplished by using a flowchart to guide design.
D) Structured programming pieces together standard code strings into a completed program.
Answer:
Page Ref: 646
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

15) Which of the following is not a consideration in procedures and controls design?
A) Are customer data stored in alphabetical order in a master file?
B) Are payments made only to legitimate vendors?
C) Are data processed and stored accurately?
D) Can the system be modified without affecting system availability?
Answer:
Page Ref: 648
Objective: Learning Objective 2
Difficulty : Difficult
AACSB: Analytic

16) The accountant wants to make sure that all cash disbursements are made only to legitimate vendors. Which of the following control considerations will deal with this concern?
A) security
B) accuracy
C) authorization
D) validity
Answer:
Page Ref: 648
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

17) The sales department wants to make sure that all customer inquiries are answered in real-time. Which of the following controls design considerations will deal with this concern?
A) security
B) authorization
C) accuracy
D) audit trail
Answer:
Page Ref: 648
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

18) At what point in the systems development life cycle does the company determine how the conceptual AIS design is to be implemented?
A) the conceptual design phase
B) the implementation and conversion phase
C) the physical design phase
D) the systems analysis phase
Answer:
Page Ref: 648
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
19) What is the most time-consuming activity in the physical design stage of the systems development life cycle (SDLC), or perhaps even in the entire SDLC process?
A) controls design
B) input design
C) output design
D) program design
Answer:
Page Ref: 645
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

20) Which of the following is a consideration during file and database design?
A) form size
B) format
C) medium
D) organization
Answer:
Page Ref: 645
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

21) ________ is the process of installing hardware and software and getting the AIS up and running.
A) Conceptual design
B) Physical design
C) Systems analysis
D) Systems implementation
Answer:
Page Ref: 648
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

22) The first step in program design is to
A) determine user needs.
B) develop a plan.
C) hire program users.
D) write program instructions.
Answer:
Page Ref: 646
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
23) Flowcharts, record layouts, decision tables, and related items are part of
A) determining user needs.
B) documenting the program.
C) testing the program.
D) training program users.
Answer:
Page Ref: 647
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

24) Effective AIS training involves
A) instruction on new hardware and software.
B) orientation to new policies and operations.
C) planning and scheduling so it occurs before system testing and conversion.
D) All of the above are correct.
Answer:
Page Ref: 649
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

25) Step-by-step reviews of procedures or program logic early in the system design that focus on inputs, files, outputs, and data flows are called
A) acceptance tests.
B) operating tests.
C) processing of test transactions.
D) walk-throughs.
Answer:
Page Ref: 650
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

26) One process used to uncover and eliminate program errors is known as
A) black box testing.
B) debugging.
C) desk checking.
D) white box testing.
Answer:
Page Ref: 646
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic
27) What is used as the basis for management to make a “go/no go” decision regarding whether to proceed from the physical design phase to the implementation and conversion phase of the systems development life cycle?
A) conceptual system design report
B) physical systems design report
C) systems design report
D) implementation planning design report
Answer:
Page Ref: 648
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

28) Who is responsible for identifying such risk factors in an implementation plan?
A) implementation team
B) steering committee
C) systems analysis team
D) systems development team
Answer:
Page Ref: 648
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

29) Within the implementation planning and conversion phase of the systems development life cycle, analysts must ________ before they can ________.
A) complete documentation; test software programs
B) install and test software; test software programs
C) test software programs; test the system
D) test the system; select and train personnel
Answer:
Page Ref: 650
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
30) In which phase of the systems development life cycle would changing tax rates in a software program be accomplished?
A) maintenance
B) operations
C) program design
D) implementation
Answer:
Page Ref: 652
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

31) Several types of documentation must be prepared for a new system. The type of documentation that includes the files and databases accessed and file retention requirements is called
A) development documentation.
B) operations documentation.
C) reference documentation.
D) user documentation.
Answer:
Page Ref: 650
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

32) What type of system test determines whether a program is operating as designed?
A) acceptance test
B) debugging
C) process test data
D) walk-through
Answer:
Page Ref: 650
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

33) What type of system test uses copies of real transaction and file records?
A) acceptance test
B) debugging
C) process test data
D) walk-through
Answer:
Page Ref: 650
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
34) In what type of conversion are old and new systems operated simultaneously for a period of time?
A) direct conversion
B) parallel conversion
C) phase-in conversion
D) pilot conversion
Answer:
Page Ref: 651
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

35) Implementing a new system at a branch location before company-wide adoption is called
A) direct conversion.
B) parallel conversion.
C) phase-in conversion.
D) pilot conversion.
Answer:
Page Ref: 652
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

36) Which of the following activities is not part of data conversion?
A) changing data content
B) moving file servers
C) changing file formats
D) moving files to a new storage medium
Answer:
Page Ref: 652
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

37) What type of conversion terminates the old system as soon as the new system is ready?
A) direct conversion
B) parallel conversion
C) phase-in conversion
D) pilot conversion
Answer:
Page Ref: 651
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
38) Which of the following describes a phase-in conversion?
A) Both the old and new AIS are operated simultaneously.
B) Elements of the old AIS are replaced gradually with elements of the new AIS.
C) The new AIS is introduced into a segment, rather than the whole organization.
D) The old AIS is terminated as the new AIS is introduced.
Answer:
Page Ref: 652
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

39) Which of the following is the final step in the data conversion process?
A) data conversion
B) testing the system
C) documentation of conversion activities
D) monitoring of the system after data conversion
Answer:
Page Ref: 652
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

40) Which factor is not investigated during the post-implementation review?
A) accuracy
B) benefits
C) completion
D) costs
Answer:
Page Ref: 652
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

41) Which of the following is the final activity in the systems development life cycle?
A) monitoring of the system
B) ongoing maintenance activities
C) preparation of the post-implementation review report
D) user acceptance of the post-implementation review report
Answer:
Page Ref: 653
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic
42) An analyst who asks the question, “Does the system produce actual and complete data?” is investigating what postimplementation factor?
A) accuracy
B) compatibility
C) goals and objectives
D) reliability
Answer:
Page Ref: 652
Objective: Learning Objective 4
Difficulty : Moderate
AACSB: Analytic

43) Which of the following is not one of the ways data may need to be modified during data conversion?
A) Resolve data inconsistencies
B) Validate new files
C) Identify files to be converted
D) Remove unnecessary fields from data files
Answer:
Page Ref: 652
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

44) Walk-throughs are system tests that involve
A) managers observing the operation of the system by “walking through” the IT department.
B) processing hypothetical data that are designed to identify errors in the system.
C) processing copies of real transactions in order to determine whether or not the system meets requirements.
D) a thorough review of the procedures and program logic of the system.
Answer:
Page Ref: 650
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
45) Acceptance tests involve
A) managers observing the operation of the system by “walking through” the IT department.
B) processing hypothetical data that are designed to identify errors in the system.
C) processing copies of real transactions in order to determine whether or not the system meets requirements.
D) a thorough review of the procedures and program logic of the system.
Answer:
Page Ref: 650
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

46) Processing test data involves
A) managers observing the operation of the system by “walking through” the IT department.
B) processing hypothetical data that are designed to identify errors in the system.
C) processing copies of real transactions in order to determine whether or not the system meets requirements.
D) a thorough review of the procedures and program logic of the system.
Answer:
Page Ref: 650
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

47) Which of the following is not one of the types of documentation that should be prepared for a new system?
A) Management
B) Operations
C) User
D) Development
Answer:
Page Ref: 650
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic

48) Subdividing program code into small, well-defined modules is
A) called debugging.
B) known as structured programming.
C) part of program maintenance.
D) done during testing.
Answer:
Page Ref: 646
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

49) Performing revisions to existing program code is an example of
A) debugging.
B) structured programming.
C) program maintenance.
D) walk through.
Answer:
Page Ref: 647
Objective: Learning Objective 4
Difficulty : Easy
AACSB: Analytic

50) Chuck in ITS got a call from Phil in Marketing. “Chuck, you know that inventory report I had you guys prepare for me last year? Well, I need you to run it again and send it over in hard copy. Thanks.” This is an example of a
A) scheduled report.
B) special-purpose analysis report.
C) triggered exception report.
D) demand report.
Answer:
Page Ref: 644
Objective: Learning Objective 2
Difficulty : Moderate
AACSB: Analytic

51) Phil in Marketing got a call from Chuck in ITS. “Phil, the system just generated a stock-out report. I wanted to give you a heads up. I’m sending it right over.” This is an example of a
A) scheduled report.
B) special-purpose analysis report.
C) triggered exception report.
D) demand report.
Answer:
Page Ref: 644
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

52) Chuck in ITS got a call from Phil in Marketing. “Chuck, I need you to do something for me. Query sales data for the first quarter and pull out all of the invoices that include the snow blower discount. I need a count and the total amount of the discount. Thanks.” This is an example of a
A) scheduled report.
B) special-purpose analysis report.
C) triggered exception report.
D) demand report.
Answer:
Page Ref: 644
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

53) Phil in Marketing got a call from Fred at regional headquarters. “Phil, I just got the quarterly sales report for your district. You beat your quota again, you son of a gun!” This is an example of a
A) scheduled report.
B) special-purpose analysis report.
C) triggered exception report.
D) demand report.
Answer:
Page Ref: 644
Objective: Learning Objective 2
Difficulty : Easy
AACSB: Analytic

54) Which of the following is the most costly and least risky method of converting from one system to another?
A) Direct
B) Parallel
C) Pilot
D) Phase-in
Answer:
Page Ref: 651
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic
55) Which of the following is the least costly and most risky method of converting from one system to another?
A) Direct
B) Parallel
C) Pilot
D) Phase-in
Answer:
Page Ref: 651
Objective: Learning Objective 3
Difficulty : Moderate
AACSB: Analytic

56) How can accountants help in the systems development life cycle (SDLC) process?

57) What factors does a steering committee consider when evaluating different system designs?

58) What are the purposes of a conceptual systems design report?

59) Describe at least four considerations during controls design.

60) What is systems implementation? How do you plan for it?

61) Describe the different types of documentation that should be prepared for a new system.

62) Describe the different methods of testing a system.

63) Describe the post-implementation review activity.

64) What output design considerations should be analyzed as part of the physical system design phase?

65) Describe structured programming.

66) Describe the conceptual systems design phase and identify the elements of conceptual design specifications?

67) What is the objective of output design? What are the output design considerations? What are the various categories of outputs?

68) Describe the approaches to system conversion.

69) Write one question that should be asked about each of the controls design considerations.

70) Describe the eight basic steps in program design.

ACC/557 Midterm Exam – New

ACC 557 Midterm Exam – Strayer New

Click On The Link Below To Purchase
Instant Download

http://budapp.net/ACC-557-Midterm-Exam-New-ACC557W5E.htm

 

Chapter 1 Through 8

CHAPTER 1

ACCOUNTING IN ACTION

CHAPTER LEARNING OBJECTIVES
1. Explain what accounting is.
2. Identify the users and uses of accounting.
3. Understand why ethics is a fundamental business concept.
4. Explain generally accepted accounting principles.
5. Explain the monetary unit assumption and the economic entity assumption.
6. State the accounting equation, and define its components
7. Analyze the effects of business transactions on the accounting equation.
8. Understand the four financial statements and how they are prepared.
a9. Explain the career opportunities in accounting.

TRUE-FALSE STATEMENTS
1. Owners of business firms are the only people who need accounting information.

2. Transactions that can be measured in dollars and cents are recorded in the financial information system.

3. The hiring of a new company president is an economic event recorded by the financial information system.

4. Management of a business enterprise is the major external user of information.

5. Accounting communicates financial information about a business enterprise to both internal and external users.

6. Accounting information is used only by external users with a financial interest in a business enterprise.

7. Financial statements are the major means of communicating accounting information to interested parties.

8. Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process.

9. The origins of accounting are attributed to Luca Pacioli, a famous mathematician.

10. The study of accounting will be useful only if a student is interested in working for a profit-oriented business firm.

11. Private accountants are accountants who are not employees of business enterprises.

12. The study of accounting is not useful for a business career unless your career objective is to become an accountant.

13. A working knowledge of accounting is not relevant to a lawyer or an architect.

14. Expressing an opinion as to the fairness of the information presented in financial statements is a service performed by CPAs.

15. Accountants rely on a fundamental business concept—ethical behavior—in reporting financial information.

16. The primary accounting standard-setting body in the United States is the International Accounting Standards Board.

17. The Financial Accounting Standards Board is a part of the Securities and Exchange Commission.

18. The Securities and Exchange Commission oversees U.S. financial markets and accounting standard-setting bodies.

19. The cost and fair value of an asset are the same at the time of acquisition and in all subsequent periods.

20. Even though a partnership is not a separate legal entity, for accounting purposes the partnership affairs should be kept separate from the personal activities of the owners.

21. A partnership must have more than one owner.

22. The economic entity assumption requires that the activities of an entity be kept separate and distinct from the activities of its owner and all other economic entities.

23. The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.

24. In order to possess future service potential, an asset must have physical substance.

25. Owners’ claims to total business assets take precedence over the claims of creditors because owners invest assets in the business and are liable for losses.

26. The basic accounting equation states that Assets = Liabilities.

27. Accountants record both internal and external transactions.

28. Internal transactions do not affect the basic accounting equation because they are economic events that occur entirely within one company.

29. The purchase of store equipment for cash reduces stockholders’ equity by an equal amount.

30. The purchase of office equipment on credit increases total assets and total liabilities.

31. The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company during a period.

32. Net income for the period is determined by subtracting total expenses and drawings from total revenues.

33. The income statement is sometimes referred to as the statement of operations.

34. A balance sheet reports the assets and liabilities of a company for a specific period of time.

35. The ending retained earnings balance is reported on both the retained earnings statement and the balance sheet.

36. Identifying is the process of keeping a chronological diary of events measured in dollars and cents.

37. Management consulting includes examining the financial statements of companies and expressing an opinion as to the fairness of their presentation.

38. Accountants do not have to worry about issues of ethics.

39. At the time an asset is acquired, cost and fair value should be the same.

40. The monetary unit assumption requires that all dollar amounts be rounded to the nearest dollar.

41. The basic accounting equation is in balance when the creditor and ownership claims against the business equal the assets.

42. External transactions involve economic events between the company and some other enterprise or party.

43. In the retained earnings statement, revenues are listed first, followed by expenses, and net income (or net loss).

MULTIPLE CHOICE QUESTIONS
44. Accountants refer to an economic event as a
a. purchase.
b. sale.
c. transaction.
d. change in ownership.

45. The process of recording transactions has become more efficient because
a. fewer events can be quantified in financial terms.
b. computers are used in processing business events.
c. more people have been hired to record business transactions.
d. business events are recorded only at the end of the year.

46. Communication of economic events is the part of the accounting process that involves
a. identifying economic events.
b. quantifying transactions into dollars and cents.
c. preparing accounting reports.
d. recording and classifying information.

47. Which of the following events cannot be quantified into dollars and cents and recorded as an accounting transaction?
a. The appointment of a new CPA firm to perform an audit.
b. The purchase of a new computer.
c. The sale of store equipment.
d. Payment of income taxes.

48. The use of computers in recording business events
a. has made the recording process more efficient.
b. does not use the same principles as manual accounting systems.
c. has greatly impacted the identification stage of the accounting process.
d. is economical only for large businesses.

49. The accounting process involves all of the following except
a. identifying economic transactions that are relevant to the business.
b. communicating financial information to users by preparing financial reports.
c. recording nonquantifiable economic events.
d. analyzing and interpreting financial reports.

50. The accounting process is correctly sequenced as
a. identification, communication, recording.
b. recording, communication, identification.
c. identification, recording, communication.
d. communication, recording, identification.

51. Which of the following techniques are not used by accountants to interpret and report financial information?
a. Graphs.
b. Special memos for each class of external users.
c. Charts.
d. Ratios.

52. Accounting consists of three basic activities which are related to economic events of an organization. These include
a. identifying, recording, and communicating
b. identifying, calculating, and responding
c. classifying, numbering, and reporting
d. issuing, reporting, and classifying

53. All of the following statements are correct except
a. Good decision-making depends on good information.
b. A vital element in communicating economic events is the accountant’s ability to analyze and interpret reported information.
c. The origins of accounting are generally attributed to Socrates, a classical Greek philosopher, who promoted accounting as a social contract.
d. The information that a user of financial information needs depends upon the kinds of decisions the user makes.

54. Which of the following would not be considered an internal user of accounting data for the GHI Company?
a. President of the company.
b. Production manager.
c. Merchandise inventory clerk.
d. President of the employees’ labor union.

55. Which of the following would not be considered an external user of accounting data for the GHI Company?
a. Internal Revenue Service Agent.
b. Management.
c. Creditors.
d. Customers.

56. Which of the following would not be considered internal users of accounting data for a company?
a. The president of a company.
b. The controller of a company.
c. Creditors of a company.
d. Salesmen of the company.

57. Which of the following is an external user of accounting information?
a. Labor unions.
b. Finance directors.
c. Company officers.
d. Managers.

58. Which one of the following is not an external user of accounting information?
a. Regulatory agencies.
b. Customers.
c. Investors.
d. All of these are external users.

59. Bookkeeping differs from accounting in that bookkeeping primarily involves which part of the accounting process?
a. Identification.
b. Communication.
c. Recording.
d. Analysis.

60. The origins of accounting are generally attributed to the work of
a. Christopher Columbus.
b. Abner Doubleday.
c. Luca Pacioli.
d. Leonardo da Vinci.

61. Financial accounting provides economic and financial information for all of the following except
a. creditors.
b. investors.
c. managers.
d. other external users.

62. The final step in solving an ethical dilemma is to
a. identify and analyze the principal elements in the situation.
b. recognize an ethical situation.
c. identify the alternatives and weigh the impact of each alternative on stakeholders.
d. recognize the ethical issues involved.

63. The first step in solving an ethical dilemma is to
a. identify and analyze the principal elements in the situation.
b. identify the alternatives.
c. recognize an ethical situation and the ethical issues involved.
d. weigh the impact of each alternative on various stakeholders.

64. Ethics are the standards of conduct by which one’s actions are judged as
a. right or wrong.
b. honest or dishonest.
c. fair or unfair.
d. All of these answers are correct.

65. All of the following are steps in analyzing ethics cases in financial reporting except
a. identify and analyze the principle elements in the situation.
b. contact law enforcement regarding any violations of corporate ethics codes
c. identify the alternatives and weigh the impact of each alternative on various stakeholders.
d. recognize an ethical situation and the ethical issues involved.

66. In order to increase comparability, in recent years, the FASB and IASB have made efforts to reduce the differences between U.S.GAAP and IFRS through a process known as
a. convergence
b. monetary unit assumption
c. the cost principle
d. the fair value principle

67. Martin Corporation purchased land in 2007 for $290,000. In 2015, it purchased a nearly identical parcel of land for $460,000. In its 2015 balance sheet, Martin valued these two parcels of land at a combined value of $920,000. By reporting the land in this manner, Martin Corp. has violated the
a. historical cost principle
b. convergence
c. economic entity assumption
d. monetary unit assumption

68. Andre Dickinson, owner of Andre’s Fine Wines, also owns a personal residence that costs $475,000. The market value of his residence is $625,000. During preparation of the financial statements for Andre’s Fine Wines, the accounting concept most relevant to the presentation of Andre’s home is
a. the economic entity assumption.
b. the fair value principle.
c. the monetary unit assumption.
d. convergence.

69. Generally accepted accounting principles are
a. income tax regulations of the Internal Revenue Service.
b. standards that indicate how to report economic events.
c. theories that are based on physical laws of the universe.
d. principles that have been proven correct by academic researchers.

70. The historical cost principle requires that when assets are acquired, they be recorded at
a. appraisal value.
b. cost.
c. market price.
d. book value.

71. The cost of an asset and its fair value are
a. never the same.
b. the same when the asset is sold.
c. irrelevant when the asset is used by the business in its operations.
d. the same on the date of acquisition.

72. The body of theory underlying accounting is not based on
a. physical laws of nature.
b. concepts.
c. principles.
d. definitions.

73. The private sector organization involved in developing accounting principles is the
a. Feasible Accounting Standards Body.
b. Financial Accounting Studies Board.
c. Financial Accounting Standards Board.
d. Financial Auditors’ Standards Body.

74. The SEC and FASB are two organizations that are primarily responsible for establishing generally accepted accounting principles. It is true that
a. they are both governmental agencies.
b. the SEC is a private organization of accountants.
c. the SEC often mandates guidelines when no accounting principles exist.
d. the SEC and FASB rarely cooperate in developing accounting standards.

75. GAAP stands for
a. Generally Accepted Auditing Procedures.
b. Generally Accepted Accounting Principles.
c. Generally Accepted Auditing Principles.
d. Generally Accepted Accounting Procedures.

76. Financial information that is capable of making a difference in a decision is
a. faithfully representative.
b. relevant.
c. convergent.
d. generally accepted.

77. The Duce Company has five plants nationwide that cost a total of $100 million. The current fair value of the plants is $500 million. The plants will be recorded and reported as assets at
a. $100 million.
b. $600 million.
c. $400 million.
d. $500 million.

78. The fair value principle is applied for
a. all assets.
b. current assets.
c. buildings.
d. investment securities.

79. The proprietorship form of business organization
a. must have at least three owners in most states.
b. represents the largest number of businesses in the United States.
c. combines the records of the business with the personal records of the owner.
d. is characterized by a legal distinction between the business as an economic unit and the owner.

80. The economic entity assumption requires that the activities
a. of different entities can be combined if all the entities are corporations.
b. must be reported to the Securities and Exchange Commission.
c. of a sole proprietorship cannot be distinguished from the personal economic events of its owners.
d. of an entity be kept separate from the activities of its owner.

81. A business organized as a corporation
a. is not a separate legal entity in most states.
b. requires that stockholders be personally liable for the debts of the business.
c. is owned by its stockholders.
d. terminates when one of its original stockholders dies.

82. The partnership form of business organization
a. is a separate legal entity.
b. is a common form of organization for service-type businesses.
c. enjoys an unlimited life.
d. has limited liability.

83. Which of the following is not an advantage of the corporate form of business organization?
a. Limited liability of stockholders
b. Transferability of ownership
c. Unlimited personal liability for stockholders
d. Unlimited life

84. A small neighborhood barber shop that is operated by its owner would likely be organized as a
a. joint venture.
b. partnership.
c. corporation.
d. proprietorship.

85. John and Sam met at law school and decide to start a small law practice after graduation. They agree to split revenues and expenses evenly. The most common form of business organization for a business such as this would be a
a. joint venture.
b. partnership.
c. corporation.
d. proprietorship.

86. Which of the following is true regarding the corporate form of business organization?
a. Corporations are the most prevalent form of business organization.
b. Corporate businesses are generally smaller in size than partnerships and proprietor-ships.
c. The revenues of corporations are greater than the combined revenues of partnerships and proprietorships.
d. Corporations are separate legal entities organized exclusively under federal law.

87. A basic assumption of accounting that requires activities of an entity be kept separate from the activities of its owner is referred to as the
a. stand alone concept.
b. monetary unit assumption.
c. corporate form of ownership.
d. economic entity assumption.

88. Ted Leo is the proprietor (owner) of Ted’s, a retailer of golf apparel. When recording the financial transactions of Ted’s, Ted does not record an entry for a car he purchased for personal use. Ted took out a personal loan to pay for the car. What accounting concept guides Ted’s behavior in this situation?
a. Pay back concept
b. Economic entity assumption
c. Cash basis concept
d. Monetary unit assumption

89. A basic assumption of accounting assumes that the dollar is
a. unrelated to business transactions.
b. a poor measure of economic activities.
c. the common unit of measure for all business transactions.
d. useless in measuring an economic event.

90. The assumption that the unit of measure remains sufficiently constant over time is part of the
a. economic entity assumption.
b. cost principle.
c. historical cost principle.
d. monetary unit assumption.

91. Owners enjoy limited liability in a
a. proprietorship.
b. partnership.
c. corporation.
d. sole proprietorship.

92. A problem with the monetary unit assumption is that
a. the dollar has not been stable over time.
b. the dollar has been stable over time.
c. the dollar is a common medium of exchange.
d. it is impossible to account for international transactions.

93. The common characteristic possessed by all assets is
a. long life.
b. great monetary value.
c. tangible nature.
d. future economic benefit.

94. Owner’s equity is best depicted by the following:
a. Assets = Liabilities.
b. Liabilities + Assets.
c. Residual equity + Assets.
d. Assets – Liabilities.

95. The basic accounting equation may be expressed as
a. Assets = Equities.
b. Assets – Liabilities = Stockholders’ Equity.
c. Assets = Liabilities + Stockholders’ Equity.
d. All of these answers are correct.

96. Liabilities
a. are future economic benefits.
b. are existing debts and obligations.
c. possess service potential.
d. are things of value used by the business in its operation.

97. Liabilities of a company would not include
a. notes payable.
b. accounts payable.
c. salaries and wages payable.
d. cash.

98. Liabilities of a company are owed to
a. debtors.
b. benefactors.
c. creditors.
d. underwriters.

99. Stockholders’ equity can be described as
a. creditorship claim on total assets.
b. ownership claim on total assets.
c. benefactor’s claim on total assets.
d. debtor claim on total assets.

100. Stockholders’ equity is often referred to as
a. residual equity.
b. leftovers.
c. spoils.
d. second equity.

101. When assets are distributed to the owners of a corporation, these distributions are termed
a. depletions.
b. consumptions.
c. dividends.
d. a credit line.

102. A dividend is
a. a distribution of the company’s earnings to its stockholders.
b. equal to liabilities minus stockholders’ equity.
c. equal to assets minus stockholders’ equity.
d. equal to revenues less expenses

103. Revenues would not result from
a. sale of merchandise.
b. issuance of common stock.
c. performance of services.
d. rental of property.

104. Sources of increases to stockholder’s equity are
a. additional investments by owners.
b. purchases of merchandise.
c. dividends.
d. expenses.

105. The basic accounting equation cannot be restated as
a. Assets – Liabilities = Stockholders’ Equity.
b. Assets – Stockholders’ Equity = Liabilities.
c. Stockholders’ Equity + Liabilities = Assets.
d. Assets + Liabilities = Stockholders’ Equity.

106. Stockholders’ equity is decreased by all of the following except
a. sales of stock.
b. net losses.
c. expenses.
d. dividends.

107. A net loss will result during a time period when
a. liabilities exceed assets.
b. dividends exceed investments.
c. expenses exceed revenues.
d. revenues exceed expenses.

108. If total liabilities increased by $30,000 and stockholders’ equity increased by $20,000 during a period of time, then total assets must change by what amount and direction during that same period?
a. $50,000 decrease
b. $10,000 decrease
c. $10,000 increase
d. $50,000 increase

109. If total liabilities decreased by $30,000 and stockholders’ equity increased by $20,000 during a period of time, then total assets must change by what amount and direction during that same period?
a. $50,000 decrease
b. $10,000 decrease
c. $10,000 increase
d. $50,000 increase

110. If total liabilities decreased by $50,000 and stockholders’ equity increased by $30,000 during a period of time, then total assets must change by what amount and direction during that same period?
a. $80,000 decrease
b. $20,000 decrease
c. $20,000 increase
d. $80,000 increase

111. If total liabilities decreased by $30,000 and stockholders’ equity decreased by $20,000 during a period of time, then total assets must change by what amount and direction during that same period?
a. $50,000 decrease
b. $10,000 decrease
c. $10,000 increase
d. $50,000 increase

112. If total liabilities increased by $25,000 during a period of time and stockholders’ equity decreased by $9,000 during the same period, then the amount and direction (increase or decrease) of the period’s change in total assets is a(n)
a. $34,000 decrease.
b. $16,000 decrease.
c. $16,000 increase.
d. $34,000 increase.

113. If total assets equal $345,000 and total stockholders’ equity equal $140,000, then total liabilities must equal
a. $485,000.
b. $205,000.
c. $140,000.
d. There is not enough information given to determine this.

114. Which of the following will not cause a change in the stockholders’ equity of a business?
a. An increase in prepaid expenses.
b. An increase in retained earnings.
c. The sale of common stock.
d. The declaration and payment of dividends.

115. The amount of stockholders’ equity in a business is not affected by
a. The percentage of total assets held in cash.
b. Assets consumed in the process of earning revenues.
c. The profitability of the business.
d. The amount of dividends declared and paid to stockholders.

116. If the transaction causes an asset account to decrease, which of the following related effects may occur?
a. An increase of equal amount in the common stock account.
b. An increase in a liability account.
c. An increase of equal amount in another asset account.
d. An increase in the combined total of liabilities and stockholders’ equity.

117. The accounting equation for Quattro Enterprises is as follows:
Assets Liabilities Stockholders’ Equity
$120,000 = $60,000 + $60,000
If Quattro purchases office equipment on account for $25,000, the accounting equation will change to
Assets Liabilties Stockholders’ Equity
a. $120,000 = $60,000 + $60,000
b. $145,000 = $60,000 + $85,000
c. $145,000 = $72,500 + $72,500
d. $145,000 = $85,000 + $60,000

118. As of June 30, 2015, Actual Tigers Company has assets of $100,000 and stockholders’ equity of $40,000. What are the liabilities for Actual Tigers Company as of June 30, 2015?
a. $40,000
b. $60,000
c. $100,000
d. $140,000

119. Stockholders’ equity is increased by
a. dividends.
b. revenues.
c. expenses.
d. liabilities.

120. Stockholders’ equity is decreased by
a. assets.
b. revenues.
c. expenses.
d. liabilities.

121. If total liabilities increased by $8,000, then
a. assets must have decreased by $8,000.
b. stockholders’ equity must have increased by $8,000.
c. assets must have increased by $8,000, or stockholders’ equity must have decreased by $8,000.
d. assets and stockholders’ equity each increased by $4,000.

122. Collection of a $1,000 Accounts Receivable
a. increases an asset $1,000; decreases an asset $1,000.
b. increases an asset $1,000; decreases a liability $1,000.
c. decreases a liability $1,000; increases stockholders’ equity $1,000.
d. decreases an asset $1,000; decreases a liability $1,000.

123. Revenues are
a. the cost of assets consumed during the period.
b. gross increases in stockholders’ equity resulting from business activities.
c. the cost of services used during the period.
d. actual or expected cash outflows.

124. If an individual asset is increased, then
a. there must be an equal decrease in a specific liability.
b. there must be an equal decrease in stockholders’ equity.
c. there must be an equal decrease in another asset.
d. All of these answers are possible.

125. If services are rendered for credit, then
a. assets will decrease.
b. liabilities will increase.
c. stockholders’ equity will increase.
d. liabilities will decrease.

126. If expenses are paid in cash, then
a. assets will increase.
b. liabilities will decrease.
c. stockholders’ equity will increase.
d. assets will decrease.

127. If a corporation distributes cash to its stockholders, then
a. there has been a violation of accounting principles.
b. stockholders’ equity will increase.
c. stockholders’ equity will decrease.
d. there will be a new liability showing the stockholders owes money to the business.

128. If supplies that have been purchased are used in the course of business, then
a. a liability will increase.
b. an asset will increase.
c. stockholders’ equity will decrease.
d. stockholders’ equity will increase.

129. As of December 31, 2015, Calexico Company has assets of $42,000 and stockholders’ equity of $20,000. What are the liabilities for Calexico Company as of December 31, 2015?
a. $22,000.
b. $20,000.
c. $42,000.
d. $62,000.

130. Which of the following events is not a business transaction?
a. Issuance of stock in exchange for cash.
b. Hired employees.
c. Incurred utility expenses for the month.
d. Earned revenue for services provided.

131. Net income results when
a. Assets > Liabilities.
b. Revenues = Expenses.
c. Revenues > Expenses.
d. Revenues < Expenses.

132. Retained earnings at the end of the period is equal to
a. retained earnings at the beginning of the period plus net income minus liabilities.
b. retained earnings at the beginning of the period plus net income minus dividends.
c. net income.
d. assets plus liabilities.

133. A balance sheet shows
a. revenues, liabilities, and stockholders’ equity.
b. expenses, dividends, and stockholders’ equity.
c. revenues, expenses, and dividends.
d. assets, liabilities, and stockholders’ equity.

134. An income statement
a. summarizes the changes in retained earnings for a specific period of time.
b. reports the changes in assets, liabilities, and stockholders’ equity over a period of time.
c. reports the assets, liabilities, and stockholders’ equity at a specific date.
d. presents the revenues and expenses for a specific period of time.

135. If the retained earnings account increases from the beginning of the year to the end of the year, then
a. net income is less than dividends.
b. a net loss is less than dividends.
c. the company must have sold stock.
d. net income is greater than dividends.

136. Mofro’s Computer Repair Shop started the year with total assets of $300,000 and total liabilities of $200,000. During the year, the business recorded $500,000 in computer repair revenues, $300,000 in expenses, and Mofro paid dividends of $50,000. Stockholders’ equity at the end of the year was
a. $200,000.
b. $100,000.
c. $250,000.
d. $300,000.

137. Mofro’s Computer Repair Shop started the year with total assets of $300,000 and total liabilities of $200,000. During the year, the business recorded $500,000 in computer repair revenues, $300,000 in expenses, and Mofro paid dividends of $50,000. The net income reported by Mofro’s Computer Repair Shop for the year was
a. $100,000.
b. $150,000.
c. $200,000.
d. $250,000.

138. Mofro’s Computer Repair Shop started the year with total assets of $300,000 and total liabilities of $200,000. During the year, the business recorded $500,000 in computer repair revenues, $300,000 in expenses, and Mofro paid dividends of $50,000. Mofro’s stockholders’ equity changed by what amount from the beginning of the year to the end of the year?
a. $100,000.
b. $150,000.
c. $200,000.
d. $250,000.

139. The balance sheet is frequently referred to as
a. an operating statement.
b. the statement of financial position.
c. the statement of cash flows.
d. the statement of retained earnings.

140. The primary purpose of the statement of cash flows is to report
a. a company’s investing transactions.
b. a company’s financing transactions.
c. information about cash receipts and cash payments of a company.
d. the net increase or decrease in cash.

141. All of the financial statements are for a period of time except the
a. income statement.
b. retained earnings statement.
c. balance sheet.
d. statement of cash flows.

142. The ending retained earnings amount is shown on
a. the balance sheet only.
b. the retained earnings statement only.
c. both the income statement and the retained earnings statement.
d. both the balance sheet and the retained earnings statement.

143. Black Keys Company began the year with stockholders’ equity of $280,000. During the year, the company recorded revenues of $375,000, expenses of $285,000, and paid dividends of $30,000. What was Black Keys’ stockholders’ equity at the end of the year?
a. $280,000.
b. $340,000.
c. $370,000.
d. $400,000.

144. Kennedy Company issued stock to Ed Kennedy in exchange for his investment of $75,000 cash in the business. The company recorded revenues of $555,000, expenses of $420,000, and had paid dividends of $30,000. What was Kennedy’s net income for the year?
a. $105,000.
b. $135,000.
c. $165,000.
d. $180,000.

145. Centro-matic Company began the year with stockholders’ equity of $30,000. During the year, Centro-matic issued additional shares of stock in exchange for cash of $42,000, recorded expenses of $120,000, and paid dividends of $8,000. If Centro-matic’s ending stockholders’ equity was $112,000, what was the company’s revenue for the year?
a. $160,000.
b. $168,000.
c. $202,000.
d. $210,000.

146. Barsuk Company began the year with stockholders’ equity of $108,000. During the year, Barsuk issued stock for $147,000, recorded expenses of $420,000, and paid dividends of $28,000. If Barsuk’s ending stockholders’ equity was $290,000, what was the company’s revenue for the year?
a. $455,000.
b. $483,000.
c. $602,000.
d. $630,000.

147. Fat Possum’s Service Shop started the year with total assets of $330,000 and total liabilities of $240,000. During the year, the business recorded $630,000 in revenues, $420,000 in expenses, and paid dividends of $60,000.
Stockholders’ equity at the end of the year was
a. $90,000.
b. $240,000.
c. $300,000.
d. $360,000.

148. Fat Possum’s Service Shop started the year with total assets of $330,000 and total liabilities of $2400,000. During the year, the business recorded $630,000 in revenues, $420,000 in expenses, and paid dividends of $60,000.
The net income reported by Fat Possum’s Service Shop for the year was
a. $150,000.
b. $210,000.
c. $240,000.
d. $270,000.

149. Misra Company compiled the following financial information as of December 31, 2015:
Revenues $340,000
Retained earnings (1/1/15) 60,000
Equipment 80,000
Expenses 250,000
Cash 90,000
Dividends 20,000
Supplies 10,000
Accounts payable 40,000
Accounts receivable 70,000
Common stock 80,000

Misra’s assets on December 31, 2015 are
a. $180,000.
b. $250,000.
c. $360,000.
d $490,000.

150. Misra Company compiled the following financial information as of December 31, 2015:
Revenues $340,000
Retained earnings (1/1/15) 60,000
Equipment 80,000
Expenses 250,000
Cash 90,000
Dividends 20,000
Supplies 10,000
Accounts payable 40,000
Accounts receivable 70,000
Common stock 80,000

Misra’s stockholders’ equity on December 31, 2015 is
a. $90,000.
b. $140,000.
c. $210,000.
d. $250,000.

151. Teamboo Company’s stockholders’ equity at the beginning of August 2015 was $750,000. During the month, the company earned net income of $175,000 and paid dividends of $75,000. At the end of August 2015, what is the amount of stockholders’ equity?
a. $675,000
b. $750,000
c. $825,000
d. $850,000

152. On January 1, 2015, Cat Power Company reported stockholders’ equity of $705,000. During the year, the company paid dividends of $30,000. At December 31, 2015, the amount of stockholders’ equity was $825,000. What amount of net income or net loss would the company report for 2015?
a. Net loss of $30,000
b. Net income of $90,000
c. Net income of $120,000
d. Net income of $150,000

153. Stahl Consulting started the year with total assets of $60,000 and total liabilities of $15,000. During the year, the business recorded $48,000 in catering revenues and $30,000 in expenses. Stahl issued stock of $9,000 and paid dividends of $15,000 during the year. The stockholders’ equity at the end of the year was
a. $33,000.
b. $54,000.
c. $57,000.
d. $63,000.

154. Stahl Consulting started the year with total assets of $60,000 and total liabilities of $15,000. During the year, the business recorded $48,000 in catering revenues and $30,000 in expenses. Stahl issued stock of $9,000 and paid dividends of $15,000 during the year. The net income reported by Stahl Consulting for the year was:
a. $3,000.
b. $12,000.
c. $18,000.
d. $27,000.

155. Stahl Consulting started the year with total assets of $60,000 and total liabilities of $15,000. During the year, the business recorded $48,000 in catering revenues and $30,000 in expenses. Stahl issued stock of $9,000 and paid dividends of $15,000 during the year. Stockholders’ equity changed by what amount from the beginning of the year to the end of the year?
a. $3,000.
b. $9,000.
c. $12,000.
d. $45,000.

156. During the year 2015, Dilego Company earned revenues of $90,000, had expenses of $56,000, purchased assets with a cost of $10,000 and paid dividends of $6,000. Net income for the year is
a. $18,000.
b. $24,000.
c. $28,000.
d. $34,000.

157. At October 1, Arcade Fire Enterprises reported stockholders’ equity of $70,000. During October, no stock was issued and the company earned net income of $18,000. If stockholders’ equity at October 31 totals $78,000, what amount of dividends were paid during the month?
a. $0
b. $8,000
c. $10,000
d. $26,000

158. At October 1, Arcade Fire Enterprises reported stockholders’ equity of $72,000. During October, no stock was issued and the company posted a net loss of $8,000. If stockholders’ equity at October 31 totals $64,000, what amount of dividends were paid during the month?
a. $0
b. $4,000
c. $8,000
d. $16,000

159. At October 1, Arcade Fire Enterprises reported stockholders’ equity of $70,000. During October, common stock of $4,000 was issued and the company earned net income of $14,000. If stockholders’ equity at October 31 totals $80,000, what amount of dividends were paid during the month?
a. $0
b. $4,000
c. $8,000
d. $10,000

160. At October 1, Arcade Fire Enterprises reported stockholders’ equity of $70,000. During October, common stock of $10,000 was issued and the company posted a net loss of $4,000. If stockholders’ equity at October 31 totals $70,000, what amount of dividends were paid during the month?
a. $0
b. $4,000
c. $6,000
d. $10,000

a161. All of the following are services offered by public accountants except
a. budgeting.
b. auditing.
c. tax planning.
d. consulting.

a162. Which list below best describes the major services performed by public accountants?
a. Bookkeeping, mergers, budgets.
b. Employee training, auditing, bookkeeping.
c. Auditing, taxation, management consulting.
d. Cost accounting, production scheduling, recruiting.

a163. Preparing tax returns and engaging in tax planning is performed by
a. public accountants only.
b. private accountants only.
c. both public and private accountants.
d. IRS accountants only.

a164. A private accountant can perform many activities in a business organization but would not work in
a. budgeting.
b. accounting information systems.
c. external auditing.
d. tax accounting.

165. Which of the following is not part of the accounting process?
a. Recording
b. Identifying
c. Financial decision making
d. Communicating

166. The first part of the accounting process is
a. communicating.
b. identifying.
c. processing.
d. recording.

167. Keeping a systematic, chronological diary of events that are measured in dollars and cents is called
a. communicating.
b. identifying.
c. processing.
d. recording.

168. Auditing is
a. the examination of financial statements by a CPA in order to express an opinion on their fairness.
b. a part of accounting that involves only recording of economic events.
c. an area of accounting that involves such activities as cost accounting, budgeting, and accounting information systems.
d. conducted by the Securities and Exchange Commission to ensure that registered financial statements are presented fairly.

169. Internal users of accounting information include all of the following except
a. company officers.
b. investors.
c. marketing managers.
d. production supervisors.

170. The organization(s) primarily responsible for establishing generally accepted accounting principles is(are) the
FASB SEC
a. no no
b. yes no
c. no yes
d. yes yes

171. The primary accounting standard-setting body in the United States is the
a. Financial Accounting Standards Board.
b. International Accounting Standards Board.
c. Internal Revenue Service.
d. Securities and Exchange Commission.

172. A proprietorship is a business
a. owned by one person.
b. owned by two or more persons.
c. organized as a separate legal entity under state corporation law.
d. owned by a governmental agency.

173. A net loss will result during a time period when
a. assets exceed liabilities.
b. assets exceed stockholders’ equity.
c. expenses exceed revenues.
d. revenues exceed expenses.

174. Bright Eyes Downtown Diner received a bill of $600 from the Jronand Wine Advertising Agency. The owner, A. A. Bondy, is postponing payment of the bill until a later date. The effect on specific items in the basic accounting equation is
a. a decrease in Cash and an increase in Accounts Payable.
b. a decrease in Cash and an increase in Retained Earnings.
c. an increase in Accounts Payable and a decrease in Retained Earnings.
d. a decrease in Accounts Payable and an increase in Retained Earnings.

175. Matador Company purchases $1,300 of equipment from Danger Mouse Inc. for cash. The effect on the components of the basic accounting equation of Matador Company is
a. an increase in assets and liabilities.
b. a decrease in assets and liabilities.
c. no change in total assets.
d. an increase in assets and a decrease in liabilities.

176. Druganaut Company buys a $21,000 van on credit. The transaction will affect the
a. income statement only.
b. balance sheet only.
c. income statement and retained earnings statement only.
d. income statement, retained earnings statement, and balance sheet.

177. The financial statement that summarizes the financial position of a company is the
a. income statement.
b. balance sheet.
c. operating statement.
d. retained earnings statement.

178. Which of the following is not a reason one set of international accounting standards are needed?
a. multinational corporations.
b. mergers and acquisitions.
c. information technology.
d. all of these answer choices are correct.

179. Which of the following is not a reason one set of international accounting standards are needed?
a. multinational corporations.
b. financial markets.
c. information technology.
d. all of the above are reasons one set of international accounting standards are needed.

180. International standards are referred to as
a. IFRS.
b. GAAP.
c. IASB.
d. FASB.

181. U.S. standards are referred to as
a. IFRS.
b. GAAP.
c. IASB.
d. FASB.

182. International standards are developed by the
a. IFRS.
b. GAAP.
c. IASB.
d. FASB.

183. U.S. standards are developed by the
a. IFRS.
b. GAAP.
c. IASB.
d. FASB.

184. The United States and the international standard-setting environment are primarily driven by meeting the needs of
a. investors and creditors.
b. tax authorities.
c. central government planners.
d. academic researchers.

185. The internal control standards applicable to Sarbanes-Oxley apply to
a. all U.S. and international companies.
b. U.S. and international companies listed on U.S. exchanges.
c. International companies listed on U.S. exchanges.
d. U.S. companies listed on U.S. exchanges.

186. The concern about international companies adopting SOX-type standards centers on
a. cost-benefit analysis.
b. ethics issues.
c. the governing authorities.
d. comparability.

187. Financial accounting ethics violations are
a. not a problem in the U.S. or internationally.
b. much more common in the U.S. than internationally.
c. much more common internationally than in the U.S.
d. a major problem both in the U.S. and internationally.

188. IFRS, compared to GAAP, tends to be more
a. detailed.
b. rules-based.
c. principles-based.
d. full of disclosure requirements.

189. GAAP, compared to IFRS, tends to be more
a. simple in accounting requirements.
b. rules-based.
c. principles-based.
d. simple in disclosure requirements.

190. Proprietorships, partnerships, and corporations
a. are the three most common forms of business organizations in the U.S.
b. are the three most common forms of business organizations internationally.
c. are used in different proportions in different countries.
d. all of these answers are correct.

191. The conceptual framework that underlies IFRS
a. is very similar to that used to develop GAAP.
b. does not define assets or liabilities.
c. does not define equity.
d. does not define income or expenses.

BRIEF EXERCISES

BE 192
Match the following external users of financial accounting information with the type of decision that user will make with the information.

a. Creditor
b. Investor
c. Regulatory Agency
d Internal Revenue Service

_______ (1) Is the company operating within prescribed guidelines?

_______ (2) Is the company complying with tax laws?

_______ (3) Is the company able to pay its debts?

_______ (4) Is the company a good investment?

BE 193
Match the following terms and definitions.

a. Accounts receivable c. Accounts payable
b. Creditor d. Note payable

_______ (1) Amounts due from customers
_______ (2) Amounts owed to suppliers for goods and services purchased
_______ (3) Amounts owed to bank
_______ (4) Party to whom money is owed

BE 194
Indicate which of these items is an asset (A), liability (L) or stockholders’ equity (SE) account.
_______ (1) Supplies
_______ (2) Dividends
_______ (3) Buildings
_______ (4) Notes Payable
_______ (5) Salaries and Wages Payable

BE 195
Use the accounting equation to answer the following questions.
1. Picaresque Sails Co. has total assets of $140,000 and total liabilities of $45,000. What is stockholders’ equity?
2. The Natenal Fun Center has total assets of $225,000 and stockholders’ equity of $100,000. What are total liabilities?
3. Okkervil River Restaurant has total liabilities of $50,000 and stockholders’ equity of $100,000. What are total assets?

BE 196
Determine the missing items.

Assets = Liabilities + Stockholders’ Equity
$85,000 $52,000 (a)
(b) $28,000 $34,000
$84,000 (c) $50,000

BE 197
Classify each of these items as an asset (A), liability (L), or stockholders’ equity (SE).

_____ 1. Accounts receivable
_____ 2. Accounts payable
_____ 3. Common stock
_____ 4. Supplies
_____ 5. Utilities expense
_____ 6. Cash
_____ 7. Notes payable
_____ 8. Equipment

BE 198
Identify the impact on the accounting equation of each of the following transactions.
1. Purchase office supplies on account.
2. Paid secretary weekly salary.
3. Purchased office furniture for cash.
4. Received monthly utility bill to be paid at later time.

BE 199
Balance sheet amounts as of December 31, 2015 for Matt Pond’s Tutoring Service are listed below. Prepare a balance sheet in good form.
Accounts Payable $ 400
Accounts Receivable 1,000
Cash 300
Common Stock ?

BE 200
Identify whether the following items would be reported on the income statement (IS) or balance sheet (BS).
1. Cash
2. Service Revenue
3. Notes Payable
4. Interest Expense
5. Accounts Receivable

BE 201
Use the following information to calculate for the year ended December 31, 2015 (a) net income, (b) ending retained earnings, and (c) total assets.

Supplies $ 3,000 Revenues $25,000
Operating expenses 12,000 Cash 15,000
Accounts payable 9,000 Dividends 1,000
Accounts receivable 3,000 Notes payable 1,000
Beginning retained earnings 5,000 Equipment 6,000

BE 202
Listed below in alphabetical order are the balance sheet items of Madjack Company at December 31, 2015. Prepare a balance sheet and include a complete heading.
Accounts payable $ 21,000
Accounts receivable 15,000
Buildings 91,000
Cash 6,000
Common stock 108,000
Equipment 17,000

EXERCISES
Ex. 203
Below is a list of important abbreviations widely used in business. For each abbreviation give the full designation.

1. CPA

2. IRS

3. FBI

4. FASB

5. GAAP

6. SEC

Ex. 204
Determine the missing amount for each of the following. Assets = Liabilities + Stockholders’ Equity
1. (a) $55,000 $95,000 2. $125,000 (b) $85,000 3. $160,000 $65,000 (c)

Ex. 205
For the items listed below, fill in the appropriate code letter to indicate whether the item is an asset, liability, or stockholders’ equity item.
Code
Asset A
Liability L
Stockholders’ Equity SE

1. Rent Expense 6. Cash

2. Equipment 7. Accounts Receivable

3. Accounts Payable 8. Dividends

4. Common Stock 9. Service Revenue

5. Insurance Expense 10. Notes Payable

Ex. 206
At the beginning of the year, Shaolin Company had total assets of $520,000 and total liabilities of $210,000. Answer the following questions viewing each situation as being independent of the others.
(1) If total assets increased $200,000 during the year, and total liabilities decreased $75,000, what is the amount of stockholders’ equity at the end of the year?
(2) During the year, total liabilities increased $230,000 and stockholders’ equity decreased $90,000. What is the amount of total assets at the end of the year?
(3) If total assets decreased $40,000 and stockholders’ equity increased $130,000 during the year, what is the amount of total liabilities at the end of the year?

Ex. 207
Magnolia Electric Car Cleaning has the following accounts:
Equipment Notes Payable
Accounts Payable Common Stock
Cash Dividends
Supplies
Accounts Receivable

Identify which items are (1) Assets
(2) Liabilities
(3) Stockholders Equity

Ex. 208
On June 1, 2015, Secretly Canadian Company prepared a balance sheet that shows the following:
Assets (no cash) $100,000
Liabilities 45,000
Stockholders’ Equity 55,000

Ex. 208 (cont.)
Shortly thereafter, all of the assets were sold for cash. How would the balance sheet appear immediately after the sale of the assets for cash for each of the following cases?

Cash Received for Balances Immediately After Sale
the Assets Assets – Liabilities = Stockholders’ Equity
Cash A $110,000 $________ $________ $________

Cash B 100,000 ________ ________ ________

Cash C 90,000 ________ ________ ________

Ex. 209
At the beginning of 2015, Hold Steady Company had total assets of $520,000 and total liabilities of $250,000. Answer each of the following questions.
1. If total assets increased $60,000 and stockholders’ equity decreased $90,000 during the year, determine the amount of total liabilities at the end of the year.
2. During the year, total liabilities decreased $75,000 and stockholders’ equity increased $50,000. Compute the amount of total assets at the end of the year.
3. If total assets decreased $100,000 and total liabilities increased $55,000 during the year, determine the amount of stockholders’ equity at the end of the year.

Ex. 210
Compute the missing amount in each category of the accounting equation.
Assets Liabilities Stockholders’ Equity
(a) $319,000 $ ? $143,000
(b) $223,000 $ 79,000 $ ?
(c) $ ? $233,000 $325,000

Ex. 211
From the following list of selected accounts taken from the records of Ward Homeopathic Center, identify those that would appear on the balance sheet.
a. Common Stock f. Accounts Payable
b. Service Revenue g. Cash
c. Land h. Rent Expense
d. Salaries and Wages Expense i. Supplies
e. Notes Payable j. Utilities Expense

Ex. 212
Selected transactions for Mountain Goats Tree Service are listed below.
1. Sold common stock for cash to start business.
2. Paid for monthly advertising.
3. Purchased supplies on account.
4. Billed customers for services performed.
5. Paid cash dividends.
6. Received cash from customers billed in (4).
7. Incurred utilities expense on account.
8. Purchased additional supplies for cash.
9. Received cash from customers when service was performed.

Instructions
List the numbers of the above transactions and describe the effect of each transaction on assets,
liabilities, and stockholders’ equity. For example, the first answer is: (1) Increase in assets and increase in stockholders’ equity.

Ex. 213
Wilco Legal Eagles Company entered into the following transactions during
March 2015.
1. Purchased office equipment for $23,000 from Business Equipment, Inc. on account.
2. Paid $3,000 cash for March rent on office furniture.
3. Received $15,000 cash from customers for legal work billed in February.
4. Provided legal services to Amy Construction Company for $3,500 cash.
5. Paid Northern States Power Co. $2,700 cash for electric usage in March.
6. Stockholders’ invested an additional $32,000 in the business.
7. Paid Business Equipment, Inc. for the office equipment purchased in (1) above.
8. Incurred advertising expense for March of $1,900 on account.

Instructions
Indicate with the appropriate letter whether each of the transactions above results in:
(a) an increase in assets and a decrease in assets.
(b) an increase in assets and an increase in stockholders’ equity.
(c) an increase in assets and an increase in liabilities.
(d) a decrease in assets and a decrease in stockholders’ equity.
(e) a decrease in assets and a decrease in liabilities.
(f) an increase in liabilities and a decrease in stockholders’ equity.
(g) an increase in stockholders’ equity and a decrease in liabilities.

Ex. 214
Two items are omitted from each of the following summaries of balance sheet and income
statement data for two proprietorships for the year 2015, Holly Enterprises and Cat Stevens.

Holly Enterprises Cat Stevens
Beginning of year:
Total assets $ 98,000 $129,000
Total liabilities 60,000 (c)
Total stockholders’ equity (a) 85,000
End of year:
Total assets 160,000 180,000
Total liabilities 100,000 50,000
Total stockholders’ equity 60,000 130,000
Changes during year in stockholders’ equity:
Additional investment (b) 25,000
Dividends 25,000 (d)
Total revenues 215,000 100,000
Total expenses 185,000 65,000

Instructions
Determine the missing amounts.

Ex. 215
An analysis of the transactions made by White Stripes & Co., a law firm, for the month of July is shown below. Each increase and decrease in stockholders’ equity is explained.

Assets = Liab + Stockholders’ Equity
Retained Earnings
Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Com Stock + Rev. -Exp -Div.
1. +$15,000 +$15,000
2. – 2,000 +$5,000 +$3,000
3. – 750 +$750
4. + 2,500 +$6,600 +$9,100 Rev.
5. – 1,500 – 1,500
6. – 2,500 -$2,500 Div.
7. – 750 -$750 Rent.
8. + 550 -550
9. – 3,500 -$4,500 Sal.
10. + 500 + 500 -500 Util.

Instructions
(a) Determine how much stockholders’ equity increased for the month.
(b) Compute the amount of net income for the month.

Ex. 216
The Constantine Company had the following assets and liabilities on the dates indicated.
December 31 Total Assets Total Liabilities
2014 $480,000 $250,000
2015 $460,000 $220,000
2016 $590,000 $300,000
Constantine began business on January 1, 2014, with an investment of $100,000.

Instructions
From an analysis of the change in stockholders’ equity during the year, compute the net income (or loss) for:
(a) 2014, assuming Constantine’s dividends were $45,000 for the year.
(b) 2015, assuming Constantine made an additional investment of $50,000 and paid no dividends in 2015.
(c) 2016, assuming Constantine made an additional investment of $15,000 and paid dividends of $40,000 in 2016.

Ex. 217
For each of the following, indicate whether the transaction affects revenue (R), expense (E), dividends (D), common stock (CS), or no effect on stockholders’ equity (NOE).
1. Made an investment to start the business.
2. Billed customers for services performed.
3. Purchased equipment on account.
4. Paid monthly rent.
5. Paid dividends.

Ex. 218
Presented below is a balance sheet for Jim Henson Yard Service at December 31, 2015.
JIM HENSON YARD SERVICE
Balance Sheet
December 31, 2015

Assets Liabilities and Stockholders’ Equity
Cash $13,000 Liabilities
Accounts receivable 6,000 Accounts payable $ 8,000
Supplies 9,000 Notes payable 15,000
Equipment 11,000 Stockholders’ equity
Common stock 16,000
Total assets $39,000 Total liabilities & stockholders’ equity $39,000

The following additional data are available for the year which began on January 1: All expenses (excluding supplies expense) total $6,000. Supplies on January 1, were $11,000 and $7,000 of supplies were purchased during the year. Net income for the year was $8,000 and dividends paid were $9,000.

Instructions
Determine the following: (Show all computations.)
1. Supplies used during the year.
2. Total expenses for the year.
3. Service revenues for the year.
4. Stockholders’ equity on January 1.

Ex. 219
Analyze the transactions of a business organized as a corporation described below and indicate their effect on the basic accounting equation. Use a plus sign (+) to indicate an increase and a minus sign (–) to indicate a decrease.

Assets = Liabilities + Stockholders’ Equity

1. Received cash for services provided.
2. Purchased office equipment on credit.
3. Paid employees’ salaries.
4. Received cash from customer in payment
on account.
5. Paid telephone bill for the month.
6. Paid for office equipment purchased in
transaction 2.
7. Purchased office supplies on credit.
8. Paid dividends.
9. Obtained a loan from the bank.
10. Billed customers for services rendered.

Ex. 220
For each of the following, indicate whether the transaction increased (+), decreased (-), or had no effect (NE) on assets, liabilities, and stockholders’ equity using the following format.
Assets = Liabilities + Stockholders’ Equity
1. Issued stock in exchange for cash. 2. Billed customers for services performed. 3. Purchased equipment on account. 4. Paid dividends.
5. Paid for equipment purchased in 3. above.

Ex. 221
Neko Case decides to open a cleaning and laundry service near the local college campus that will operate as a corporation. Analyze the following transactions for the month of June in terms of their effect on the basic accounting equation. Record each transaction by increasing (+) or decreasing (–) the dollar amount of each item affected. Indicate the new balance of each item after a transaction is recorded. It is not necessary to identify the cause of changes in stockholders’ equity.

Transactions
(1) Issued stock in exchange for $20,000 cash on June 1.
(2) Purchased equipment for $5,000 paying $3,000 in cash and the remainder due in 30 days.
(3) Purchased supplies for $1,200 cash.
(4) Received a bill from College News for $300 for advertising in the campus newspaper.
(5) Cash receipts from customers for cleaning and laundry amounted to $2,400.
(6) Paid salaries of $600 to student workers.
(7) Billed the Lion Soccer Team $450 for cleaning and laundry services.
(8) Paid $300 to College News for advertising that was previously billed in Transaction 4.
(9) Paid dividends of $1,200.
(10) Incurred utility expenses for month on account, $500.

Trans- Accounts Accounts Common Retained
action Cash + Receivable + Supplies + Equipment = Payable + Stock + Earnings
(1)
——————————————————————————————————————————
Balance
(2)
——————————————————————————————————————————
Balance
(3)
——————————————————————————————————————————
Balance
(4)
——————————————————————————————————————————
Balance
(5)
——————————————————————————————————————————
Balance
(6)
——————————————————————————————————————————
Balance
(7)
——————————————————————————————————————————
Balance
(8)
——————————————————————————————————————————

Ex. 221 (cont.)
Balance
(9)
——————————————————————————————————————————
Balance
(10)
——————————————————————————————————————————
Totals

Ex. 222
For each of the following, describe a transaction that will have the stated effect on the elements of the accounting equation.
(a) Increase one asset and decrease another asset.
(b) Increase an asset and increase a liability.
(c) Decrease an asset and decrease a liability.
(d) Increase an asset and increase stockholders’ equity.
(e) Increase one asset, decrease one asset, and increase a liability.

Ex. 223
The following transactions represent part of the activities of Bloc Party Company for the first month of its existence. Indicate the effect of each transaction upon the total assets of the business by one of the following phrases: increased total assets, decreased total assets, or no change in total assets.
(a) Issued stock in exchange for cash.
(b) Purchased a computer for cash.
(c) Purchased office equipment with money borrowed from the bank.
(d) Paid the first month’s utility bill.
(e) Collected an accounts receivable.
(f) Paid dividends.

Ex. 224
Selected transactions for Parton Company are listed below. List the number of the transaction and then describe the effect of each transaction on assets, liabilities, and stockholders’ equity.
Sample: Issued common stock in exchange for cash investment.
The answer would be—Increase in assets and increase in stockholders’ equity.
1. Paid monthly utility bill.
2. Purchased new display case for cash.
3. Paid cash for repair work on security system.
4. Billed customers for services performed.
5. Received cash from customers billed in 4.
6. Paid dividends.
7. Incurred advertising expenses on account.
8. Paid monthly rent.
9. Received cash from customers when service was rendered.

Ex. 225
A service company shows five transactions summarized below. The effect of each transaction on the accounting equation is shown, and also the new balance of each item in the equation. For each transaction (a) to (e) write an explanation of the nature of the transaction.
Accounts Equip- Accounts Stockholders’
Cash + Rec. + ment + Land + Building = Payable + Equity
——————————————————————————————————————————
$5,000 $6,500 $10,000 $7,500 $50,000 $3,000 $76,000
a) –2,000 –2,000
3,000 6,500 10,000 7,500 50,000 1,000 76,000
b) +1,000 – 1,000
4,000 5,500 10,000 7,500 50,000 1,000 76,000
Ex. 225 (cont.)
c) + 5,000 +5,000
4,000 5,500 15,000 7,500 50,000 6,000 76,000
d) +2,500 + 2,500
6,500 5,500 15,000 7,500 50,000 6,000 78,500
e) +3,000 + 3,000
$6,500 $8,500 $15,000 $7,500 $50,000 $6,000 $81,500

Ex. 226
There are ten transactions listed below. Match the transactions that have the identical effect on the accounting equation. You should end up with 5 matches.

a. Receive cash from customers on account.
b. Issued stock in exchange for cash.
c. Pay cash to reduce an accounts payable.
d. Purchase supplies for cash.
e. Pay cash to reduce a notes payable.
f. Purchase supplies on account.
g. Additional investment by a stockholder.
h. Purchase equipment with a note payable.
i. Pay utilities with cash.
j. Pay dividends.

Ex. 227
An analysis of the transactions made by Cookie Mountain Legal, a law firm, for the month of July is shown below. Each increase and decrease in stockholders’ equity is explained.

Assets = Liab + Stockholders’ Equity
Retained Earnings
Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Com Stock + Rev. -Exp -Div.
1. +$15,000 +$15,000
2. – 2,000 +$5,000 +$3,000
3. – 750 +$750
4. + 2,500 +$6,600 +$9,100 Rev.
5. – 1,500 – 1,500
6. – 2,500 -$2,500 Div.
7. – 750 -$750 Rent.
8. + 550 -550
9. – 4,500 -$4,500 Sal.
10. + 500 -500 Util.

Instructions
(a) Prepare an income statement for the month ending July 31, 2015.
(b) Prepare a retained earnings statement for the month ending July 31, 2015.

Ex. 228
An analysis of the transactions made by Cookie Mountain Legal, a law firm, for the month of July is shown below. Each increase and decrease in retained earnings is explained.

Assets = Liab + Stockholders’ Equity
Retained Earnings
Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Com Stock + Rev. -Exp -Div.
1. +$15,000 +$15,000
2. – 2,000 +$5,000 +$3,000
3. – 750 +$750
4. + 2,500 +$6,600 +$9,100 Rev.
5. – 1,500 – 1,500
6. – 2,500 -$2,500 Div.
7. – 750 -$750 Rent.
8. + 550 -550
9. – 4,500 -$4,500 Sal.
10. + 500 -500 Util.

Instructions
Prepare a balance sheet at July 31, 2015.

Ex. 229

The following information relates to Bonnie Billy Co. for the year 2015.

Retained earnings, January 1, 2015 $ 67,000 Advertising expense $6,500
Dividends 6,000 Rent expense 9,500
Service revenue 65,500 Utilities expense 1,400
Salaries and wages expense 29,000

Instructions
After analyzing the data, prepare an income statement and a retained earnings statement for the year ending December 31, 2015

Ex. 230

Van Occupanther is the bookkeeper for Roscoe Company. Van has been trying to get the balance sheet of Roscoe Company to balance. Roscoe’s balance sheet is as follows.

ROSCOE COMPANY
Balance Sheet
December 31, 2015

Assets Liabilities
Cash $9,400 Accounts payable $25,000
Supplies 7,100 Accounts receivable (19,500)
Equipment 45,000 Common stock 40,000
Dividends 9,200 Retained earnings 25,200
Total assets $70,700 Total liabilities and
stockholders’ equity $70,700

Instructions
Prepare a correct balance sheet.

Ex. 231
Presented below is information related to Anthony Scalici Company.

Retained earnings, January 1, 2015 $ 21,000
Service revenue—2015 320,000
Total expenses—2015 213,000
Assets, January 1, 2015 85,000
Liabilities, January 1, 2015 64,000
Assets, December 31, 2015 165,000
Liabilities, December 31, 2015 90,000
Dividends—2015 ?

Instructions
Prepare the 2015 retained earnings statement for Anthony Scalici Company.

Ex. 232
Prepare an income statement, a retained earnings statement, and a balance sheet for the accupuncture practice of Golda Bear, from the items listed below for the month of September, 2015.

Retained earnings, September 1 $17,000
Common stock 30,000
Accounts payable 7,000
Equipment 35,000
Service revenue 28,000
Dividends 6,000
Supplies expense 4,500
Cash 3,000
Utilities expense 700
Supplies 4,800
Salaries and wages expense 9,000
Accounts receivable 14,000
Rent expense 5,000
GOLDA BEAR, ACCUPUNCTURIST
Income Statement
For the Month Ended September 30, 2015
——————————————————————————————————————————
Revenues $

Expenses $ $

Total expenses $

Net income $

GOLDA BEAR, ACCUPUNCTURIST
Retained Earnings Statement
For the Month Ended September 30, 2015
——————————————————————————————————————————
Retained Earnings, September 1 $
Add:

$

Less:

$

Ex. 232 (cont.)
GOLDA BEAR, ACCUPUNCTURIST
Balance Sheet
September 30, 2015
——————————————————————————————————————————
Assets
$

Total assets
$

Liabilities and Stockholder’ Equity

Liabilities
$

Stockholders’ Equity $

Total liabilities and stockholders’ equity $

Ex. 233
Indicate whether the following items would appear on the balance sheet (BS), income statement (IS), or retained earnings statement (RE).
1. Advertising expense 2. Accounts receivable 3. Dividends 4. Rent revenue 5. Salaries and wages payable 6. Supplies

Ex. 234
Listed below in alphabetical order are the balance sheet items of Rock Plaza Company at December 31, 2015. Prepare a balance sheet and include a complete heading.
Accounts Payable $ 24,000
Accounts Receivable 15,000
Buildings 51,000
Cash 7,000
Common Stock 102,000
Land 42,000
Equipment 11,000

LO8 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Ex. 235
One item is omitted in each of the following summaries of balance sheet and income statement data for three different sole corporations, X, Y, and Z. Determine the amounts of the missing items, identifying each corporation by letter.
Corporation
X Y Z
Beginning of the Year:
Assets $390,000 $150,000 $219,000
Liabilities 250,000 105,000 168,000
End of the Year:
Assets 450,000 175,000 195,000
Liabilities 280,000 95,000 169,000
During the Year:
Issued additional shares of stock ? 79,000 80,000
Dividends 90,000 83,000 ?
Revenue 195,000 ? 187,000
Expenses 170,000 113,000 175,000

Ex. 236
Indicate in the space provided by each item whether it would appear on the Income Statement (IS), Balance Sheet (BS), or Retained Earnings Statement (RE):

a. Service Revenue g. Accounts Receivable

b. Utilities Expense h. Retained Earnings (ending)

c. Cash i. Equipment

d. Accounts Payable j. Advertising Expense

e. Office Supplies k. Dividends

f. Salaries Expense l. Notes Payable

Ex. 237
Maria Queen was reviewing her business activities at the end of the year (2015) and decided to prepare a Retained Earnings Statement. At the beginning of the year her assets were $700,000 and her liabilities were $210,000. At the end of the year the assets had grown to $930,000 but liabilities had also increased to $340,000. Common Stock was $200,000 in both years. The net income for the year was $220,000. The company paid dividends of $120,000 during the year.

Prepare a Retained Earnings statement in good form.

Ex. 238
At September 1, the balance sheet accounts for Stanley’s Restaurant were as follows:

Accounts Payable $ 3,800 Land $33,000
Accounts Receivable 9,600 Common Stock ?
Buildings 68,000 Notes Payable 48,000
Cash 10,000 Supplies 6,600
Equipment 18,700

The following transactions occurred during the next two days:

The company issued additional shares of stock for $22,000 cash in the business. The accounts payable were paid in full. (No payment was made on the notes payable.)

Instructions
Prepare a balance sheet at September 1, 2015.

Ex. 239
Presented below are balance sheet items for Black Angel Company at December 31, 2015.
Accounts payable $35,000 Accounts receivable 36,000 Cash 17,000 Equipment 77,000 Common stock 45,000 Notes payable 50,000
Compute each of the following: 1. Total assets. 2. Total liabilities.

COMPLETION STATEMENTS

240. Accounting is an information system that identifies, _____________, and _____________ the economic events of an organization.

241. The mere recording of economic events is called ______________, and is just one part of the _______________ process.

242. The three major services rendered by a certified public accountant are ______________, ________________, and management ________________.

243. Accountants who are employees of business enterprises are referred to as ________________ accountants.

244. A common set of standards that provides guidelines to accountants and indicates how to report economic events is called _________________.

245. The ________________ principle states that assets should be recorded at the value exchanged at the time the asset is acquired.

246. The _________________ assumption requires that the activities of an entity be kept separate from the activities of its owner.

247. The residual claim on total assets of a business is known as ________________ and is equal to total assets minus total liabilities.

248. Dividends ________________ stockholders’ equity but are not expenses.

249. The ________________ reports the assets, liabilities, and stockholders’ equity of a business enterprise at a specific date.

MATCHING
250. Match the items below by entering the appropriate code letter in the space provided.

A. CPA F. Corporation
B. Budgeting G. Assets
C. SEC H. Equities
D. Proprietorship I. Expenses
E. Economic Entity Assumption J. Transaction

1. Activities of an entity must be kept separate from its owner’s activities.
2. Consumed assets or services.
3. Ownership is limited to one person.
4. Offers expert accounting service to the general public.
5. Creditor and ownership claims against the assets of the business.
6. A separate legal entity under state laws.
7. Government agency that can mandate accounting rules.
8. Quantifying goals and objectives.
9. Future economic benefits.
10. Economic events recorded by accountants.

SHORT-ANSWER ESSAY QUESTIONS

*S-A E 251
The accounting profession provides many career opportunities for individuals. Identify the major fields that exist in accounting and comment on the major functions performed by individuals in each of these areas.

S-A E 252
The framework used to record and summarize the economic activities of a business enterprise is referred to as the accounting equation. State the basic accounting equation and define its major components. How are business transactions and financial statements related to the accounting equation?

S-A E 253
Your friend, Angela, made this comment:
My major is biology and I plan to research for cures for major illnesses. Thus, I have no need to study accounting.

What is your response to Angela?

S-A E 254
The information needs of a specific user of financial accounting information depends upon the kinds of decisions that user makes. Identify the major users of accounting information and discuss what questions financial accounting information answers for each group of users.

S-A E 255 (Ethics)
Joanna Newsom owns and operates Joanna’s Burgers, a small fast food store, located at the edge of City College campus in Newton, Ohio. After several very profitable years, Joanna’s Burgers began to have problems. Most of the problems were related to Joanna’s expansion of the eating area in the restaurant without corresponding increases in the food preparation area. Joanna does not have the cash or financial backing to expand further. She has therefore decided to sell her business.

Vivian Girls is interested in purchasing the business. However, she is located in another city and is unfamiliar with Newton. She has asked Joanna why she is selling Joanna’s Burgers. Joanna replies that her elderly mother requires extra care, and that her brother needs help in his manufacturing business. Both are true, but neither is her primary reason for selling. Joanna reasons that Vivian should not have asked her anyway, since profitable businesses don’t come up for sale.

Required:
1. Identify the stakeholders in this situation.
2. Did Joanna act ethically in not revealing fully her reasons for selling the business? Why or why not?

S-A E 256 (Communication)
Rachel Bells Havens is a friend of yours from high school. She decided to become a beautician after leaving high school, rather than to attend college. She recently opened her own shop, and has contracted her services to a local hospital. She is paid a monthly fee for her services, and receives a small gratuity from each of the patients.

She has just received her first set of financial statements from her accountant. She is quite upset. The statements show a cash balance of $3,600 at the end of the month, but a net income of only $500. She has written you a letter, asking you whether such a situation is possible, or whether she should find another accountant.

Required:
Write a short letter to your friend. Use proper form. Answer her question completely, but briefly.

CHALLENGE EXERCISES

CE 1
The total assets and liabilities of Company at January 1 and December 31, 2015 are presented below.
January 1 December 31
Assets $95,000 $140,000
Liabilities 30,000 36,000

Instructions:
1. Assume dividends of $10,800 were paid and no additional stock was issued during the year. Revenues were $110,000. Compute (a) net income, and (b) expenses.
2. Assume additional stock was issued for $4,800 and no dividends were paid during the year. Expenses were $42,000. Compute (a) net income, and (b) revenues.
3. Assume additional stock was issued for $62,000 and dividends of $15,600 were paid during the year. Compute net income.
4. Assume additional stock was issued for $6,000 and net income was $51,000. Compute dividends paid.

CE 2
Windsor Service had the following financial information at the end of 2015.

1/1/15 2015 12/31/15
Accounts payable $19,000
Accounts Receivable 25,000
Advertising Expense $1,000
Cash 16,000
Common Stock 15,000
Dividends 9,000
Equipment 38,000
Notes Payable 20,000
Rent Expense 3,500
Retained Earnings $6,000
Salaries and Wages Expense 20,000
Service Revenue 55,000
Utilities Expense 2,500

Instructions:
Prepare a 2015 income statement, 2015 retained earnings statement, and a 12/31/15 balance sheet for Windsor Service.

CE 3
This information is for Downing Company for the year ended December 31, 2015.
Cash received from revenues from customers $930,000 Cash received for issuance of common stock 420,000 Cash paid for new equipment 150,000 Cash dividends paid 30,000 Cash paid for expenses 640,000 Cash balance 1/1/15 50,000
Instructions
Prepare the 2015 statement of cash flows for Downing Company.

CHAPTER 2

THE RECORDING PROCESS

CHAPTER LEARNING OBJECTIVES

1. Explain what an account is and how it helps in the recording process.
2. Define debits and credits and explain their use in recording business transactions.
3. Identify the basic steps in the recording process.
4. Explain what a journal is and how it helps in the recording process.
5. Explain what a ledger is and how it helps in the recording process.
6. Explain what posting is and how it helps in the recording process.
7. Prepare a trial balance and explain its purposes.

TRUE-FALSE STATEMENTS
1. A new account is opened for each transaction entered into by a business firm.

2. The recording process becomes more efficient and informative if all transactions are recorded in one account.

3. When the volume of transactions is large, recording them in tabular form is more efficient than using journals and ledgers.

4. An account is often referred to as a T-account because of the way it is constructed.

5. A debit to an account indicates an increase in that account.

6. If a revenue account is credited, the revenue account is increased.

7. The normal balance of all accounts is a debit.

8. Debit and credit can be interpreted to mean increase and decrease, respectively.

9. The double-entry system of accounting refers to the placement of a double line at the end of a column of figures.

10. A credit balance in a liability account indicates that an error in recording has occurred.

11. The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement.

12. Revenues are a subdivision of retained earnings.

13. Under the double-entry system, revenues must always equal expenses.

14. Transactions are entered in the ledger first and then they are analyzed in terms of their effect on the accounts.

15. Business documents can provide evidence that a transaction has occurred.

16. Each transaction must be analyzed in terms of its effect on the accounts before it can be recorded in a journal.

17. Transactions are entered in the ledger accounts and then transferred to journals.

18. All business transactions must be entered first in the general ledger.

19. A simple journal entry requires only one debit to an account and one credit to an account.

20. A compound journal entry requires several debits to one account and several credits to one account.

21. Transactions are recorded in alphabetic order in a journal.

22. A journal is also known as a book of original entry.

23. The complete effect of a transaction on the accounts is disclosed in the journal.

24. The account titles used in journalizing transactions need not be identical to the account titles in the ledger.

25. The chart of accounts is a special ledger used in accounting systems.

26. A general ledger should be arranged in the order in which accounts are presented in the financial statements, beginning with the balance sheet accounts.

27. The number and types of accounts used by different business enterprises are the same if generally accepted accounting principles are being followed by the enterprises.

28. Posting is the process of proving the equality of debits and credits in the trial balance.

29. After a transaction has been posted, the reference column in the journal should not be blank.

30. A trial balance does not prove that all transactions have been recorded or that the ledger is correct.

31. The double-entry system is a logical method for recording transactions and results in equal debits and credits for each transaction.

32. The normal balance of an expense is a credit.

33. The journal provides a chronological record of transactions.

34. The ledger is merely a bookkeeping device and therefore does not provide much useful data for management.

35. The chart of accounts is a listing of the accounts and the account numbers which identify their location in the ledger.

36. The primary purpose of a trial balance is to prove the mathematical equality of the debits and credits after posting.

37. The trial balance will not balance when incorrect account titles are used in journalizing or posting.

MULTIPLE CHOICE QUESTIONS

38. An account consists of
a. one part.
b. two parts.
c. three parts.
d. four parts.

39. The left side of an account is
a. blank.
b. a description of the account.
c. the debit side.
d. the balance of the account.

40. Which one of the following is not a part of an account?
a. Credit side
b. Trial balance
c. Debit side
d. Title

41. An account is a part of the financial information system and is described by all except which one of the following?
a. An account has a debit and credit side.
b. An account is a source document.
c. An account may be part of a manual or a computerized accounting system.
d. An account has a title.

42. The right side of an account
a. is the correct side.
b. reflects all transactions for the accounting period.
c. shows all the balances of the accounts in the system.
d. is the credit side.

43. An account consists of
a. a title, a debit balance, and a credit balance.
b. a title, a left side, and a debit balance.
c. a title, a debit side, and a credit side.
d. a title, a right side, and a debit balance.

44. A T-account is
a. a way of depicting the basic form of an account.
b. what the computer uses to organize bytes of information.
c. a special account used instead of a trial balance.
d. used for accounts that have both a debit and credit balance.

45. Credits
a. decrease both assets and liabilities.
b. decrease assets and increase liabilities.
c. increase both assets and liabilities.
d. increase assets and decrease liabilities.

46. A debit to an asset account indicates
a. an error.
b. a credit was made to a liability account.
c. a decrease in the asset.
d. an increase in the asset.

47. The normal balance of any account is the
a. left side.
b. right side.
c. side which increases that account.
d. side which decreases that account.

48. The double-entry system requires that each transaction must be recorded
a. in at least two different accounts.
b. in two sets of books.
c. in a journal and in a ledger.
d. first as a revenue and then as an expense.

49. A credit is not the normal balance for which account listed below?
a. Common stock account
b. Revenue account
c. Liability account
d. Dividends account

50. Which one of the following represents the expanded basic accounting equation?
a. Assets = Liabilities + Common stock + Retained Earnings + Dividends – Revenues – Expenses.
b. Assets + Dividends + Expenses = Liabilities + Common stock + Retained Earnings + Revenues.
c. Assets – Liabilities – Dividends = Common stock + Retained Earnings + Revenues – Expenses.
d. Assets = Revenues + Expenses – Liabilities.

51. Which of the following correctly identifies normal balances of accounts?
a. Assets Debit
Liabilities Credit
Stockholders’ Equity Credit
Revenues Debit
Expenses Credit
b. Assets Debit
Liabilities Credit
Stockholders’ Equity Credit
Revenues Credit
Expenses Credit
c. Assets Credit
Liabilities Debit
Stockholders’ Equity Debit
Revenues Credit
Expenses Debit
d. Assets Debit
Liabilities Credit
Stockholders’ Equity Credit
Revenues Credit
Expenses Debit

52. The best interpretation of the word credit is the
a. offset side of an account.
b. increase side of an account.
c. right side of an account.
d. decrease side of an account.

53. In recording an accounting transaction in a double-entry system
a. the number of debit accounts must equal the number of credit accounts.
b. there must always be entries made on both sides of the accounting equation.
c. the amount of the debits must equal the amount of the credits.
d. there must only be two accounts affected by any transaction.

54. An accounting convention is best described as
a. an absolute truth.
b. an accounting custom.
c. an optional rule.
d. something that cannot be changed.

55. A debit is not the normal balance for which account listed below?
a. Dividends
b. Cash
c. Accounts Receivable
d. Service Revenue

56. An accountant has debited an asset account for $1,200 and credited a liability account for $500. What can be done to complete the recording of the transaction?
a. Nothing further must be done.
b. Debit a Stockholders’ equity account for $700.
c. Debit another asset account for $700.
d. Credit a different asset account for $700.

57. An accountant has debited an asset account for $1,300 and credited a liability account for $500. Which of the following would be an incorrect way to complete the recording of the transaction?
a. Credit an asset account for $800.
b. Credit another liability account for $800.
c. Credit a Stockholders’ account for $800.
d. Debit a Stockholders’ account for $800.

58. Which of the following is not true of the terms debit and credit?
a. They can be abbreviated as Dr. and Cr.
b. They can be interpreted to mean increase and decrease.
c. They can be used to describe the balance of an account.
d. They can be interpreted to mean left and right.

59. An account will have a credit balance if the
a. credits exceed the debits.
b. first transaction entered was a credit.
c. debits exceed the credits.
d. last transaction entered was a credit.

60. For the basic accounting equation to stay in balance, each transaction recorded must
a. affect two or less accounts.
b. affect two or more accounts.
c. always affect exactly two accounts.
d. affect the same number of asset and liability accounts.

61. Which of the following statements is true?
a. Debits increase assets and increase liabilities.
b. Credits decrease assets and decrease liabilities.
c. Credits decrease assets and increase liabilities.
d. Debits decrease liabilities and decrease assets.

62. Assets normally show
a. credit balances.
b. debit balances.
c. debit and credit balances.
d. debit or credit balances.

63. An awareness of the normal balances of accounts would help you spot which of the following as an error in recording?
a. A debit balance in the dividends account
b. A credit balance in an expense account
c. A credit balance in a liabilities account
d. A credit balance in a revenue account

64. If a company has overdrawn its bank balance, then
a. its cash account will show a debit balance.
b. its cash account will show a credit balance.
c. the cash account debits will exceed the cash account credits.
d. it cannot be detected by observing the balance of the cash account.

65. Which account below is not a subdivision of retained earnings?
a. Dividends
b. Revenues
c. Expenses
d. Common stock

66. When a company pays dividends
a. it doesn’t have to be cash, it could be another asset.
b. the dividends account will be increased with a credit.
c. the retained earnings account will be directly increased with a debit.
d. the dividends account will be decreased with a debit.

67. The Dividends account
a. appears on the income statement along with the expenses of the business.
b. must show transactions every accounting period.
c. is increased with debits and decreased with credits.
d. is not a proper subdivision of retained earnings.

68. Which of the following statements is incorrect?
a. Expenses increase stockholders’ equity.
b. Expenses have normal debit balances.
c. Expenses decrease stockholders’ equity.
d. Expenses are a negative factor in the computation of net income.

69. A credit to a liability account
a. indicates an increase in the amount owed to creditors.
b. indicates a decrease in the amount owed to creditors.
c. is an error.
d. must be accompanied by a debit to an asset account.

70. In the first month of operations, the total of the debit entries to the cash account amounted to $1,200 and the total of the credit entries to the cash account amounted to $800. The cash account has a(n)
a. $800 credit balance.
b. $1,200 debit balance.
c. $400 debit balance.
d. $400 credit balance.

71. TransAm Mail Service purchased equipment for $2,500. TransAm paid $400 in cash and signed a note for the balance. TransAm debited the Equipment account, credited Cash and
a. nothing further must be done.
b. debited the retained earnings account for $2,100.
c. credited another asset account for $400.
d. credited a liability account for $2,100.

72. Radio Moscow Industries purchased supplies for $1,000. They paid $400 in cash and agreed to pay the balance in 30 days. The journal entry to record this transaction would include a debit to an asset account for $1,000, a credit to a liability account for $600. Which of the following would be the correct way to complete the recording of the transaction?
a. Credit an asset account for $400.
b. Credit another liability account for $400.
c. Credit the retained earnings account for $400.
d. Debit the retained earnings account for $400.

73. On January 14, Edamame Industries purchased supplies of $700 on account. The entry to record the purchase will include
a. a debit to Supplies and a credit to Accounts Payable.
b. a debit to Supplies Expense and a credit to Accounts Receivable.
c. a debit to Supplies and a credit to Cash.
d. a debit to Accounts Receivable and a credit to Supplies.

74. On June 1, 2015, Portugal Inc. reported a cash balance of $12,000. During June, Portugal made deposits of $5,000 and made disbursements totalling $14,000. What is the cash balance at the end of June?
a. $3,000 debit balance
b. $17,000 debit balance
c. $3,000 credit balance
d. $2,000 credit balance

75. At January 1, 2015, Alligator Industries reported retained earnings of $150,000. During 2015, Alligator had a net loss of $30,000 and paid dividends of $15,000. At December 31, 2015, the amount of retained earnings is
a. $105,000.
b. $120,000.
c. $135,000.
d. $165,000.

76. Mt. Zion Inc. pays its employees twice a month, on the 7th and the 21st. On June 21, Mt. Zion Inc. paid employee salaries of $5,000. This transaction would
a. increase stockholders’ equity by $5,000.
b. decrease the balance in Salaries and Wages Expense by $5,000.
c. decrease net income for the month by $5,000.
d. be recorded by a $5,000 debit to Salaries and Wages Payable and a $4,000 credit to Salaries and Wages Expense.

77. In the first month of operations for Gallowsbird Industries, the total of the debit entries to the cash account amounted to $36,000 ($16,000 investment by stockholders and revenues of $20,000). The total of the credit entries to the cash account amounted to $22,000 (purchase of equipment $8,000 and payment of expenses $14,000). At the end of the month, the cash account has a(n)
a. $6,000 credit balance.
b. $6,000 debit balance.
c. $14,000 debit balance.
d. $14,000 credit balance.

78 Chik Chik Company showed the following balances at the end of its first year:
Cash $ 6,000
Prepaid insurance 9,400
Accounts receivable 7,000
Accounts payable 5,600
Notes payable 8,400
Common stock 2,800
Dividends 1,400
Revenues 44,000
Expenses 35,000
What did Chik Chik Company show as total credits on its trial balance?
a. $51,400
b. $60,800
c. $62,200
d. $70,200

79. Electrelane Company showed the following balances at the end of its first year:
Cash $ 4,000
Prepaid insurance 7,000
Accounts receivable 5,000
Accounts payable 4,000
Notes payable 6,000
Common stock 2,000
Dividends 1,000
Revenues 32,000
Expenses 25,000

What did Electrelene Company show as total credits on its trial balance?
a. $9,000
b. $44,000
c. $45,000
d. $49,000

80. During February 2015 its first month of operations, the stockholders of Ariel Pink Enterprises invested cash of $50,000. Ariel had cash revenues of $10,000 and paid expenses of $14,000. Assuming no other transactions impacted the cash account, what is the balance in Cash at February 28?
a. $4,000 credit
b. $4,000 debit
c. $46,000 debit
d. $54,000 debit

81. At January 31, 2015, the balance in Aislers Inc.’s supplies account was $750. During February, Aislers purchased supplies of $900 and used supplies of $1,125. At the end of February, the balance in the supplies account should be
a. $525 debit.
b. $975 debit.
c. $525 credit.
d. $775 debit.

82. At December 1, 2015, Cursive Company’s accounts receivable balance was $1,800. During December, Cursive had credit revenues of $7,200 and collected accounts receivable of $6,000. At December 31, 2015, the accounts receivable balance is
a. $600 debit.
b. $3,000 debit.
c. $600 credit.
d. $3,000 credit.

83. At October 1, 2015, Padilla Industries had an accounts payable balance of $40,000. During the month, the company made purchases on account of $33,000 and made payments on account of $48,000. At October 31, 2015, the accounts payable balance is
a. $25,000.
b. $41,000.
c. $55,000.
d. $121,000.

84. During 2015, its first year of operations, Neko’s Bakery had revenues of $60,000 and expenses of $35,000. The business paid dividends of $20,000. What is the amount of stockholders’ equity at December 31, 2015?
a. $0
b. $5,000 credit
c. $25,000 credit
d. $20,000 debit

85. On July 7, 2015, Hidden Camera Enterprises performed cash services of $1,700. The entry to record this transaction would include
a. a debit to Service Revenue of $1,700.
b. a credit to Accounts Receivable of $1,700.
c. a debit to Cash of $1,700.
d. a credit to Accounts Payable of $1,700.

86. At September 1, 2015, Promise Ring Co. reported stockholders’ equity of $156,000. During the month, Promise Ring generated revenues of $38,000, incurred expenses of $21,000, purchased equipment for $5,000 and paid dividends of $2,000. What is the amount of stockholders’ equity at September 30, 2015?
a. $166,000
b. $171,000
c. $173,000
d. $176,000

87. The final step in the recording process is to
a. analyze each transaction.
b. enter the transaction in a journal.
c. prepare a trial balance.
d. transfer journal information to ledger accounts.

88. The usual sequence of steps in the transaction recording process is:
a. journal  analyze  ledger.
b. analyze  journal  ledger.
c. journal  ledger  analyze.
d. ledger  journal  analyze.

89. In recording business transactions, evidence that an accounting transaction has taken place is obtained from
a. business documents.
b. the Internal Revenue Service.
c. the public relations department.
d. the SEC.

90. After a business transaction has been analyzed and entered in the book of original entry, the next step in the recording process is to transfer the information to
a. the company’s bank.
b. stockholders’ equity.
c. ledger accounts.
d. financial statements.

91. The first step in the recording process is to
a. prepare financial statements.
b. analyze each transaction for its effect on the accounts.
c. post to a journal.
d. prepare a trial balance.

92. Evidence that would not help with determining the effects of a transaction on the accounts would be a(n)
a. cash register sales tape.
b. bill.
c. advertising brochure.
d. check.

93. After transaction information has been recorded in the journal, it is transferred to the
a. trial balance.
b. income statement.
c. book of original entry.
d. ledger.

94. The usual sequence of steps in the recording process is to analyze each transaction, enter the transaction in the
a. journal, and transfer the information to the ledger accounts.
b. ledger, and transfer the information to the journal.
c. book of accounts, and transfer the information to the journal.
d. book of original entry, and transfer the information to the journal.

95. The final step in the recording process is to transfer the journal information to the
a. trial balance.
b. financial statements.
c. ledger.
d. file cabinets.

96. The recording process occurs
a. once a year.
b. once a month.
c. repeatedly during the accounting period.
d. infrequently in a manual accounting system.

97. A compound journal entry involves
a. two accounts.
b. three accounts.
c. three or more accounts.
d. four or more accounts.

98. A journal provides
a. the balances for each account.
b. information about a transaction in several different places.
c. a list of all accounts used in the business.
d. a chronological record of transactions.

99. When three or more accounts are required in one journal entry, the entry is referred to as a
a. compound entry.
b. triple entry.
c. multiple entry.
d. simple entry.

100. When two accounts are required in one journal entry, the entry is referred to as a
a. balanced entry.
b. simple entry.
c. posting.
d. nominal entry.

101. Another name for journal is
a. listing.
b. book of original entry.
c. book of accounts.
d. book of source documents.

102. The standard format of a journal would not include
a. a reference column.
b. an account title column.
c. a T-account.
d. a date column.

103 Transactions in a journal are recorded in
a. account number order.
b. dollar amount order.
c. alphabetical order.
d. chronological order.

104 A journal is not useful for
a. disclosing in one place the complete effect of a transaction.
b. preparing financial statements.
c. providing a record of transactions.
d. locating and preventing errors.

105 A complete journal entry does not show
a. the date of the transaction.
b. the new balance in the accounts affected by the transaction.
c. a brief explanation of the transaction.
d. the accounts and amounts to be debited and credited.

106. The name given to entering transaction data in the journal is
a. chronicling.
b. listing.
c. posting.
d. journalizing.

107. The standard form of a journal entry has the
a. debit account entered first and indented.
b. credit account entered first and indented.
c. debit account entered first at the extreme left margin.
d. credit account entered first at the extreme left margin.

108. When journalizing, the reference column is
a. left blank.
b. used to reference the source document.
c. used to reference the journal page.
d. used to reference the financial statements.

109. On June 1, 2015 Ted Leo buys a copier machine for his business and finances this purchase with cash and a note. When journalizing this transaction, he will
a. use two journal entries.
b. make a compound entry.
c. make a simple entry.
d. list the credit entries first, which is proper form for this type of transaction.

110. Which of the following journal entries is recorded correctly and in the standard format?
a. Salaries and Wages Expense 500
Cash 1,500
Advertising Expense . 1,000

b. Salaries and Wages Expense . 500
Advertising Expense . 1,000
Cash 1,500

c. Cash 1,500
Salaries and Wages Expense 500
Advertising Expense 1,000

d. Salaries and Wages Expense 500
Advertising Expense 1,000
Cash . 1,500

111. The ledger should be arranged in
a. alphabetical order.
b. chronological order.
c. dollar amount order.
d. financial statement order.

112. The entire group of accounts maintained by a company is called the
a. chart of accounts.
b. general journal.
c. general ledger.
d. trial balance.

113. An accounting record of the balances of all assets, liabilities, and stockholders’ equity accounts is called a
a. compound entry.
b. general journal.
c. general ledger.
d. chart of accounts.

114. The usual order of accounts in the general ledger is
a. assets, liabilities, common stock, retained earnings, dividends, revenues, and expenses.
b. assets, liabilities, dividends, common stock, retained earnings, expenses, and revenues.
c. liabilities, assets, common stock, retained earnings, revenues, expenses, and dividends.
d. common stock, retained earnings, assets, liabilities, dividends, expenses, and revenues.

115. Management could determine the amounts due from customers by examining which ledger account?
a. Service Revenue
b. Accounts Payable
c. Accounts Receivable
d. Supplies

116. The ledger accounts should be arranged in
a. chronological order.
b. alphabetical order.
c. financial statement order.
d. order of appearance in the journal.

117. A three column form of account is so named because it has columns for
a. debit, credit, and account name.
b. debit, credit, and reference.
c. debit, credit, and balance.
d. debit, credit, and date.

118. On August 13, 2015, Swell Maps Enterprises purchased equipment for $1,300 and supplies of $200 on account. Which of the following journal entries is recorded correctly and in the standard format?
a. Equipment 1,300
Account Payable 1,500
Supplies 200

b. Equipment 1,300
Supplies 200
Accounts Payable 1,500

c. Accounts Payable 1,500
Equipment 1,300
Supplies 200

d. Equipment 1,300
Supplies 200
Accounts Payable. 1,500

119. Delta72 Company received a cash advance of $700 from a customer. As a result of this event,
a. assets increased by $700.
b. stockholders’ equity increased by $700.
c. liabilities decreased by $700.
d. assets and stockholders’ equity increased by $700.

120. Camper Van Company purchased equipment for $2,600 cash. As a result of this event,
a. stockholders’ equity decreased by $2,600.
b. total assets increased by $2,600.
c. total assets remained unchanged.
d. stockholders’ equity decreased and total assets increased by $2,600.

121. Beethoven Company provided consulting services and billed the client $3,100. As a result of this event,
a. assets remained unchanged.
b. assets increased by $3,100.
c. stockholders’ equity increased by $3,100.
d. assets and stockholders’ equity both increased by $3,100.

122. The first step in posting involves
a. entering in the appropriate ledger account the date, journal page, and debit amount shown in the journal.
b. writing in the journal the account number to which the debit amount was posted.
c. writing in the journal the account number to which the credit amount was posted.
d. entering in the appropriate ledger account the date, journal page, and credit amount shown in the journal.

123. A chart of accounts usually starts with
a. asset accounts.
b. expense accounts.
c. liability accounts.
d. revenue accounts.

124. The procedure of transferring journal entries to the ledger accounts is called
a. journalizing.
b. analyzing.
c. reporting.
d. posting.

125. A number in the reference column in a general journal indicates
a. that the entry has been posted to a particular account.
b. the page number of the journal.
c. the dollar amount of the transaction.
d. the date of the transaction.

126. A chart of accounts for a business firm
a. is a graph.
b. indicates the amount of profit or loss for the period.
c. lists the accounts and account numbers that identify their location in the ledger.
d. shows the balance of each account in the general ledger.

127. Posting
a. should be performed in account number order.
b. accumulates the effects of journalized transactions in the individual accounts.
c. involves transferring all debits and credits on a journal page to the trial balance.
d. is accomplished by examining ledger accounts and seeing which ones need updating.

128. After journal entries are posted, the reference column
a. of the general journal will be blank.
b. of the general ledger will show journal page numbers.
c. of the general journal will show “Dr” or “Cr”.
d. of the general ledger will show account numbers.

129. The explanation column of the general ledger
a. is completed without exception.
b. is nonexistent.
c. is used infrequently.
d. shows account titles.

130. A numbering system for a chart of accounts
a. is prescribed by GAAP.
b. is uniform for all businesses.
c. usually starts with income statement accounts.
d. usually starts with balance sheet accounts.

131. The first step in designing a computerized accounting system is the creation of the
a. general ledger.
b. general journal.
c. trial balance.
d. chart of accounts.

132. The steps in preparing a trial balance include all of the following except
a. listing the account titles and their balances.
b. totaling the debit and credit columns.
c. proving the equality of the two columns.
d. transferring journal amounts to ledger accounts.

133. A trial balance may balance even when each of the following occurs except when
a. a transaction is not journalized.
b. a journal entry is posted twice.
c. incorrect accounts are used in journalizing.
d. a transposition error is made.

134. A list of accounts and their balances at a given time is called a(n)
a. journal.
b. posting.
c. trial balance.
d. income statement.

135. If the sum of the debit column equals the sum of the credit column in a trial balance, it indicates
a. no errors have been made.
b. no errors can be discovered.
c. that all accounts reflect correct balances.
d. the mathematical equality of the accounting equation.

136. A trial balance is a listing of
a. transactions in a journal.
b. the chart of accounts.
c. general ledger accounts and balances.
d. the totals from the journal pages.

137. Customarily, a trial balance is prepared
a. at the end of each day.
b. after each journal entry is posted.
c. at the end of an accounting period.
d. only at the inception of the business.

138. A trial balance would only help in detecting which one of the following errors?
a. A transaction that is not journalized
b. A journal entry that is posted twice
c. Offsetting errors are made in recording the transaction
d. A transposition error when transferring the debit side of journal entry to the ledger

139. An account is an individual accounting record of increases and decreases in specific
a. liabilities.
b. assets.
c. expenses.
d. assets, liabilities, and stockholders’ equity items.

140. A debit is not the normal balance for which of the following?
a. Asset account
b. Dividends account
c. Expense account
d. Common stock account

141. Which of the following rules is incorrect?
a. Credits decrease the dividends account.
b. Debits increase the common stock account.
c. Credits increase revenue accounts.
d. Debits decrease liability accounts.

142. Which of the following statements is false?
a. Revenues increase stockholders’ equity.
b. Revenues have normal credit balances.
c. Revenues are a positive factor in the computation of net income.
d. Revenues are increased by debits.

143. Which of the following is the correct sequence of steps in the recording process?
a. Posting, journalizing, analyzing
b. Journalizing, analyzing, posting
c. Analyzing, posting, journalizing
d. Analyzing, journalizing, posting

144. Which of the following is false about a journal?
a. It discloses in one place the complete effects of a transaction.
b. It provides a chronological record of transactions.
c. It helps to prevent or locate errors because debit and credit amounts for each entry can be readily compared.
d. It keeps in one place all the information about changes in specific account balances.

145. Deerhoof Company purchases equipment for $2,700 and supplies for $400 from Milkman Co. for $3,100 cash. The entry for this transaction will include a
a. debit to Equipment $2,700 and a debit to Supplies Expense $400 for Milkman.
b. credit to Cash for Milkman.
c. credit to Accounts Payable for Deerhoof.
d. debit to Equipment $2,700 and a debit to Supplies $400 for Deerhoof.

146. Devendra Company pays cash dividends of $600. The entry for this transaction will include a debit of $600 to
a. Dividends
b. Retained Earnings.
c. Owner’s Salaries Expense.
d. Salaries and Wages Expense.

147. On October 3, Karl Schickele, a carpenter, received a cash payment for services previously billed to a client. Karl paid his telephone bill, and he also bought equipment on credit. For the three transactions, at least one of the entries will include a
a. credit to Retained Earnings.
b. credit to Notes Payable.
c. debit to Accounts Receivable.
d. credit to Accounts Payable.

148. Posting of journal entries should be done in
a. account number order.
b. alphabetical order.
c. chronological order.
d. dollar amount order.

149. The chart of accounts is a
a. list of accounts and their balances at a given time.
b. device used to prove the mathematical accuracy of the ledger.
c. listing of the accounts and the account numbers which identify their location in the ledger.
d. required step in the recording process.

150. Which of the following is incorrect regarding a trial balance?
a. It proves that the debits equal the credits after posting.
b. It proves that the company has recorded all transactions.
c. A trial balance uncovers errors in journalizing and posting.
d. A trial balance is useful in the preparation of financial statements.

151. A trial balance will not balance if
a. a journal entry is posted twice.
b. a wrong amount is used in journalizing.
c. incorrect account titles are used in journalizing.
d. a journal entry is only partially posted.

152. Which of the following are the same under both GAAP and IFRS?
a. The account.
b. Debit and credit rules.
c. Steps in the recording process.
d. All of these answers are correct.

153. Which of the following are the same under both GAAP and IFRS?
a. The journal.
b. The ledger.
c. The chart of accounts.
d. All of these answers are correct.

154. Which of the following is true?
a. Transaction analysis is completely different under IFRS and GAAP.
b. Most transactions are recorded differently under IFRS and GAAP.
c. Transaction analysis is the same under IFRS and GAAP, but some transactions are recorded differently.
d. All transactions are recorded the same under IFRS and GAAP.

155. European companies rely
a. less on historical cost and more on fair values than U.S. companies.
b. less on fair values and more on historical cost than U.S. companies.
c. completely on fair values for financial reporting.
d. completely on historical cost for financial reporting.

156. The double–entry accounting system is the basis of accounting systems
a. worldwide.
b. worldwide, except for the U.S.
c. in the U.S. only
d. neither internationally nor in the U.S.

157. Under IFRS, the trial balance
a. follows the same format as under GAAP.
b. shows credits on the left and debits on the right.
c. includes less accounts than under GAAP.
d. includes more accounts than under GAAP.

158. In deciding whether the U.S. should adopt IFRS, the issue the SEC said should be considered is
a. whether IFRS is sufficiently developed and consistent in application.
b. whether the IFRS is established for the benefit of investors.
c. the impact of a switch to IFRS on U.S. laws and regulations.
d. all of these answers are correct.

BRIEF EXERCISES

BE 159
At June 1, 2015, Coquehcot Industries had an accounts receivable balance of $12,000. During the month, the company performed credit services of $30,000 and collected accounts receivable of $22,000. What is the balance in accounts receivable at June 30, 2015?

BE 160

TNT has the following transactions during April of the current year. Indicate
(a) the effect on the accounting equation and (b) the debit-credit analysis.

Apr. 1 Opens a law office, investing $25,000 in cash.
4 Pays rent in advance for 6 months, $9,000 cash.
16 Receives $8,000 from clients for services provided.
27 Pays secretary $2,800 salary.

BE 161
For each of the following accounts indicate the effect of a debit or a credit on the account and the normal balance. Increase (+), Decrease (–).
Debit_ _Credit_ Normal Balance
1. Salaries and wages expense.
2. Accounts receivable.
3. Service revenue.
4. Common stock.
5. Dividends.

BE 162
For each of the following transactions of Neon Garden, identify the account to be debited and the account to be credited.
1. Purchased 18-month insurance policy for cash.
2. Paid weekly payroll.
3. Purchased supplies on account.
4. Received utility bill to be paid at later date.

BE 163
Journalize the following business transactions in general journal form. Identify each transaction by number. You may omit explanations of the transaction.
1. Andrew Bird invested $35,000 cash in exchange for stock.
2. Hired an employee to be paid $400 per week, starting tomorrow.
3. Paid two years’ rent in advance, $7,440.
4. Paid the worker’s weekly wage.
5. Recorded revenue earned and received for the week, $1,900.

BE 164
Identify the impact on the accounting equation of the following transactions.
1. Purchased 36-month insurance policy for cash.
2. Purchased supplies on account.
3. Received utility bill to be paid at later date.
4. Paid utility bill previously accrued.

BE 165
Journalize the following transactions for Xiu Xiu Company for June 2015, the company’s first month of operations. You may omit explanations for the transactions.
1. Purchased equipment on account for $9,000.
2. Billed customers $5,000 for services performed.
3. Made payment of $2,300 on account for equipment purchased earlier in month.
4. Collected $2,900 on customer accounts.

BE 166
The following transactions took place for Xiu Xiu Company:
(a) Purchased equipment on account for $9,000.
(b) Billed customers $5,000 for services performed.
(c) Made payment of $2,300 on account for equipment purchased earlier in month.
(d) Collected $2,900 on customer accounts.

1. What is the balance in Accounts Payable at June 30, 2015?
2. What is the balance in Accounts Receivable at June 30, 2015?

BE 167
The transactions of the Liberty Belle Store are recorded in the general journal below. You are to post the journal entries to T-accounts.

General Journal

Date Account Titles Debit Credit

2015
Aug. 5 Accounts Receivable 4,400
Service Revenue 4,400

10 Cash 3,000
Service Revenue 3,000

19 Rent Expense 1,100
Cash 1,100

25 Cash 1,400
Accounts Receivable 1,400

BE 167 (cont.)
General Ledger
Cash Accounts Receivable

Service Revenue Rent Expense

BE 168
Prepare a trial balance from the ledger accounts of Black Diamond Express as of January 31, 2015.

Accounts Payable $1,100 Rent Expense $ 500
Accounts Receivable 1,700 Service Revenue 3,000
Cash 1,400 Supplies 200
Common stock 2,000 Salaries and Wages Expense 1,300
Dividends 1,000

BE 169
Prepare a corrected trial balance for Stereolab Company. All accounts should have a normal balance.

STEROELAB COMPANY
Trial Balance
For the Quarter Ended 3/31/15

Debit Credit
Cash $14,000
Accounts Receivable $ 23,000
Prepaid Insurance 2,500
Equipment 60,000
Accounts Payable 15,000
Unearned Service Revenue 10,000
Notes Payable 25,000
Common stock 38,000
Dividends 1,500
Service Revenue 43,000
Salaries and Wages Expense 15,000
Utilities Expense 5,000
Rent Expense 10,000
$116,500 $145,500

EXERCISES

Ex. 170
The chart of accounts used by Notwist Copy Company is listed below. You are to indicate the proper accounts to be debited and credited for the following transactions by writing the account number(s) in the appropriate boxes.
CHART OF ACCOUNTS
101 Cash 209 Unearned Service Revenue
112 Accounts Receivable 311 Common Stock
125 Supplies 332 Dividends
157 Equipment 400 Service Revenue
200 Notes Payable 610 Advertising Expense
201 Accounts Payable 729 Rent Expense
———————————————————————————————————————————
Number(s) Number(s)
of account(s) of account(s)
debited credited
1. The company issues stock in exchange for $70,000 cash.
———————————————————————————————————————————
2. Purchased three pieces of equipment for $160,000, paying $50,000 cash and signing a 5-year, 10% note for the remainder.
———————————————————————————————————————————
3. Purchased $5,000 supplies on credit.
———————————————————————————————————————————
4. Cash revenue amounted to $7,000.
———————————————————————————————————————————
5. Paid $500 cash for radio advertising.
———————————————————————————————————————————
6. Paid $800 on account for supplies purchased in transaction 3.
———————————————————————————————————————————
7. The company paid dividends of $2,100.
———————————————————————————————————————————
8. Paid $1,200 cash for rent for the current month.
———————————————————————————————————————————
9. Received $2,000 cash advance from a customer for future copying.
———————————————————————————————————————————
10. Billed a customer for $575 for photocopy work done.
———————————————————————————————————————————

Ex. 171
Under a double-entry system, show how the entry in each statement is entered in the ledger by using debit or credit to indicate the increase or decrease in the affected account.

Debit or Credit

1. An increase in Salaries and Wages Expense.

2. A decrease in Accounts Payable.

3. An increase in Prepaid Insurance.

4. An increase in Common Stock.

5. A decrease in Supplies.

6. An increase in Dividends.

7. An increase in Service Revenue.

8. A decrease in Accounts Receivable.

9. An increase in Rent Expense.

10. A decrease in Equipment.

Ex. 172
Selected transactions for Good Home, a property management company, in its first month of business, are as follows:

Jan. 2 Issued stock to investors for $15,000 cash.
3 Purchased used car for $5,200 cash for use in business.
9 Purchased supplies on account for $500.
11 Billed customers $2,100 for services performed.
16 Paid $450 cash for advertising.
20 Received $1,300 cash from customers billed on January 11.
23 Paid creditor $300 cash on balance owed.
28 Paid dividends of $2,000.

Instructions
For each transaction indicate the following.
(a) The basic type of account debited and credited (asset (A), liability (L), stockholders’ equity (SE)).
(b) The specific account debited and credited (cash, rent expense, service revenue, etc.).
(c) Whether the specific account is increased (incr.) or decreased (decr).
(d) The normal balance of the specific account.

Use the following format, in which the January 2 transaction is given as an example.

Account Debited Account Credited
(a) (b) (c) (d) (a) (b) (c) (d)
Basic Specific Normal Basic Specific Normal
Date Type Account Effect Balance Type Account Effect Balance
Jan. 2 A Cash Incr. Debit SE Common Incr. Credit
Stock

Ex. 173
For the accounts listed below, indicate if the normal balance of the account is a debit or credit.
Normal Balance
Accounts Debit or Credit

1. Service Revenue

2. Rent Expense

3. Accounts Receivable

4. Accounts Payable

5. Retained Earnings

6. Supplies

7. Insurance Expense

8. Dividends

9. Buildings

10. Notes Payable

Ex. 174
For each of the following accounts, indicate the effects of (a) a debit and (b) the normal account balance. 1. Notes Payable 2. Prepaid Insurance 3. Salaries and Wages Expense 4. Service Revenue 5. Equipment 6. Common Stock

Ex. 175
During an accounting period, a business has numerous transactions affecting each of the following accounts. State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries.

(1) Advertising Expense (6) Dividends
(2) Service Revenue (7) Cash
(3) Accounts Payable (8) Salaries and Wages Expense
(4) Accounts Receivable (9) Notes Payable
(5) Common Stock (10) Insurance Expense

Ex. 176
Eight transactions are recorded in the following T-accounts:
CASH ACCOUNTS RECEIVABLE
(1) 25,000 (2) 3,500 (5) 27,500 (7) 22,500
(7) 22,500 (3) 1,950
(4) 5,100
(6) 8,000
(8) 3,300

SUPPLIES EQUIPMENT
(3) 1,950 (2) 13,500

COMMON STOCK SERVICE REVENUE
(1) 25,000 (5) 27,500

ACCOUNTS PAYABLE DIVIDENDS
(6) 8,000 (2) 10,000 (8) 3,300

SALARIES AND WAGES EXPENSE
(4) 5,100

Ex. 176 (cont.)
Indicate for each debit and each credit: (a) whether an asset, liability, stockholders’ equity, revenue, or expense account was affected and (b) whether the account was increased (+) or (–) decreased. Answers should be presented in the following chart form:
Account Debited Account Credited
Transaction (a) (b) (a) (b)
No. Type Effect Type Effect
———————————————————————————————————————————
(1) (Example) Asset + Stockholders’
equity +
———————————————————————————————————————————
(2)
———————————————————————————————————————————
(3)
———————————————————————————————————————————
(4)
———————————————————————————————————————————
(5)
———————————————————————————————————————————
(6)
———————————————————————————————————————————
(7)
———————————————————————————————————————————
(8)
———————————————————————————————————————————

Ex. 177
For each of the following accounts indicate (a) the type of account (Asset, Liability, Stockholders’ Equity, Revenue, Expense), (b) the debit and credit effects, and (c) the normal account balance.

Example
0. Cash a. Asset account
b. Debit increases, credit decreases
c. Normal balance – debit

Accounts
1. Accounts Payable 5. Service Revenue
2. Accounts Receivable 6. Insurance Expense
3. Common Stock 7. Notes Payable
4. Dividends 8. Equipment

Ex. 178
For each transaction given, enter in the tabulation given below a “D” for debit and a “C” for credit to reflect the increases and decreases of the assets, liabilities, and stockholders’ equity accounts. In some cases there may be a “D” and a “C” in the same box.

Transactions:
1. Invests cash in exchange for stock.
2. Pays insurance in advance for six months.
3. Pays secretary’s salary.
4. Purchases supplies on account.
5. Pays electricity bill.
6. Borrows money from local bank.
7. Makes payment on account.
8. Receives cash due from customers.
Ex. 178 (cont.)
9. Provides services on account.
10. The company pays a dividends.

Transaction #
1 2 3 4 5 6 7 8 9 10
Assets
Liabilities
Common stock
Dividends
Revenues
Expenses

Ex. 179
Journalize the following business transactions in general journal form. Identify each transaction by number. You may omit explanations of the transactions.
1. The company issues stock in exchange for $40,000 cash
2. Purchased $400 of supplies on credit.
3. Purchased equipment for $8,000, paying $2,000 in cash and signed a 30-day, $6,000, note payable.
4. Real estate commissions billed to clients amount to $4,000.
5. Paid $700 in cash for the current month’s rent.
6. Paid $200 cash on account for supplies purchased in transaction 2.
7. Received a bill for $600 for advertising for the current month.
8. Paid $2,200 cash for office salaries and wages.
9. The company paid dividends of $1,500.
10. Received a check for $3,000 from a client in payment on account for commissions billed in transaction 4.

Ex. 180
Identify the accounts to be debited and credited for each of the following transactions.
1. Invested $8,000 cash in the business in exchange for stock. 2. Purchased supplies on account for $1,000. 3. Billed customers $2,000 for services performed. 4. Paid salaries of $1,200.

Ex. 181
Transactions for Tom Petty Company for the month of October are presented below. Journalize each transaction and identify each transaction by number. You may omit journal explanations.
1. Invested $40,000 cash in the business in exchange for stock.
2. Purchased land costing $28,000 for cash.
3. Purchased equipment costing $15,000 for $3,000 cash and the remainder on credit.
4. Purchased supplies on account for $800.
5. Paid $1,000 for a one-year insurance policy.
6. Received $3,000 cash for services performed.
7. Received $4,000 for services previously performed on account.
8. Paid wages to employees for $2,500.
9. Paid dividends of $2,000.

Ex. 182
Match the basic step in the recording process described by each of the following statements.

A. Analyze each transaction B. Enter each transaction in a journal C. Transfer journal information to ledger accounts

____ 1. This step is called posting.
____ 2. Business documents are examined to determine the effects of transactions on the accounts.
____ 3. This step is called journalizing.

Ex. 183
Prepare journal entries for each of the following transactions.
1. Performed services for customers on account $8,000.
2. Purchased $20,000 of equipment on account.
3. Received $3,000 from customers in transaction 1.
4. The company paid dividends of $2,000.

Ex. 184
Sigur Ros Company is a newly organized business. The list of accounts to be opened in the general ledger is as follows:
Accounts Payable Prepaid Insurance
Accounts Receivable Prepaid Rent
Accumulated Depreciation Rent Expense
Cash Salaries and Wages Expense
Common Stock Salaries and Wages Payable
Depreciation Expense Service Revenue
Dividends Supplies
Equipment Utilities Expense
Insurance Expense
Instructions
Organize the accounts into the order in which they should appear in the ledger of Sigur Ros Company and assign account numbers. Use the following system to assign account numbers.
1—199 Assets
200—299 Liabilities
300—399 Stockholders’ Equity
400—499 Revenues
500—599 Expenses

Ex. 185
The transactions of Medina Information Service are recorded in the general journal below. You are to post the journal entries to the accounts in the general ledger. After all entries have been posted, you are to prepare a trial balance on the form provided.

General Journal J1
———————————————————————————————————————————
Date Account Titles and Explanation Ref. Debit Credit
———————————————————————————————————————————
2015
Sept. 1 Cash 25,000
Common Stock 25,000
(Issued stock for cash)

4 Equipment 30,000
Cash 10,000
Notes Payable 20,000
(Paid cash and issued 2-year, 9%, note for
equipment)

8 Rent Expense 1,000
Cash 1,000
(Paid September rent)

15 Prepaid Insurance 400
Cash 400
(Paid one-year liability insurance)

18 Cash 2,500
Service Revenue 2,500
(Received cash for delivery services)

20 Salaries and Wages Expense 500
Cash 500
(Paid salaries for current period)

25 Utilities Expense 100
Accounts Payable 100
(Received a bill for September utilities)

30 Dividends 1,500
Cash 1,500
(Paid dividends)

30 Accounts Receivable 4,000
Service Revenue 4,000
(Billed customer for delivery service)

Ex. 185 (cont.)
General Ledger

Cash Account No. 101
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————

Accounts Receivable Account No. 112
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————

Prepaid Insurance Account No. 130
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————

Equipment Account No. 155
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————

Accounts Payable Account No. 201
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————

Ex. 185 (cont.)
Notes Payable Account No. 205
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————

Common Stock Account No. 311
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————

Dividends Account No. 332
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————

Service Revenue Account No. 400
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————

Rent Expense Account No. 719
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————

Ex. 185 (cont.)
Salaries and Wages Expense Account No. 726
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————

Utilities Expense Account No. 735
———————————————————————————————————————————
Date Explanation Ref. Debit Credit Balance
———————————————————————————————————————————

MEDINA INFORMATION SERVICE
Trial Balance
September 30, 2015
———————————————————————————————————————————
Accounts Debit Credit
———————————————————————————————————————————

———————————————————————————————————————————

Ex. 186
The bookkeeper for Panda Bear Yard Service made a number of errors in journalizing and posting as described below:
1. A debit posting to accounts receivable for $500 was omitted.
2. A payment of accounts payable for $600 was credited to cash and debited to accounts receivable.
3. A credit to accounts receivable for $950 was posted as $95.
4. A cash purchase of equipment for $893 was journalized as a debit to equipment and a credit to notes payable. The credit posting was made for $839 while the debit posting was made for $893.
5. A debit posting of $400 for purchase of supplies was credited to supplies.
6. A debit to maintenance and repairs expense for $451 was posted as $415.
7. A debit posting for salaries and wages expense for $900 was made twice.
8. A cash purchase of supplies for $700 was journalized and posted as a debit to supplies for $70 and a credit to cash for $70.
Ex. 186 (cont.)
Instructions
For each error, indicate (a) whether the trial balance will balance; if the trial balance will not balance, indicate (b) the amount of the difference, and (c) the trial balance column that will have the larger total. Consider each error separately. Use the following form, in which error (1) is given as an example.
(A) (B) (C)
Error In Balance Difference Larger Column
1 No $500 Credit

Ex. 187
Post the following transactions to T-accounts and determine each account’s ending balance. 1. Supplies 2,800 Accounts Payable 2,800 2. Accounts Receivable 4,000 Service Revenue 4,000
3. Cash 3,000 Accounts Receivable 3,000 4. Accounts Payable 1,000 Cash 1,000

Ex. 188
The trial balance of Red House Painters shown below does not balance.
RED HOUSE PAINTERS
Trial Balance
June 30, 2015
———————————————————————————————————————————
Debit Credit
Cash $ 2,780
Accounts Receivable 7,420
Supplies 600
Equipment 8,300
Accounts Payable $ 9,777
Common Stock 1,952
Dividends 1,300
Service Revenue 15,200
Salaries and Wages Expense 3,800
Maintenance and Repairs Expense 1,600
Totals $25,800 $26,929

An examination of the ledger and journal reveals the following errors:
1. Each of the above listed accounts has a normal balance per the general ledger.
2. Cash of $270 received from a customer on account was debited to Cash $720 and credited to Accounts Receivable $720.
3. A dividend of $400 was posted as a credit to Dividends $400 and credit to Cash $400.
4. A debit of $300 was not posted to Salaries and Wages Expense.
5. The purchase of equipment on account for $700 was recorded as a debit to Maintenance and Repairs Expense and a credit to Accounts Payable for $700.
6. Services were performed on account for a customer, $510, for which Accounts Receivable was debited $510 and Service Revenue was credited $51.
7. A payment on account for $235 was credited to Cash for $235 and credited to Accounts Payable for $253.

Instructions
Prepare a correct trial balance.

Ex. 189
Some of the following errors would cause the debit and credit columns of the trial balance to have unequal totals. For each of the four cases, state whether the error would cause unequal totals in the trial balance. If the error causes unequal totals, indicate the amount of difference between the columns and state whether the debit or credit is larger. Each case is to be considered independently of the others.
1. A payment of $500 to a creditor was recorded by a debit to Accounts Payable of $50 and a credit to Cash of $500.
2. A $480 payment for a printer was recorded by a debit to Equipment of $48 and a credit to Cash for $48.
3. An account receivable in the amount of $2,500 was collected in full. The collection was recorded by a debit to Cash for $2,500 and a debit to Accounts Payable for $2,500.
4. An account payable was paid by issuing a check for $800. The payment was recorded by debiting Accounts Payable $800 and crediting Accounts Receivable $800.

Ex. 190
L. Phair and Associates is a financial planning service. The account balances at December 31, 2015 are shown by the following alphabetical list:
Accounts Payable $ 5,000
Accounts Receivable 19,000
Buildings 140,000
Cash 11,700
Common Stock 143,400
Equipment 15,400
Land 42,000
Notes Payable 95,000
Notes Receivable 8,100
Prepaid Insurance 6,400
Supplies 800

Instructions
Prepare a trial balance with the accounts arranged in financial statement order.

Ex. 191
The ledger accounts of the Fabulous Muscles Gym at June 30, 2015 are shown below:

Accounts Payable $ 9,100
Accounts Receivable 1,050
Buildings 43,000
Cash 14,100
Common Stock 62,800
Dividends 10,500
Equipment 42,900
Notes Payable 40,000
Supplies 350

Instructions
Prepare a trial balance with the ledger accounts arranged in the proper financial statement order. Include the appropriate heading.

Ex. 192
The ledger account balances for Galaxie 500 Company are listed below. Accounts Payable $ 6,000 Accounts Receivable 7,000 Cash 5,200 Common Stock 11,000 Dividends 4,000 Salaries and Wages Expense 20,800 Service Revenue 30,000 Unearned Service Revenue 2,000 Utilities Expense 12,000
Instructions
Prepare a trial balance in proper form for Galaxie at December 31, 2015.

Ex 193

The bookkeeper for Antony Johnson Auto Repair made a number of errors in journalizing
and posting, as described below.

1. A credit posting of $500 to Accounts Receivable was omitted.
2. A debit posting of $750 for Prepaid Insurance was debited to Insurance Expense.
3. A collection from a customer of $100 in payment of its account owed was journalized and
posted as a debit to Cash $100 and a credit to Service Revenue $100.
4. A credit posting of $350 to Interest Payable was made twice.
5. A cash purchase of supplies for $250 was journalized and posted as a debit to Supplies $25
and a credit to Cash $25.
6. A debit of $685 to Advertising Expense was posted as $658.
Ex. 193 (cont.)
Instructions
For each error:
(a) Indicate whether the trial balance will balance.
(b) If the trial balance will not balance, indicate the amount of the difference.
(c) Indicate the trial balance column that will have the larger total.

Consider each error separately. Use the following form, in which error (1) is given as an example.

(a) (b) (c)
Error In Balance Difference Larger Column
(1) No $500 debit

COMPLETION STATEMENTS

194. An _______________ is a record of increases and decreases in specific assets, liabilities, and stockholders’ items.
195. The process of entering an amount on the left side of an account is called ____________ the account, and making an entry on the right side is called _________________ the account.
196. ______________, _______________, and _______________ have debit normal account balances whereas _______________, ________________, and ________________ have credit normal account balances.
197. The four subdivisions of stockholders’ equity are: ________________, ________________, ________________, and ________________.
198. The basic steps in the recording process are: _______________ each transaction, enter the transaction in a ________________, and transfer the _______________ information to appropriate accounts in the ________________.
199. A sales slip, a check, and a cash register tape are examples of ________________ used as evidence that a transaction has taken place.
200. An accounting record where transactions are initially recorded in chronological order is called a ________________.
201. When three or more accounts are required in one journal entry, the entry is referred to as a ________________ entry.
202. The entire group of accounts and their balances maintained by a company is called the ________________.
203. A two column list of all accounts and their balances at a given time is a ______________.

MATCHING

204. Match the items below by entering the appropriate code letter in the space provided.

A. Account F. Journal
B. Normal account balance G. Posting
C. Debit H. Chart of accounts
D. Revenue account I. Trial balance
E. Compound entry J. Simple entry

1. An entry that involves three or more accounts.
2. Transferring journal entries to ledger accounts.
3. The side which increases an account.
4. A list of all the accounts used by an enterprise.
5. A record of increases and decreases in specific assets, liabilities, and stockholdersl items.
6. Left side of an account.
7. An entry that involves only two accounts.
8. A book of original entry.
9. A list of accounts and their balances at a given time.
10. Has a credit normal balance

SHORT-ANSWER ESSAY QUESTIONS

S-A E 205
An account is an important accounting record where financial information is stored until needed. Briefly explain (1) the nature of an account, (2) the different types of accounts, and (3) the manner in which an account is increased and decreased and its normal balance.

S-A E 206
Your roommate, a marketing major, thinks that debit means decrease and credit means increase. And, that every account can be debited and credited and as result, every account can have both a debit and a credit balance. Explain to your roommate (1) the meaning of debit and credit; (2) which accounts can only be debited, which can only be credited, and which can be both debited and credited; and (3) which accounts normally have debit balances and which credit balances.

S-A E 207
A fellow classmate is confused about how debits and credits relate to the basic accounting equation. State the basic accounting equation, convert it into the expanded accounting equation, and then explain how it ties into the rules for debits and credits.

S-A E 208
Describe the process of preparing a trial balance. What is the purpose of preparing a trial balance? If a trial balance does not balance, identify what might be the reasons why it does not balance. If the trial balance does balance, does that insure that the ledger accounts are correct? Explain.

S-A E 209

A classmate who is a computer science major thinks that accountants are obsolete. She states that computers can do the entire process without any human assistance.

Discuss the steps in the recording process and indicate what role the computer plays in that process.

S-A E 210
Amy Pond, a fellow employee, wants to understand the basic steps in the recording process. Identify and briefly explain the steps in the order in which they occur.

S-A E 211
All recordable transactions are initially recorded in the journal. Discuss the contributions that the journal makes to the recording process.

S-A E 212

A bookkeeping student has come to you for tutoring on the recording process. She is confused about the relationship between the chart of accounts and the ledger. Explain the purpose of the chart of accounts and the general ledger. In your explanation indicate the relationship between these two items as well.

S-A E 213
The process of transferring the information in the journal to the general ledger is called posting. Explain the posting process, including the importance of the journal page number and the account numbers.

S-A E 214
During a study session, a classmate states that it is not necessary to make journal entries and then post them to the ledger. She states that it is sufficient to analyze the transaction and simply record the information in T-accounts.
What is your response to this statement? Be brief, yet concise.

S-A E 215 (Ethics)
Jim Coleman, Jr. was appointed the manager of Maris Properties, a recently formed company that manages residential rental properties. Linda Grider is the accountant. She prepared a chart of accounts based on an analysis of the expenditures of the company. Two of the largest expense categories are Travel and Entertainment. Mr. Coleman believes that it is important to maintain a presence in the social life of the city. In this, he sharply differs from his father, Jim Coleman, Sr. The elder Mr. Coleman has set up Maris Properties in order to test his son’s management skills before allowing him to manage the more lucrative commercial property business. Mr. Coleman, Sr. provided the capital for Maris, and maintains close contact with the company. He allowed his son, however, to hire his own employees.

S-A E 215 (cont.)
Mr. Coleman has asked Ms. Grider to change the names of the Travel and Entertainment Expense accounts to Property Development. He hopes to deflect his father’s attention away from the amount he has spent on travel and entertainment until he has proven that his methods work. When Ms. Grider resisted, he reminded her that he, not his father, hired her. He also reminded her that she had been enthusiastic about his business plans when she was hired.

Required:
1. Who are the stakeholders in this situation?
2. Should Ms. Grider agree to the change in the Travel Expense and Entertainment Expense accounts to Property Development? Explain.

S-A E 216 (Communication)
A classmate is considering dropping his accounting class because he cannot understand the rules of debits and credits.
a. Can the student be successful in the course without an understanding of the rules of debits and credits?
b. Explain the rules of debits and credits in a way that will help him understand them.

CHALLENGE EXERCISES

CE 1

Presented below is information related to Pickett Real Estate Agency.

Oct. 1 Jeff Pickett begins business as a real estate agent with a cash investment of $30,000 in exchange for common stock.

2 Hires an administrative assistant.

3 Purchases office equipment for $3,500, by paying $500 cash with the balance on account.

6 Sells a house and lot for N. Foster, earning a fee of $6,900 with $900 collected in cash and the balance billed to N. Foster.

27 Pays $1,000 on the balance related to the transaction of October 3.

30 Pays the administrative assistant $2,300 in salary for October.

31 Collects $1,500 of the balance owed by N. Foster.

Instructions

1. Journalize the transactions. (You may omit explanations.)

2. What balance would Pickett Real Estate Agency report for Accounts Payable in its October 31 financial statements? In which category of which financial statements would it be found?

3. What balance would Pickett Real Estate Agency report for Accounts Receivable in its October 31 financial statements? In which category of which financial statements would it be found?

CE 2

Selected transactions for Garver Company during its first month in business are presented below.

Sept. 1 Invested $25,000 cash in the business in exchange for common stock.

5 Purchased equipment for $27,000 paying $6,000 in cash and the balance on account.

11 Performed $3,900 of services for clients, collecting $1,000 cash and billing them for the remainder.

25 Paid $7,000 cash on balance owed for equipment.

30 Declared and paid a $600 cash dividend.

30 Collected $1,200 from the clients from the September 11 transactions.

The Chart of accounts shows: No. 101 Cash, No. 112 Accounts Receivable, No. 157 Equipment, No. 201 Accounts Payable, No. 311 Common Stock, No. 332 Dividends, and No. 400 Service Revenue.

Instructions

(a) Journalize the transactions on page 1 of the journal (Omit explanations).
(b) Post the transactions using the standard account form.
(c) Based only on these transactions, what amount would Garver Company report as total assets in the October 31 balance sheet?
(d) Based only on these transactions, what amount would Garver Company report as total liabilities in the October 31 balance sheet.

CE 3
The accounts in the ledger of Ace Delivery Service contain ithe following balances on July 31, 2015. Accounts Receivable $10,000 Accounts Payable 7,900 Cash ? Common Stock 35,000 Equipment 45,000
Dividends 900 Gasoline Expense 800 Utilities Expense 600 Maintenance and Repair Expense 1,100 Retained Earnings 5,000 Service Revenue 13,000 Salaries and Wages Expense ?
Salaries and Wages Payable 1,000
Supplies 3,000
Unearned Service Revenue 2,500
Notes Payable 22,000
Prepaid Insurance 2,000

Instructions

Prepare a trial balance with the accounts arranged as illustrated in the chapter and fill in the missing amounts for Cash and Salaries and Wages Expense. Assume net income for the period is $3,500.

CHAPTER 3

ADJUSTING THE ACCOUNTS

CHAPTER LEARNING OBJECTIVES
1. Explain the time period assumption.
2. Explain the accrual basis of accounting
3. Explain the reasons for adjusting entries and identify the major types of adjusting entries.
4. Prepare adjusting entries for deferrals.
5. Prepare adjusting entries for accruals
6. Describe the nature and purpose of an adjusted trial balance.
a7. Prepare adjusting entries for the alternative treatment of deferrals.
a8. Discuss financial reporting concepts.

TRUE-FALSE STATEMENTS
1. Many business transactions affect more than one time period.

2. The time period assumption states that the economic life of a business entity can be divided into artificial time periods.

3. The time period assumption is often referred to as the expense recognition principle.

4. A company’s calendar year and fiscal year are always the same.

5. Accounting time periods that are one year in length are referred to as interim periods.

6. Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.

7. The cash basis of accounting is not in accordance with generally accepted accounting principles.

8. The expense recognition principle requires that efforts be matched with accomplishments.

9. Expense recognition is tied to revenue recognition.

10. The revenue recognition principle dictates that revenue be recognized in the accounting period in which cash is received.

11. Adjusting entries are not necessary if the trial balance debit and credit column balances are equal.

12. An adjusting entry always involves two balance sheet accounts.

13. Adjusting entries are often made because some business events are not recorded as they occur.

14. Adjusting entries are recorded in the general journal but are not posted to the accounts in the general ledger.

15. Revenue received before services are performed and expenses paid before being used or consumed are both initially recorded as liabilities.

16. Accrued revenues are revenues which have been received but not yet recognized.

17. The book value of a depreciable asset is always equal to its market value because depreciation is a valuation technique.

18. Accumulated Depreciation is a liability account and has a normal credit account balance.

19. A liability—revenue account relationship exists with an unearned rent revenue adjusting entry.

20. The balances of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same.

21. Unearned revenue is a prepayment that requires an adjusting entry when services are performed.

22. Asset prepayments become expenses when they expire.

23. A contra asset account is subtracted from a related account in the balance sheet.

24. If prepaid costs are initially recorded as an asset, no adjusting entries will be required in the future.

25. The cost of a depreciable asset less accumulated depreciation reflects the book value of the asset.

26. Accrued revenues are revenues that have been recognized and received before financial statements have been prepared.

27. Financial statements can be prepared from the information provided by an adjusted trial balance.

a28. The adjusting entry at the end of the period to record an expired cost may be different depending on whether the cost was initially recorded as an asset or an expense.

a29. Rent received in advance and credited to a rent revenue account which is still unearned at the end of the period, will require an adjusting entry crediting a liability account for the amount still unearned.

a30. An adjusting entry requiring a credit to Insurance Expense indicates that the initial transaction was charged to an asset account.

a31. To be faithfully representative, accounting information should predict future events, confirm prior expectations, and be reported on a timely basis.

a32. Consistent use of the same accounting principles and methods is necessary for meaningful analysis of trends within a company.

a33. Consistency in accounting means that a company uses the same accounting principles from one accounting period to the next accounting period.

a34. The quality of consistency pertains to the use of the same accounting principles by firms in the same industry.

a35. The periodicity assumption states that the business will remain in operation for the foreseeable future.

a36. For accounting purposes, business transactions should be kept separate from the personal transactions of the owners of the business.

a37. The economic entity assumption states that economic events can be identified with a particular unit of accountability.

a38. The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.

a39. The going concern assumption is that the business will continue in operation long enough to carry out its existing objectives and commitments.

a40. A common application of materiality is weighing the factual nature of cost figures versus the relevance of fair value.

Additional True-False Questions

41. The expense recognition principle requires that expenses be matched with revenues.

42. In general, adjusting entries are required each time financial statements are prepared.

43. Every adjusting entry affects one balance sheet account and one income statement account.

44. The Accumulated Depreciation account is a contra asset account that is reported on the balance sheet.

45. Accrued revenues are amounts recorded and received but not yet recognized.

46. An adjusted trial balance should be prepared before the adjusting entries are made.

a47. When a prepaid expense is initially debited to an expense account, expenses and assets are both overstated prior to adjustment.

MULTIPLE CHOICE QUESTIONS
48. Monthly and quarterly time periods are called
a. calendar periods.
b. fiscal periods.
c. interim periods.
d. quarterly periods.

49. The time period assumption states that
a. a transaction can only affect one period of time.
b. estimates should not be made if a transaction affects more than one time period.
c. adjustments to the company’s accounts can only be made in the time period when the business terminates its operations.
d. the economic life of a business can be divided into artificial time periods.

50. An accounting time period that is one year in length, but does not begin on January 1, is referred to as
a. a fiscal year.
b. an interim period.
c. the time period assumption.
d. a reporting period.

51. Adjustments would not be necessary if financial statements were prepared to reflect net income from
a. monthly operations.
b. fiscal year operations.
c. interim operations.
d. lifetime operations.

52. Management usually desires ________ financial statements and the IRS requires all businesses to file _________ tax returns.
a. annual, annual
b. monthly, annual
c. quarterly, monthly
d. monthly, monthly

53. The time period assumption is also referred to as the
a. calendar assumption.
b. cyclicity assumption.
c. periodicity assumption.
d. fiscal assumption.

54. In general, the shorter the time period, the difficulty of making the proper adjustments to accounts
a. is increased.
b. is decreased.
c. is unaffected.
d. depends on if there is a profit or loss.

55. Which of the following is not a common time period chosen by businesses as their accounting period?
a. Daily
b. Monthly
c. Quarterly
d. Annually

56. Which of the following time periods would not be referred to as an interim period?
a. Monthly
b. Quarterly
c. Semi-annually
d. Annually

57. The fiscal year of a business is usually determined by
a. the IRS.
b. a lottery.
c. the business.
d. the SEC.

58. Which of the following is in accordance with generally accepted accounting principles?
a. Accrual-basis accounting
b. Cash-basis accounting
c. Both accrual-basis and cash-basis accounting
d. Neither accrual-basis nor cash-basis accounting

59. The revenue recognition principle dictates that revenue should be recognized in the accounting records
a. when cash is received.
b. when the performance obligation is satisfied.
c. at the end of the month.
d. in the period that income taxes are paid.

60. In a service-type business, revenue is considered recognized
a. at the end of the month.
b. at the end of the year.
c. when the service is performed.
d. when cash is received.

61. The expense recognition principle matches
a. customers with businesses.
b. expenses with revenues.
c. assets with liabilities.
d. creditors with businesses.

62. Live Wire Hot Rod Shop follows the revenue recognition principle. Live Wire services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Live Wire on August 5. Live Wire receives the check in the mail on August 6. When should Live Wire show that the revenue was recognized?
a. July 31
b. August 1
c. August 5
d. August 6

63. A company spends $15 million dollars for an office building. Over what period should the cost be written off?
a. When the $15 million is expended in cash.
b. All in the first year.
c. Over the useful life of the building.
d. After $15 million in revenue is recognized.

64. The expense recognition principle states that expenses should be matched with revenues. Another way of stating the principle is to say that
a. assets should be matched with liabilities.
b. efforts should be matched with accomplishments.
c. owner withdrawals should be matched with owner contributions.
d. cash payments should be matched with cash receipts.

65. A flower shop makes a large sale for $1,200 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,200 considered to be recognized?
a. December 5.
b. December 10.
c. November 30.
d. December 1.

66. A candy factory’s employees work overtime to finish an order that is sold on February 28. The office sends a statement to the customer in early March and payment is received by mid-March. The overtime wages should be expensed in
a. February.
b. March.
c. the period when the workers receive their checks.
d. either in February or March depending on when the pay period ends.

67. Expenses sometimes make their contribution to revenue in a different period than when they are paid. When salaries and wages are incurred in one period and paid in the next period, this often leads to which account appearing on the balance sheet at the end of the time period?
a. Due from Employees.
b. Due to Employer.
c. Salaries and Wages Payable.
d. Salaries and Wages Expense.

68. Under accrual-basis accounting
a. cash must be received before revenue is recognized.
b. net income is calculated by matching cash outflows against cash inflows.
c. events that change a company’s financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.
d. the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.

69. Adjusting entries are required
a. yearly.
b. quarterly.
c. monthly.
d. every time financial statements are prepared.

70. Which one of the following is not an application of revenue recognition?
a. Recording revenue as an adjusting entry on the last day of the accounting period.
b. Accepting cash from an established customer for services to be performed over the next three months.
c. Billing customers on June 30 for services completed during June.
d. Receiving cash for services performed.

71. Which statement is correct?
a. As long as a company consistently uses the cash basis of accounting, generally accepted accounting principles allow its use.
b. The use of the cash basis of accounting violates both the revenue recognition and expense recognition principles.
c. The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received.
d. As long as management is ethical, there are no problems with using the cash basis of accounting.

72. The following is selected information from Motley Corporation for the fiscal year ending October 31, 2015.
Cash received from customers $300,000
Revenue recognized 375,000
Cash paid for expenses 180,000
Cash paid for computers on November 1, 2014 that will be used
for 3 years (annual depreciation is $16,000) 48,000
Expenses incurred, including interest, but excluding any depreciation 220,000
Proceeds from a bank loan, part of which was used to pay for
the computers 100,000
Based on the accrual basis of accounting, what is Motley Corporation’s net income for the year ending October 31, 2015?
a. $72,000.
b. $104,000.
c. $139,000.
d. $155,000.

73. Crue Company had the following transactions during 2015:
• Sales of $4,800 on account
• Collected $2,000 for services to be performed in 2016
• Paid $1,625 cash in salaries
• Purchased airline tickets for $250 in December for a trip to take place in 2016

What is Crue’s 2015 net income using accrual accounting?
a. $2,925.
b. $3,175.
c. $4,925.
d. $5,175.

74. Crue Company had the following transactions during 2015:
• Sales of $4,500 on account
• Collected $2,500 for services to be performed in 2016
• Paid $1,625 cash in salaries
• Purchased airline tickets for $250 in December for a trip to take place in 2016

What is Crue’s 2015 net income using cash basis accounting?
a. $625.
b. $875.
c. $5,125.
d. $5,375.

75. A small company may be able to justify using a cash basis of accounting if they have
a. sales under $1,000,000.
b. no accountants on staff.
c. few receivables and payables.
d. all sales and purchases on account.

76. Adjusting entries are required
a. because some costs expire with the passage of time and have not yet been journalized.
b. when the company’s profits are below the budget.
c. when expenses are recorded in the period in which they are incurred.
d. when revenues are recorded in the period in which services are performed.

77. Which one of the following is not a justification for adjusting entries?
a. Adjusting entries are necessary to ensure that the revenue recognition principle is followed.
b. Adjusting entries are necessary to ensure that the expense recognition principle is followed.
c. Adjusting entries are necessary to enable financial statements to be in conformity with GAAP.
d. Adjusting entries are necessary to bring the general ledger accounts in line with the budget.

78. An adjusting entry
a. affects two balance sheet accounts.
b. affects two income statement accounts.
c. affects a balance sheet account and an income statement account.
d. is always a compound entry.

79. The preparation of adjusting entries is
a. straight forward because the accounts that need adjustment will be out of balance.
b. often an involved process requiring the skills of a professional.
c. only required for accounts that do not have a normal balance.
d. optional when financial statements are prepared.

80. If a resource has been consumed but a bill has not been received at the end of the accounting period, then
a. an expense should be recorded when the bill is received.
b. an expense should be recorded when the cash is paid out.
c. an adjusting entry should be made recognizing the expense.
d. it is optional whether to record the expense before the bill is received.

81. Accounts often need to be adjusted because
a. there are never enough accounts to record all the transactions.
b. many transactions affect more than one time period.
c. there are always errors made in recording transactions.
d. management can’t decide what they want to report.

82. Adjusting entries are
a. not necessary if the accounting system is operating properly.
b. usually required before financial statements are prepared.
c. made whenever management desires to change an account balance.
d. made to balance sheet accounts only.

83. Expenses incurred but not yet paid or recorded are called
a. prepaid expenses.
b. accrued expenses.
c. interim expenses.
d. unearned expenses.

84. A law firm received $3,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause
a. expenses to be overstated.
b. net income to be overstated.
c. liabilities to be understated.
d. revenues to be understated.

85. Adjusting entries can be classified as
a. postponements and advances.
b. accruals and deferrals.
c. deferrals and postponements.
d. accruals and advances.

86. Accrued revenues are
a. cash received and a liability recorded before services are performed.
b. revenue for services performed and recorded as liabilities before they are received.
c. revenue for services performed but not yet received in cash or recorded.
d. revenue for services performed and already received in cash and recorded.

87. Prepaid expenses are
a. paid and recorded in an asset account before they are used or consumed.
b. paid and recorded in an asset account after they are used or consumed.
c. incurred but not yet paid or recorded.
d. incurred and already paid or recorded.

88. Accrued expenses are
a. paid and recorded in an asset account before they are used or consumed.
b. paid and recorded in an asset account after they are used or consumed.
c. incurred but not yet paid or recorded.
d. incurred and already paid or recorded.

89. Unearned revenues are
a. cash received and a liability recorded before services are performed.
b. revenue for services performed and recorded as liabilities before they are received.
c. revenue for services performed but not yet received in cash or recorded.
d. revenue for services performed and already received in cash and recorded.

90. A liability—revenue relationship exists with
a. prepaid expense adjusting entries.
b. accrued expense adjusting entries.
c. unearned revenue adjusting entries.
d. accrued revenue adjusting entries.

91. Which of the following reflects the balances of prepayment accounts prior to adjustment?
a. Balance sheet accounts are understated and income statement accounts are understated.
b. Balance sheet accounts are overstated and income statement accounts are overstated.
c. Balance sheet accounts are overstated and income statement accounts are understated.
d. Balance sheet accounts are understated and income statement accounts are overstated.

92. An asset—expense relationship exists with
a. liability accounts.
b. revenue accounts.
c. prepaid expense adjusting entries.
d. accrued expense adjusting entries.

93. Lake of Fire Company purchased supplies costing $7,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of supplies revealed $1,900 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be
a. Debit Supplies Expense, $1,900; Credit Supplies, $1,900.
b. Debit Supplies, $5,100; Credit Supplies Expense, $5,100.
c. Debit Supplies Expense, $5,100; Credit Supplies, $5,100.
d. Debit Supplies, $1,900; Credit Supplies Expense, $1,900.

94. If an adjustment is needed for unearned revenues, the
a. liability and related revenue are overstated before adjustment.
b. liability and related revenue are understated before adjustment.
c. liability is overstated and the related revenue is understated before adjustment.
d. liability is understated and the related revenue is overstated before adjustment.

95. The balance in the supplies account on June 1 was $5,200, supplies purchased during June were $3,500, and the supplies on hand at June 30 were $3,000. The amount to be used for the appropriate adjusting entry is
a. $3,500.
b. $5,700.
c. $6,500.
d. $11,700.

96. Depreciation expense for a period is the
a. original cost of an asset – accumulated depreciation.
b. book value of the asset ÷ useful life.
c. portion of an asset’s cost that expired during the period.
d. market value of the asset ÷ useful life.

97. Accumulated Depreciation is
a. an expense account.
b. a stockholders’ equity account.
c. a liability account.
d. a contra asset account.

98. Meat Puppets Company purchased equipment for $7,200 on December 1. It is estimated that annual depreciation on the equipment will be $1,800. If financial statements are to be prepared on December 31, the company should make the following adjusting entry:
a. Debit Depreciation Expense, $1,800; Credit Accumulated Depreciation, $1,800.
b. Debit Depreciation Expense, $150; Credit Accumulated Depreciation, $150.
c. Debit Depreciation Expense, $5,400; Credit Accumulated Depreciation, $5,400.
d. Debit Equipment, $7,200; Credit Accumulated Depreciation, $7,200.

99. REM Real Estate received a check for $27,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $27,000. Financial statements will be prepared on July 31. REM Real Estate should make the following adjusting entry on July 31:
a. Debit Unearned Rent Revenue, $4,500; Credit Rent Revenue, $4,500.
b. Debit Rent Revenue, $4,500; Credit Unearned Rent Revenue, $4,500.
c. Debit Unearned Rent Revenue, $27,000; Credit Rent Revenue, $24,000.
d. Debit Cash, $27,000; Credit Rent Revenue, $27,000.

100. As prepaid expenses expire with the passage of time, the correct adjusting entry will be a
a. debit to an asset account and a credit to an expense account.
b. debit to an expense account and a credit to an asset account.
c. debit to an asset account and a credit to an asset account.
d. debit to an expense account and a credit to an expense account.

101. A company usually determines the amount of supplies used during a period by
a. adding the supplies on hand to the balance of the Supplies account.
b. summing the amount of supplies purchased during the period.
c. taking the difference between the supplies purchased and the supplies paid for during the period.
d. taking the difference between the balance of the Supplies account and the cost of supplies on hand.

102. If a company fails to make an adjusting entry to record supplies expense, then
a. stockholders’ equity will be understated.
b. expense will be understated.
c. assets will be understated.
d. net income will be understated.

103. What is the proper adjusting entry at June 30, the end of the fiscal year, based on a prepaid insurance account balance before adjustment, $18,500, and unexpired amounts per analysis of policies of $6,000?
a. Debit Insurance Expense, $6,000; Credit Prepaid Insurance, $6,000.
b. Debit Insurance Expense, $18,500; Credit Prepaid Insurance, $18,500.
c. Debit Prepaid Insurance, $12,500; Credit Insurance Expense, $12,500.
d. Debit Insurance Expense, $12,500; Credit Prepaid Insurance, $12,500.

104. At December 31, 2015, before any year-end adjustments, Murmur Company’s Insurance Expense account had a balance of $2,450 and its Prepaid Insurance account had a balance of $3,800. It was determined that $2,800 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be
a. $2,450.
b. $3,450.
c. $2,800.
d. $5,250.

105. Depreciation is the process of
a. valuing an asset at its fair value.
b. increasing the value of an asset over its useful life in a rational and systematic manner.
c. allocating the cost of an asset to expense over its useful life in a rational and systematic manner.
d. writing down an asset to its real value each accounting period.

106. A new accountant working for Spirit Walker Company records $900 Depreciation Expense on store equipment as follows:
Dr. Depreciation Expense 900
Cr. Cash 900
The effect of this entry is to
a. adjust the accounts to their proper amounts on December 31.
b. understate total assets on the balance sheet as of December 31.
c. overstate the book value of the depreciable assets at December 31.
d. understate the book value of the depreciable assets as of December 31.

107. From an accounting standpoint, the acquisition of productive facilities can be thought of as a long-term
a. accrual of expense.
b. accrual of revenue.
c. accrual of unearned revenue.
d. prepayment for services.

108. The balance in the Prepaid Rent account before adjustment at the end of the year is $21,000, which represents three months’ rent paid on December 1. The adjusting entry required on December 31 is to
a. debit Rent Expense, $7,000; credit Prepaid Rent, $7,000.
b. debit Rent Expense, $14,000; credit Prepaid Rent $14,000.
c. debit Prepaid Rent, $7,000; credit Rent Expense, $7,000.
d. debit Prepaid Rent, $14,000; credit Rent Expense, $14,000.

109. An accumulated depreciation account
a. is a contra-liability account.
b. increases on the debit side.
c. is offset against total assets on the balance sheet.
d. has a normal credit balance.

110. The difference between the cost of a depreciable asset and its related accumulated depreciation is referred to as the
a. market value of the asset.
b. blue book value of the asset.
c. book value of the asset.
d. depreciated difference of the asset.

111. Book value is also referred to as
a. accumulated depreciation.
b. carrying value.
c. fair value.
d. original cost.

112. Which of the following would not result in unearned revenue?
a. Rent collected in advance from tenants
b. Services performed on account
c. Sale of season tickets to football games
d. Sale of two-year magazine subscriptions

113. If a business pays rent in advance and debits a Prepaid Rent account, the company receiving the rent payment will credit
a. Cash.
b. Prepaid Rent.
c. Unearned Rent Revenue.
d. Rent Revenue.

114. Unearned revenue is classified as
a. an asset account.
b. a revenue account.
c. a contra-revenue account.
d. a liability account.

115. If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be
a. debit Unearned Service Revenue and credit Cash.
b. debit Unearned Service Revenue and credit Service Revenue.
c. debit Unearned Service Revenue and credit Prepaid Expense.
d. debit Unearned Service Revenue and credit Accounts Receivable.

116. Dreamtime Laundry purchased $7,000 worth of supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the supplies indicated only $1,000 on hand. The adjusting entry that should be made by the company on June 30 is
a. Debit Supplies Expense, $1,000; Credit Supplies, $1,000.
b. Debit Supplies, $1,000; Credit Supplies Expense, $1,000.
c. Debit Supplies, $6,000; Credit Supplies Expense, $6,000.
d. Debit Supplies Expense, $6,000; Credit Supplies, $6,000.

117. On July 1, Runner’s Sports Store paid $14,000 to Corona Realty for 4 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by Runner’s Sports Store is
a. Debit Rent Expense, $14,000; Credit Prepaid Rent, $3,500.
b. Debit Prepaid Rent, $3,500; Credit Rent Expense, $3,500.
c. Debit Rent Expense, $3,500; Credit Prepaid Rent, $3,500.
d. Debit Rent Expense, $14,000; Credit Prepaid Rent, $14,000.

118. Fugazi City College sold season tickets for the 2015 football season for $240,000. A total of 8 games will be played during September, October and November. In September, three games were played. The adjusting journal entry at September 30
a. is not required. No adjusting entries will be made until the end of the season in November.
b. will include a debit to Cash and a credit to Ticket Revenue for $60,000.
c. will include a debit to Unearned Ticket Revenue and a credit to Ticket Revenue for $90,000.
d. will include a debit to Ticket Revenue and a credit to Unearned Ticket Revenue for $80,000.

119. Fugazi City College sold season tickets for the 2015 football season for $240,000. A total of 8 games will be played during September, October and November. In September, two games were played. In October, three games were played. The balance in Unearned Ticket Revenue at October 31 is
a. $0.
b. $60,000.
c. $90,000.
d. $150,000.

120. Fugazi City College sold season tickets for the 2015 football season for $240,000. A total of 8 games will be played during September, October and November. Assuming all the games are played, the Unearned Ticket Revenue balance that will be reported on the December 31 balance sheet will be
a. $0.
b. $90,000.
c. $150,000.
d. $240,000.

121. At March 1, 2015, Minutemen Corp. had supplies on hand of $500. During the month, Minutemen purchased supplies of $1,200 and used supplies of $1,500. The March 31 adjusting journal entry should include a
a. debit to the supplies account for $1,500.
b. credit to the supplies account for $500.
c. debit to the supplies account for $1,200.
d. credit to the supplies account for $1,500.

122. Double Nickels Company purchased equipment for $9,000 on January 1, 2015. The company expects to use the equipment for 3 years. It has no salvage value. Monthly depreciation expense on the asset is
a. $0.
b. $250.
c. $3,000.
d. $9,000.

123. Husker Du Supplies Inc. purchased a 12-month insurance policy on March 1, 2015 for $1,800. At March 31, 2015, the adjusting journal entry to record expiration of this asset will include a
a. debit to Prepaid Insurance and a credit to Cash for $1,800.
b. debit to Prepaid Insurance and a credit to Insurance Expense for $200.
c. debit to Insurance Expense and a credit to Prepaid Insurance for $150.
d. debit to Insurance Expense and a credit to Cash for $150.

124. Mary Chain Investments purchased an 18-month insurance policy on May 31, 2015 for $3,600. The December 31, 2015 balance sheet would report Prepaid Insurance of
a. $0 because Prepaid Insurance is reported on the Income Statement.
b. $1,400.
c. $2,200.
d. $3,600.

125. At March 1, Psychocandy Inc. reported a balance in Supplies of $200. During March, the company purchased supplies for $750 and consumed supplies of $800. If no adjusting entry is made for supplies
a. stockholders’ equity will be overstated by $800.
b. expenses will be understated by $750.
c. assets will be understated by $250.
d. net income will be understated by $800.

126. Pixies Inc. pays its rent of $54,000 annually on January 1. If the February 28 monthly adjusting entry for prepaid rent is omitted, which of the following will be true?
a. Failure to make the adjustment does not affect the February financial statements.
b. Expenses will be overstated by $4,500 and net income and stockholders’ equity will be understated by $4,500.
c. Assets will be overstated by $9,000 and net income and stockholders’ equity will be understated by $9,000.
d. Assets will be overstated by $4,500 and net income and stockholders’ equity will be overstated by $4,500.

127. On January 1, 2014, Doolittle Company purchased furniture for $7,560. The company expects to use the furniture for 3 years. The asset has no salvage value. The book value of the furniture at December 31, 2015 is
a. $0.
b. $2,520.
c. $5,040.
d. $7,560.

128. On January 1, 2014, Mudhoney Inc. purchased equipment for $45,000. The company is depreciating the equipment at the rate of $750 per month. At January 31, 2015, the balance in Accumulated Depreciation is
a. $750.
b. $9,000.
c. $9,750.
d. $35,250.

129. On January 1, 2015, Superfuzz Company purchased equipment for $40,000. The company is depreciating the equipment at the rate of $800 per month. The book value of the equipment at December 31, 2015 is
a. $0.
b. $9,600.
c. $30,400.
d. $40,000.

130. Ultramega Company collected $19,600 in May of 2015 for 4 months of service which would take place from October of 2015 through January of 2016. The revenue reported from this transaction during 2015 would be
a. 0.
b. $4,900.
c. $14,700.
d. $19,600.

131. Soundgarden Company collected $18,200 in May of 2015 for 5 months of service which would take place from October of 2015 through February of 2016. The revenue reported from this transaction during 2015 would be
a. $0.
b. $7,280.
c. $10,920.
d. $18,200.

132. Sonic Youth Corporation purchased a one-year insurance policy in January 2015 for $49,500. The insurance policy is in effect from March 2015 through February 2016. If the company neglects to make the proper year-end adjustment for the expired insurance
a. net income and assets will be understated by $41,250.
b. net income and assets will be overstated by $41,250.
c. net income and assets will be understated by $8,250.
d. net income and assets will be overstated by $8,250.

133. Dinosaur Junior Corporation purchased a one-year insurance policy in January 2015 for $75,000. The insurance policy is in effect from May 2015 through April 2016. If the company neglects to make the proper year-end adjustment for the expired insurance
a. net income and assets will be understated by $50,000.
b. net income and assets will be overstated by $50,000.
c. net income and assets will be understated by $25,000.
d. net income and assets will be overstated by $25,000.

134. If an adjusting entry is not made for an accrued revenue,
a. assets will be overstated.
b. expenses will be understated.
c. stockholders’ equity will be understated.
d. revenues will be overstated.

135. If an adjusting entry is not made for an accrued expense,
a. expenses will be overstated.
b. liabilities will be understated.
c. net income will be understated.
d. stockholders’ equity will be understated.

136. Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause
a. net income to be understated.
b. an overstatement of assets and an overstatement of liabilities.
c. an understatement of expenses and an understatement of liabilities.
d. an overstatement of expenses and an overstatement of liabilities.

137. Failure to prepare an adjusting entry at the end of a period to record an accrued revenue would cause
a. net income to be overstated.
b. an understatement of assets and an understatement of revenues.
c. an understatement of revenues and an understatement of liabilities.
d. an understatement of revenues and an overstatement of liabilities.

138. Sebastian Belle has performed $2,000 of CPA services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Sebastian make?
a. Debit Cash and credit Unearned Service Revenue
b. Debit Accounts Receivable and credit Unearned Service Revenue
c. Debit Accounts Receivable and credit Service Revenue
d. Debit Unearned Service Revenue and credit Service Revenue

139. Sebastian Belle, CPA, has billed her clients for services performed. She subsequently receives payments from her clients. What entry will Sebastian make upon receipt of the payments?
a. Debit Unearned Service Revenue and credit Service Revenue
b. Debit Cash and credit Accounts Receivable
c. Debit Accounts Receivable and credit Service Revenue
d. Debit Cash and credit Service Revenue

140. NWA Air Charter signed a four-month note payable in the amount of $20,000 on September 1. The note requires interest at an annual rate of 9%. The amount of interest to be accrued at the end of September is
a. $150.
b. $200.
c. $600.
d. $1,800.

141. Uncle Tupelo’s Gifts signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on November 1 in the amount of $75,000 with annual interest of 12%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?
a. Interest Expense 1,500
Interest Payable 1,500
b. Interest Expense 2,250
Interest Payable 2,250
c. Interest Expense 1,500
Cash 1,500
d. Interest Expense 1,500
Notes Payable 1,500

142. Stone Roses Candies paid employee wages on and through Friday, January 26, and the next payroll will be paid in February. There are three more working days in January (29–31). Employees work 5 days a week and the company pays $1,500 a day in wages. What will be the adjusting entry to accrue wages expense at the end of January?
a. Salaries and Wages Expense 1,500
Salaries and Wages Payable 1,500
b. Salaries and Wages Expense 7,500
Salaries and Wages Payable 7,500
c. Salaries and Wages Expense 4,500
Salaries and Wages Payable 4,500
d. No adjusting entry is required.

143. A company shows a balance in Salaries and Wages Payable of $38,000 at the end of the month. The next payroll amounting to $48,000 is to be paid in the following month. What will be the journal entry to record the payment of salaries?
a. Salaries and Wages Expense 48,000
Salaries and Wages Payable 48,000
b. Salaries and Wages Expense 48,000
Cash 48,000
c. Salaries and Wages Expense 10,000
Cash 10,000
d. Salaries and Wages Expense 10,000
Salaries and Wages Payable 38,000
Cash 48,000

144. A business pays weekly salaries of $30,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on a Thursday is
a. debit Salaries and Wages Payable, $24,000; credit Cash, $24,000.
b. debit Salaries and Wages Expense, $24,000; credit Cash, $24,000.
c. debit Salaries and Wages Expense, $24,000; credit Salaries and Wages Payable, $24,000.
d. debit Salaries and Wages Expense, $6,000; credit Salaries and Wages Payable, $6,000.

145. SurferRosa Music Store borrowed $30,000 from the bank signing a 9%, 3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be
a. Debit Interest Expense, $2,700; Credit Interest Payable, $2,700.
b. Debit Interest Expense, $225; Credit Interest Payable, $225.
c. Debit Notes Payable, $2,700; Credit Cash, $2,700.
d. Debit Cash, $675; Credit Interest Payable, $675.

146. Nirvana Corporation issued a one-year, 9%, $400,000 note on April 30, 2015. Interest expense for the year ended December 31, 2015 was
a. $21,000.
b. $24,000.
c. $27,000.
d. $36,000.

147. Yo La Corporation issued a one-year, 6%, $100,000 note on August 31, 2015. Interest expense for the year ended December 31, 2015 was
a. $6,000.
b. $2,500.
c. $2,000.
d. $1,500.

148. Employees at Tengo Corporation are paid $15,000 cash every Friday for working Monday through Friday. The calendar year accounting period ends on Wednesday, December 31. How much salaries and wages expense should be recorded two days later on January 2?
a. $15,000
b. $9,000
c. $6,000
d. None, matching requires the weekly salary to be accrued on December 31.

149. Can financial statements be prepared directly from the adjusted trial balance?
a. They cannot. The general ledger must be used.
b. Yes, adjusting entries have been recorded in the general journal and posted to the ledger accounts.
c. No, the adjusted trial balance merely proves the equality of the total debit and total credit balances in the ledger after adjustments are posted. It has no other purpose.
d. They can because that is the only reason that an adjusted trial balance is prepared.

150. The adjusted trial balance is prepared
a. after financial statements are prepared.
b. before the trial balance.
c. to prove the equality of total assets and total liabilities.
d. after adjusting entries have been journalized and posted.

151. An adjusted trial balance
a. is prepared after the financial statements are completed.
b. proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.
c. is a required financial statement under generally accepted accounting principles.
d. cannot be used to prepare financial statements.

152. Which of the statements below is not true?
a. An adjusted trial balance should show ledger account balances.
b. An adjusted trial balance can be used to prepare financial statements.
c. An adjusted trial balance proves the mathematical equality of debits and credits in the ledger.
d. An adjusted trial balance is prepared before all transactions have been journalized.

a 153. Sebadoah is a barber who does his own accounting for his shop. When he buys supplies he routinely debits Supplies Expense. Sebadoah purchased $1,500 of supplies in January and his inventory at the end of January shows $300 of supplies remaining. What adjusting entry should Sebadoah make on January 31?
a. Supplies Expense 300
Supplies 300
b. Supplies Expense 1,500
Cash 1,500
c. Supplies 300
Supplies Expense 300
d. Supplies Expense 1,200
Supplies 1,200

a 154. Alternative adjusting entries do not apply to
a. accrued revenues and accrued expenses.
b. prepaid expenses.
c. unearned revenues.
d. prepaid expenses and unearned revenues.

a 155. Elliott Smith is a lawyer who requires that his clients pay him in advance of legal services rendered. Elliott routinely credits Service Revenue when his clients pay him in advance. In June Elliott collected $15,000 in advance fees and completed 70% of the work related to these fees. What adjusting entry is required by Elliott’s firm at the end of June?
a. Unearned Service Revenue 10,500
Service Revenue 10,500
b. Unearned Service Revenue 4,500
Service Revenue 4,500
c. Cash 15,000
Service Revenue 15,000
d. Service Revenue 4,500
Unearned Service Revenue 4,500

a 156. If prepaid expenses are initially recorded in expense accounts and have not all been used at the end of the accounting period, the failure to make an adjusting entry will cause
a. assets to be understated.
b. assets to be overstated.
c. expenses to be understated.
d. contra-expenses to be overstated.

a 157. If unearned revenues are initially recorded in revenue accounts and not all the related services been performed at the end of the accounting period, the failure to make an adjusting entry will cause
a. liabilities to be overstated.
b. revenues to be understated.
c. revenues to be overstated.
d. accounts receivable to be overstated.

a158. On January 2, 2015, Superchunk purchased a general liability insurance policy for $2,700 for coverage for the calendar year. The entire $2,700 was charged to Insurance Expense on January 2, 2015. If the firm prepares monthly financial statements, the proper adjusting entry on January 31, 2015, will be:
a. Insurance Expense 2,475
Prepaid Insurance 2,475
b. Prepaid Insurance 2,475
Insurance Expense 2,475
c. Insurance Expense 225
Prepaid Insurance 225
d. Prepaid Insurance 225
Insurance Expense 225

a 159. If accounting information has relevance, it is useful in making predictions about
a. future tax audits.
b. new accounting principles.
c. foreign currency exchange rates.
d. the future events of a company.

a 160. Which one of the following is not an enhancing quality of useful information?
a. Timeliness
b. Understandability
c. Materiality
d. Comparability

a 161. All of the following are characteristics of accounting information except
a. faithful representation.
b. comparability.
c. relevance.
d. flexibility.

a 162. The two fundamental qualities of useful information are
a. verifiability and timeliness.
b. relevance and faithful representation.
c. comparability and flexibility.
d. understandability and consistency.

a 163. Relevant accounting information
a. is information that has been audited.
b. must be reported within the operating cycle or one year, whichever is longer.
c. has been objectively determined.
d. is information that is capable of making a difference in a business decision.

a 164. Characteristics associated with relevant accounting information are
a. comparability and timeliness.
b. predictive value and confirmatory value.
c. neutral and verifiable.
d. consistency and understandability.

a 165. Characteristics associated with faithfully representative accounting information are
a. verifiable and timely.
b. neutral and verifiable.
c. complete and neutral.
d. relevance and verifiable.

a 166. Which of the following statements is not true?
a. Comparability means using the same accounting principles from year to year within a company.
b. Faithful representation is the quality of information that gives assurance that it is free from error.
c. Relevant accounting information must be capable of making a difference in the decision.
d. The primary objective of financial reporting is to provide financial information that is useful to investors and creditors for making decision.

a167. An item is considered material if
a. it doesn’t cost a lot of money.
b. it is of a tangible good.
c. it is likely to influence the decision of an investor or creditor.
d. the cost of reporting the item is greater than its benefits.

a168. A company using the same accounting principles from year to year is an application of
a. timeliness.
b. consistency.
c. full disclosure.
d. materiality.

a 169. Which of the following is a constraint in accounting?
a. Comparability.
b. Cost.
c. Consistency.
d. Relevance.

a 170. The periodicity assumption states that the economic life of a business can be divided into
a. equal time periods.
b. cyclical time periods.
c. artificial time periods.
d. perpetual time periods.

a 171. Which accounting assumption assumes that an enterprise will continue in operation long enough to carry out its existing objectives and commitments?
a. Monetary unit assumption.
b. Economic entity assumption.
c. Periodicity assumption.
d. Going concern assumption.

a 172. The economic entity assumption states that economic events
a. of different entities can be combined if all the entities are corporations.
b. must be reported to the IASB.
c. of a sole proprietorship cannot be distinguished from the personal economic events of its owners.
d. of every entity can be separately identified and accounted for.

a 173. Which of the following is not an accounting assumption?
a. Integrity.
b. Going concern.
c. Periodicity.
d. Economic entity.

a 174. The periodicity assumption states
a. the business will remain in operation for the foreseeable future.
b. the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared.
c. every economic entity can be separately identified and accounted for.
d. only those things that can be expressed in money are included in the accounting records.

a175. Valuing assets at their fair value rather than at their cost is inconsistent with the:
a. economic entity assumption.
b. historical cost principle.
c. periodicity assumption.
d. full disclosure principles.

a 176. Jackson Cement Corporation reported $35 million for sales when it only had $20 million of actual sales. Which of the following qualities of useful information has Jackson most likely violated?
a. Comparability
b. Relevance
c. Faithful representation
d. Consistency

Additional Multiple Choice Questions

177. Which of the following statements concerning accrual-basis accounting is incorrect?
a. Accrual-basis accounting follows the revenue recognition principle.
b. Accrual-basis accounting is the method required by generally accepted accounting principles.
c. Accrual-basis accounting recognizes expenses when they are paid.
d. Accrual-basis accounting follows the expense recognition principle.

178. The revenue recognition principle dictates that revenue be recognized in the accounting period
a. before it is earned.
b. after it is earned.
c. in which the performance obligation is satisfied.
d. in which it is collected.

179. An expense is recorded under the cash basis only when
a. services are performed.
b. it is earned.
c. cash is paid.
d. it is incurred.

180. For prepaid expense adjusting entries
a. an expense—liability account relationship exists.
b. prior to adjustment, expenses are overstated and assets are understated.
c. the adjusting entry results in a debit to an expense account and a credit to an asset account.
d. none of these answer choices are correct.

181. Expenses paid and recorded as assets before they are used are called
a. accrued expenses.
b. interim expenses.
c. prepaid expenses.
d. unearned expenses.

182. Buffalo Tom Cruises purchased a five-year insurance policy for its ships on April 1, 2015 for $60,000. Assuming that April 1 is the effective date of the policy, the adjusting entry on December 31, 2015 is
a. Prepaid Insurance 9,000
Insurance Expense 9,000
b. Insurance Expense 9,000
Prepaid Insurance 9,000
c. Insurance Expense 12,000
Prepaid Insurance 12,000
d. Insurance Expense 3,000
Prepaid Insurance 3,000

183. Pavement Company purchased a truck from Bee Thousand Corp. by issuing a 6-month, 8% note payable for $90,000 on November 1. On December 31, the accrued expense adjusting entry is
a. No entry is required.
b. Interest Expense 7,200
Interest Payable 7,200
c. Interest Expense 3,600
Interest Payable 3,600
d. Interest Expense 1,200
Interest Payable 1,200

184. If the adjusting entry for depreciation is not made,
a. assets will be understated.
b. stockholders’ equity will be understated.
c. net income will be understated.
d. expenses will be understated.

185. Ryan Adams, an employee of Heartbreaker Corp., will not receive his paycheck until April 2. Based on services performed from March 15 to March 31, his salary was $1,000. The adjusting entry for Heartbreaker Corp. on March 31 is
a. Salaries and Wages Expense 1,000
Salaries and Wages Payable 1,000
b. No entry is required.
c. Salaries and Wages Expense 1,000
Cash 1,000
d. Salaries and Wages Payable 1,000
Cash 1,000

186. Which of the following statements related to the adjusted trial balance is incorrect?
a. It shows the balances of all accounts at the end of the accounting period.
b. It is prepared before adjusting entries have been made.
c. It proves the equality of the total debit balances and the total credit balances in the ledger.
d. Financial statements can be prepared directly from the adjusted trial balance.

187. Financial statements are prepared directly from the
a. general journal.
b. ledger.
c. trial balance.
d. adjusted trial balance.

188. Accrual-basis accounting is allowed under
a. GAAP but not IFRS.
b. IFRS but not GAAP.
c. both IFRS and GAAP.
d. neither IFRS nor GAAP.

189. Cash-basis accounting is allowed under
a. GAAP but not IFRS.
b. IFRS but not GAAP.
c. both IFRS and GAAP.
d. neither IFRS nor GAAP.

190. The time period assumption is used under
a. GAAP but not IFRS.
b. IFRS but not GAAP.
c. both IFRS and GAAP.
d. neither IFRS nor GAAP.

191. IFRS requires that companies present
a. a complete set of financial statement, including comparative information, annually.
b. only a statement of financial position, including comparative information, annually.
c. only an income statement, including comparative information, annually.
d. only a statement of changes in cash flows, including comparative information, annually.

192. Revenue recognition under IFRS is
a. substantially different from revenue recognition under GAAP.
b. generally the same as revenue recognition under GAAP, but with more detailed guidance.
c. generally the same as revenue recognition under GAAP, but with less detailed guidance.
d. exactly the same as revenue recognition under GAAP.

193. Revenue recognition fraud is
a. a major issue in the U.S. but not worldwide.
b. a major issue internationally, but not in the U.S.
c. a major issue in the U.S. and worldwide.
d. not a major issue anywhere.

194. The IFRS standard dealing specifically with revenue recognition is based on
a. whether the revenue is realized or realizable.
b. whether the revenue is earned.
c. whether the revenue is realized or realizable, and earned.
d. the probability that economic benefits will flow to the company, and reliability of measurement.

195. Depreciation based on revaluation of land and buildings is permitted under
a. GAAP but not IFRS.
b. IFRS but not GAAP.
c. both IFRS and GAAP.
d. neither IFRS nor GAAP.

196. Under IFRS, income is defined as
a. revenue less expenses.
b. revenues and gains, less expenses and losses.
c. revenues and gains.
d. revenues, gains, and contributions by owners.

197. The procedures of the closing process are applicable to all companies when they are using
a. GAAP but not IFRS.
b. IFRS but not GAAP.
c. both IFRS and GAAP.
d. neither IFRS nor GAAP.

BRIEF EXERCISES
BE 198
State whether each situation is a prepaid expense (PE), unearned revenue (UR), accrued revenue (AR) or an accrued expense (AE).
1. Unrecorded interest on savings bonds is $245.
2. Property taxes that have been incurred but that have not yet been paid or recorded amount to $300.
3. Legal fees of $1,000 were collected in advance. By year end 60 percent were still unearned.
4. Prepaid insurance had a $500 balance prior to adjustment. By year end, 40 percent was still unexpired.

BE 199
Prepare adjusting entries for the following transactions. Omit explanations.
1. Depreciation on equipment is $900 for the accounting period.
2. There was no beginning balance of supplies and purchased $500 of supplies during the period. At the end of the period $150 of supplies were on hand.
3. Prepaid rent had a $1,000 normal balance prior to adjustment. By year end $400 was unexpired.

BE 200
On June 1, during its first month of operations, Crooked Rain purchased supplies for $4,500 and debited the supplies account for that amount. At June 30, an inventory of supplies showed $1,000 of supplies on hand. What adjusting journal entry should be made for June?

BE 201
On January 1, Chan & Chan, CPAs received a $15,000 cash retainer for accounting services to be rendered ratably over the next 3 months. The full amount was credited to the liability account Unearned Service Revenue. Assuming that the revenue is recognized equally over the 3-month period, what adjusting journal entry should be made at January 31?

BE 202
On February 1, Results Income Tax Service received a $3,000 cash retainer for tax preparation services to be rendered equally over the next 4 months. The full amount was credited to the liability account Unearned Service Revenue. Assuming that the revenue is recognized equally over the 4-month period, what balance would be reported on the February 28 balance sheet for Unearned Service Revenue?

BE 203
Bakesale Enterprises purchased equipment on May 1, 2015 for $6,300. The company expects to use the equipment for 5 years. It has no salvage value.
1. What adjusting journal entry should the company make at the end of each month if monthly financials are prepared (annual depreciation is $1,260)?
2. What is the book value of the equipment at May 31, 2015?

BE 204
Rhodes National purchased software on October 1, 2015 for $14,400. The company expects to use the software for 3 years. It has no salvage value.
1. What adjusting journal entry should the company make at the end of each month if monthly financials are prepared? (annual depreciation is $4,800)
2. What balance will be reported on the December 31, 2015 balance sheet for Accumulated Depreciation?

BE 205
Teenage Fanclub Printings sold annual subscriptions to their magazine for $30,000 in December, 2014. The magazine is published monthly. The new subscribers received their first magazine in January, 2015.
1. What adjusting entry should be made in January if the subscriptions were originally recorded as a liability?
2. What amount will be reported on the January 2015 balance sheet for Unearned Subscription Revenue?

BE 206
On January 1, 2015, Bottle Rockets Corp. purchased a general liability insurance policy for $9,000 to provide coverage for the calendar year.

1. If the company recorded the policy as an asset when purchased, what is the monthly adjusting journal entry that should be recorded at January 31, 2015?
*2. If the company expensed the cost of the policy on January 1, 2015, what is the monthly adjusting entry that should be recorded at January 31, 2015?

BE 207
Identify the impact on the balance sheet if the following information is not used to adjust the accounts.
1. Supplies consumed totaled $3,000.
2. Interest accrues on notes payable at the rate of $200 per month.
3. Insurance of $450 expired during the month.
4. Plant and equipment are depreciated at the rate of $1,200 per month.

BE 208
Determine the impact on the balance sheet accounts if the following information is not used to adjust the accounts of Mood Food Company for the month of January, 2015. Round answers to the nearest dollar.
1. The company rents extra office space to Beulah, CPAs. Beulah pays the $6,000 rent annually on January 1.
2. The company has an outstanding loan to its President in the amount of $150,000. The loan accrues interest at the annual rate of 6%. Principal and interest are due January 1, 2017.
3. The company completed work on a project during January that was not yet billed to the client. The client will be charged $3,100.

BE 209
For each of the following oversights, state whether total assets will be understated (U), overstated (O), or no affect (NA).
_____ 1. Failure to record revenue recognized but not yet received.
_____ 2. Failure to record expired prepaid rent.
_____ 3. Failure to record accrued interest on the bank savings account.
_____ 4. Failure to record depreciation.
_____ 5. Failure to record accrued wages.
_____ 6. Failure to record the recognized portion of unearned revenues.

BE 210
Blue Guitar Music School borrowed $30,000 from the bank signing an 8%, 6-month note on November 1. Principal and interest are payable to the bank on May 1. If the company prepares monthly financial statements, what adjusting entry should the company make at November 30 with regard to the note (round answer to the nearest dollar)?

BE 211
The adjusted trial balance of Rocky Acre Spread Inc. on December 31, 2015 includes the following accounts: Accumulated Depreciation, $6,000; Depreciation Expense, $2,000; Notes Payable $7,500; Interest Expense $150; Utilities Expense, $300; Rent Expense, $500; Service Revenue, $19,600; Salaries and Wages Expense, $6,000; Supplies, $200; Supplies Expense, $1,200; Salaries and Wages Payable, $600. Prepare an income statement for the month of December.

BE 212
The adjusted trial balance of Old 97 Automotive Service Company on June 30, 2015 includes the following accounts: Supplies, $300; Accumulated Depreciation, $9,500; Salaries Payable, $1,550, Notes Payable $6,750; Service Revenue, $22,100; Salaries and Wages Expense, $8,750; Depreciation Expense, $3,250; Supplies Expense, $1,000; Rent Expense, $400; Utilities Expense, $350; and Interest Expense $250. Prepare an income statement for the month of June.

BE 213
The adjusted trial balance of Sodajerk Company at December 31, 2015 includes the following accounts: Retained Earnings $12,600; Dividends $7,000; Service Revenue $38,000; Salaries and Wages Expense $13,000; Insurance Expense $2,000; Rent Expense $3,500; Supplies Expense $2,500; and Depreciation Expense $2,000. Prepare a retained earnings statement for the year.

BE 214
The adjusted trial balance of Hanson Hawk Company at September 30, 2015 includes the following accounts: Retained Earnings $27,700; Dividends $9,750; Service Revenue $46,800; Insurance Expense $1,950; Salaries Expense $18,000; Rent Expense $3,000; Supplies Expense $650; and Depreciation Expense $1,100. Prepare a retained earnings statement for the year.

aBE 215
The following terms relate to the fundamental qualities of useful information. Match the key letter of the correct term with the descriptive statement below.

a. Confirmatory value e. Faithful representation
b. Neutral f. Timely
c. Predictive value g. Verifiable
d. Relevant

_____ 1. Accounting information that is not biased toward one position or another.
_____ 2. Providing information before it loses its capacity to influence decision.
_____ 3. Independent measures, using the same methods, obtain similar results.
_____ 4. Providing information that would make a difference in a business decision.
_____ 5. Provide information that accurately depicts what really happened.
_____ 6. Confirms or corrects prior decisions.

LO 8, BT: K, Difficulty: Easy, TOT: 5 min., AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

aBE 216
Presented below are the basic assumptions and principles underlying financial statements.

a. Historical cost principle d. Going concern assumption
b. Economic entity assumption e. Monetary unit assumption
c. Full disclosure principle f. Periodicity assumption

Identify the basic assumption or principle that is described below.

_____ 1. The economic life of a business can be divided into artificial time periods.
_____ 2. The business will continue in operation long enough to carry out its existing objectives.
_____ 3. Assets should be recorded at their cost.
_____ 4. Economic events can be identified with a particular unit of accountability.
_____ 5. Circumstances and events that make a difference to financial statement users should be disclosed.
_____ 6. Only transaction data that can be expressed in terms of money should be included in the accounting records.

EXERCISES
Ex. 217
The balance sheets of Red House Painters include the following:
12/31/15 12/31/14
Interest Receivable $0 $4,300
Supplies 3,000 5,000
Salaries and Wages Payable 3,800 5,600
Unearned Service Revenue 4,000 -0-

The income statement for 2015 shows the following:
Interest Revenue $18,400
Service Revenue 72,700
Supplies Expense 8,700
Salaries and Wages Expense 39,000

Instructions
Calculate the following for 2015:
1. Cash received for interest.
2. Cash paid for supplies.
3. Cash paid for salaries and wages.
4. Cash received for revenue.

Ex. 218
Hal Corp. prepared the following income statement using the cash basis of accounting:

HAL CORP.
Income Statement, Cash Basis
For the Year Ended December 31, 2015

Service revenue (does not include $25,000 of services rendered on account
because the collection will not be until 2016) $370,000
Expenses (does not include $15,000 of expenses on account because
payment will not be made until 2016) 220,000
Net income $150,000

Additional data:
1. Depreciation on a company automobile for the year amounted to $6,000. This amount is not included in the expenses above.
2. On January 1, 2015, paid for a two-year insurance policy on the automobile amounting to $1,800. This amount is included in the expenses above.

Instructions
(a) Recast the above income statement on the accrual basis in conformity with generally accepted accounting principles. Show computations and explain each change.
(b) Explain which basis (cash or accrual) provides a better measure of income.

Ex. 219
Before month-end adjustments are made, the February 28 trial balance of Neutral Milk Hotel contains revenue of $7,000 and expenses of $4,400. Adjustments are necessary for the following items:
• Depreciation for February is $1,800.
• Revenue recognized but not yet billed is $2,700.
• Accrued interest expense is $700.
• Revenue collected in advance that is now recognized is $2,500.
• Portion of prepaid insurance expired during February is $400.
Instructions
Calculate the correct net income for Neutral Milk Hotel’s Income Statement for February.

Ex. 220
On December 31, 2015, Fashion Nugget Company prepared an income statement and balance sheet and failed to take into account three adjusting entries. The incorrect income statement showed net income of $35,000. The balance sheet showed total assets, $115,000; total liabilities, $45,000; and stockholders’ equity, $70,000.
The data for the three adjusting entries were:
(1) Depreciation of $10,000 was not recorded on equipment.
(2) Wages amounting to $7,000 for the last two days in December were not paid and not recorded. The next payroll will be in January.
(3) Rent of $12,000 was paid for two months in advance on December 1. The entire amount was debited to Rent Expense when paid.

Ex. 220 (cont.)
Instructions
Complete the following tabulation to correct the financial statement amounts shown (indicate deductions with parentheses):
Item Net Income Total Assets Total Liabilities Stockholders’ Equity
Incorrect balances $ 35,000 $115,000 $ 45,000 $ 70,000
Effects of:
Depreciation
Wages
Rent
Correct Balances

Ex. 221
Indicate (a) the type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense), and (b) the accounts before adjustment (overstated or understated) for each of the following:
1. Supplies of $200 have been used. 2. Salaries of $600 are unpaid. 3. Rent received in advance totaling $300 has been earned. 4. Services provided but not recorded total $500.

Ex. 222
Buena Vista Social Club accumulates the following adjustment data at December 31.
1. Revenue of $1,600 collected in advance has been recognized.
2. Salaries of $600 are unpaid.
3. Prepaid rent totaling $500 has expired.
4. Supplies of $450 have been used.
5. Revenue recognized but unbilled total $750.
6. Utility expenses of $250 are unpaid.
7. Interest of $300 has accrued on a note payable.

Instructions
(a) For each of the above items indicate:
1. The type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense).
2. The account relationship (asset/liability, liability/revenue, etc.).
3. The status of account balances before adjustment (understatement or overstatement).
4. The adjusting entry.

(b) Assume net income before the adjustments listed above was $15,500. What is the adjusted net income?

Prepare your answer in the tabular form presented below.

Account Balances
Before Adjustment
Type of Account (Understatement
Adjustment Relationship or Overstatement) Adjusting Entry

Ex. 223
The adjusted trial balance of the Victoria Lane Paving Company includes the following balance sheet accounts that frequently require adjustment. For each account, indicate (a) the type of adjusting entry (prepaid expenses, unearned revenues, accrued revenues, or accrued expenses) and (b) the related account in the adjusting entry.
(a) (b)
Balance Sheet Account Type of Adjusting Entry Related Account
1. Supplies
2. Accounts Receivable
3. Prepaid Insurance
4. Accumulated Depreciation—
Equipment
5. Interest Payable
6. Salaries and Wages Payable
7. Unearned Revenue

Ex. 224
Match the statements below with the appropriate terms by entering the appropriate letter code in the spaces provided.
TERMS:
A. Prepaid Expenses
B. Unearned Revenues
C. Accrued Revenues
D. Accrued Expenses
STATEMENTS:

1. A revenue not yet recognized; collected in advance.

2. Office supplies on hand that will be used in the next period.

3. Interest revenue collected; not yet recognized.

4. Rent not yet collected; already recognized.

5. An expense incurred; not yet paid or recorded.

6. A revenue recognized; not yet collected or recorded.

7. An expense not yet incurred; paid in advance.

8. Interest expense incurred; not yet paid.

Ex. 225
The Shins, a minor league baseball team, prepare financial statements on a monthly basis. Their season begins in April, but in March the team engaged in the following transactions:
(a) Paid $210,000 to Kansas City as advance rent for use of Kansas City Stadium for the six month period April 1 through September 30.
(b) Collected $450,000 cash from sales of season tickets for the team’s 20 home games. This amount was credited to Unearned Ticket Revenue.

During the month of April, the Shins played four home games and five road games.

Instructions
Prepare the adjusting entries required at April 30 for the transactions above.

Ex. 226
On July 1, 2015, Damlen Jurado Company pays $12,000 to its insurance company for a 2-year insurance policy. Instructions Prepare the necessary journal entries for Damlen Jurado on July 1 and December 31.

Ex. 227
On July 1, 2015, Jeffrey Underwriters Associates received $8,000 from a client for a 2-year insurance policy.
Instructions Prepare the necessary journal entries for Jeffrey Underwriters Associates on July 1 and December 31.
Ex. 228
Mother Hips Garment Company purchased equipment on June 1 for $90,000, paying $20,000 cash and signing a 9%, 2-month note for the remaining balance. The equipment is expected to depreciate $18,000 each year. Mother Hips Garment Company prepares monthly financial statements.

Instructions
(a) Prepare the general journal entry to record the acquisition of the equipment on June 1st.
(b) Prepare any adjusting journal entries that should be made on June 30th.
(c) Show how the equipment will be reflected on Mother Hips Garment Company’s balance sheet on June 30th.

Ex. 229
Scotsman Company prepares monthly financial statements. Below are listed some selected accounts and their balances in the September 30 trial balance before any adjustments have been made for the month of September.
SCOTSMAN COMPANY
Trial Balance (Selected Accounts)
September 30, 2015
———————————————————————————————————————————
Debit Credit
Supplies $ 3,200
Prepaid Insurance 4,800
Equipment 16,200
Accumulated Depreciation—Equipment $1,000
Unearned Rent Revenue 1,200
(Note: Debit column does not equal credit column because this is a partial listing of selected account balances)

An analysis of the account balances by the company’s accountant provided the following additional information:
1. A physical count of supplies revealed $1,000 on hand on September 30.
2. A two-year life insurance policy was purchased on June 1 for $4,800.
3. Equipment depreciated $3,000 per year.
4. The amount of rent received in advance that remains unearned at September 30 is $500.

Instructions
Using the above additional information, prepare the adjusting entries that should be made by Scotsman Company on September 30.

Ex. 230
Prepare the required end-of-period adjusting entries for each independent case listed below.

Case 1
Sleater-Kinney Company began the year with a $3,000 balance in the Supplies account. During the year, $8,500 worth of additional supplies were purchased. A physical count of supplies on hand at the end of the year revealed that $7,400 worth of supplies had been used during the year. No adjusting entry has been made until year end.

Case 2
Western Company has a calendar year-end accounting period. On July 1, the company purchased equipment for $30,000. It is estimated that the equipment will depreciate $300 each month. No adjusting entry has been made until year end.

Case 3
Ranch Realty is in the business of renting several apartment buildings and prepares monthly financial statements. It has been determined that 3 tenants in $900 per month apartments and one tenant in the $1,200 per month apartment had not paid their August rent as of August 31st.

Ex. 231
Aeroplane Insurance Agency prepares monthly financial statements. Presented below is an income statement for the month of June that is correct on the basis of information considered.
AEROPLANE INSURANCE AGENCY
Income Statement
For the Month Ended June 30
———————————————————————————————————————————
Revenues
Sales revenue $35,000
Expenses
Salaries and wages expense $6,000
Rent expense 4,200
Depreciation expense 2,800
Advertising expense 800
Total expenses 13,800
Net income $21,200
Additional Data: When the income statement was prepared, the company accountant neglected to take into consideration the following information:
1. A utility bill for $2,500 was received on the last day of the month for electric and gas service for the month of June.
2. A company insurance salesman sold a life insurance policy to a client for a premium of $25,000. The agency billed the client for the policy and is entitled to a commission of 20%.
3. Supplies on hand at the beginning of the month were $3,000. The agency purchased additional supplies during the month for $4,000 in cash and $2,200 of supplies were on hand at June 30.
4. The agency purchased a new car at the beginning of the month for $22,000 cash. The car will depreciate $5,400 per year.
5. Salaries owed to employees at the end of the month total $6,100. The salaries will be paid on July 5.
Instructions
Prepare a correct income statement.

Ex. 232
One part of eight adjusting entries is given below.

Instructions
Indicate the account title for the other part of each entry.
1. Unearned Service Revenue is debited.
2. Prepaid Rent is credited.
3. Accounts Receivable is debited.
4. Depreciation Expense is debited.
5. Salaries and Wages Expense is debited.
6. Interest Payable is credited.
7. Service Revenue is credited (give two possible debit accounts).
8. Supplies Expense is debited.

Ex. 233
For each of the following accounts, indicate (a) the type of adjusting entry (prepaid expense, accrued revenue, etc.) and (b) the related account in the adjusting entry.
1. Depreciation Expense
2. Salaries and Wages Payable
3. Service Revenue
4. Supplies
5. Unearned Service Revenue

Ex. 234
Prepare the necessary adjusting entry for each of the following:
1. Services provided but unrecorded totaled $700. 2. Accrued salaries at year-end are $1,000. 3. Depreciation on equipment for the year is $600.

Ex. 235
The following ledger accounts are used by the Sebastopol Dog Track:
Accounts Receivable
Prepaid Advertising
Prepaid Rent

Unearned Ticket Revenue

Advertising Expense
Rent Expense

Ticket Revenue
Sales Revenue

Instructions
For each of the following transactions below, prepare the journal entry (if one is required) to record the initial transaction and then prepare the adjusting entry, if any, required on September 30, the end of the fiscal year.
(a) On September 1, paid rent on the track facility for three months, $210,000.
(b) On September 1, sold season tickets for admission to the racetrack. The racing season is year-round with 25 racing days each month. Season ticket sales totaled $900,000.
(c) On September 1, borrowed $350,000 from First National Bank by issuing a 9% note payable due in three months.
(d) On September 5, programs for 20 racing days in September, 25 racing days in October, and 15 racing days in November were printed for $3,600.
(e) The accountant for the concessions company reported that gross receipts for September were $150,000. Ten percent is due to the track and will be remitted by October 10.

Ex. 236
Gwynn Company has an accounting fiscal year which ends on June 30. The company also has a policy of paying the weekly payroll on Friday. Payroll records indicate the following salary costs were incurred.
Date Amount
Monday June 28 $3,000
Tuesday June 29 3,800
Wednesday June 30 3,300
Thursday July 1 3,500
Friday July 2 2,400

Instructions
(a) Prepare any necessary adjusting journal entries that should be made at year end on June 30.
(b) Prepare the journal entry to record the payment of the weekly payroll on July 2.

Ex. 237
On Friday of each week, Spoon Company pays its factory personnel weekly wages amounting to $45,000 for a five-day work week.

Instructions
(a) Prepare the necessary adjusting entry at year end, assuming December 31 falls on Wednesday.
(b) Prepare the journal entry for payment of the week’s wages on the payday which is Friday, January 2 of the next year.

Ex. 238
Presented below is the Trial Balance and Adjusted Trial Balance for Morning Jacket Company on December 31.
MORNING JACKET
Trial Balance
December 31
———————————————————————————————————————————
Before Adjustment After Adjustment
Dr. Cr. Dr. Cr.
Cash $ 2,000 $ 2,000
Accounts Receivable 2,800 3,800
Prepaid Rent 2,100 1,400
Supplies 1,200 650
Equipment 18,000 18,000
Accumulated depreciation—
Equipment $ 1,300 $ 1,550
Accounts Payable 2,700 2,700
Notes Payable 10,000 10,000
Interest Payable 140
Salaries and Wages Payable 1,270
Unearned Service Revenue 4,460 3,960
Common Stock 7,200 7,200
Dividends 3,200 3,200
Service Revenue 8,000 9,500
Salaries and Wages Expense 3,860 5,130
Rent Expense 500 1,200
Supplies Expense 550
Depreciation Expense—
Equipment 250
Interest Expense 140
Totals $33,660 $33,660 $36,320 $36,320

Instructions
Prepare in journal form, with explanations, the adjusting entries that explain the changes in the balances from the trial balance to the adjusted trial balance.

Ex. 239
Compute the net income for 2015 based on the following amounts presented on the adjusted trial balance of D-Lay Company.
Accumulated Depreciation – Equip. $20,000 Depreciation Expense 18,000 Salaries and Wages Expense 15,000 Service Revenue 40,000 Unearned Service Revenue 8,000

Ex. 240
New Slang Pest Control has the following balances in selected accounts on December 31, 2014.
Accounts Receivable $ 0
Accumulated Depreciation – Equipment 0
Equipment 6,650
Interest Payable 0
Notes Payable 20,000
Prepaid Insurance 2,220
Salaries and Wages Payable 0
Supplies 2,940
Unearned Service Revenue 30,000
All of the accounts have normal balances. The information below has been gathered at December 31, 2015.
1. Depreciation on the equipment for 2015 is $1,300.
2. New Slang Pest Control borrowed $20,000 by signing a 10%, one-year note on July 1, 2015.
3. New Slang Pest Control paid $2,220 for 12 months of insurance coverage on October 1, 2015.
4. New Slang Pest Control pays its employees total salaries of $11,000 every Monday for the preceding 5-day week (Monday-Friday). On Monday, December 27, 2015, employees were paid for the week ending December 24, 2015. All employees worked the five days ending December 31, 2015.
5. New Slang Pest Control performed disinfecting services for a client in December 2015. The client will be billed $3,200.
6. On December 1, 2015, New Slang Pest Control collected $30,000 for disinfecting processes to be performed from December 1, 2015, through May 31, 2015.
7. A count of supplies on December 31, 2015, indicates that supplies of $850 are on hand.

Instructions
Prepare in journal form with explanations, the adjusting entries for the seven items listed for New Slang Pest Control.

Ex. 241
The trial balances before and after adjustments for Old Julian Calendars at the end of its fiscal year are presented below.
Old Julian Calendars
Trial Balance
September 31, 2014
———————————————————————————————————————————
Before Adjustment After Adjustment
Dr. Cr. Dr. Cr.
Cash $ 15,080 $ 15,080
Accounts Receivable 14,960 16,110
Supplies 2,760 885
Prepaid Insurance 5,800 1,450
Equipment 13,300 13,300
Accumulated Depreciation – Equip $ 5,220 $ 6,960
Accounts Payable 9,860 9,860
Salaries and Wages Payable 4,500
Unearned Sales Revenue 2,175 1,150
Unearned Rent Revenue 2,100 525
Common Stock 18,395 18,395
Sales Revenue 48,800 50,975
Rent Revenue 1,575 3,150
Salaries and Wages Expense 36,225 40,725
Supplies Expense 1,875
Insurance Expense 0 4,350
Depreciation Expense 0 0 1,740 0
$ 88,125 $ 88,125 $ 95,515 $ 95,515
Ex. 241 Cont’d

Instructions
Prepare the adjusting entries that were made.

Ex. 242
The White Stripes Animal Encounters operates a drive through tourist attraction. The company adjusts its accounts at the end of each month. The selected accounts appearing below reflect balances after adjusting entries were prepared on April 30. The adjusted trial balance shows the following:

Prepaid Rent $16,000
Buildings 30,000
Accumulated Depreciation—Buildings 6,600
Unearned Ticket Revenue 600

Other data:
1. Three months’ rent had been prepaid on April 1.
2. The buildings are being depreciated at $7,200 per year.
3. The unearned ticket revenue represents tickets sold for future visits. The tickets were sold at $5.00 each on April 1. During April, thirty of the tickets were used by customers.

Instructions
(a) Calculate the following:
1. Monthly rent expense.
2. The age of the buildings in months.
3. The number of tickets sold on April 1.
(b) Prepare the adjusting entries that were made by the White Stripes Animal Encounters on April 30.

Ex. 243
The adjusted trial balance of C.S. Financial Planners appears below. Using the information from the adjusted trial balance, you are to prepare for the month ending December 31, 2015:
1. an income statement.
2. a retained earnings statement.
3. a balance sheet.

C.S. Financial Planners
Adjusted Trial Balance
December 31, 2015
———————————————————————————————————————————
Debit Credit
Cash $ 4,900
Accounts Receivable 2,200
Supplies 1,800
Equipment 15,000
Accumulated Depreciation—Equipment $ 4,000
Accounts Payable 3,300
Unearned Service Revenue 6,000
Common Stock 10,000
Retained Earnings 4,400
Dividends 2,500
Service Revenue 4,200
Supplies Expense 600
Depreciation Expense 2,500
Rent Expense 2,400
$31,900 $31,900

Ex. 244
Yankee Hotel Foxtrot initiated operations on July 1, 2015. To manage the company officers and managers have requested monthly financial statements starting July 31, 2015. The adjusted trial balance amounts at July 31 are shown below.
Debits Credits
Cash $ 7,680 Accumulated Depreciation – Equipment $ 840
Accounts Receivable 810 Notes Payable 6,000
Prepaid Rent 1,965 Accounts Payable 2,140
Supplies 1,160 Salaries and Wages Payable 360
Equipment 11,400 Interest Payable 40
Dividends 800 Unearned Service Revenue 580
Salaries and Wages Expense 7,145 Common Stock 5,000
Rent Expense 2,740 Retained Earnings 5,640
Depreciation Expense 665 Service Revenue 14,390
Supplies Expense 580 Total credits $34,990
Interest Expense 45
Total debits $ 34,990

(a) Determine the net income for the month of July.
(b) Determine the total assets and total liabilities at July 31, 2015 for Yankee Hotel Foxtrot.
(c) Determine the amount that appears for Retained Earnings at July 31, 2015.

aEx. 245

1. Drive-by Truckers prepares monthly financial statements. On July 1, the Supplies account had a balance of $3,000. During July, additional supplies were purchased for $4,800 and that amount was debited to Supplies Expense. On July 31, a physical count of supplies revealed that there was $2,000 on hand. Prepare the adjusting journal entry that Drive-by Truckers should make on July 31.

2. Alesandro Rental Agency prepares monthly financial statements. On September 1, a check for $9,000 was received from a tenant for six months’ rent. The full amount was credited to Rent Revenue. Prepare the adjusting entry the company should make on September 30.

COMPLETION STATEMENTS
246. The ______________ assumption divides the economic life of a business into artificial time periods.

247. An accounting period that is one year in length is referred to as a ______________ year.

248. The ______________ principle gives accountants guidance as to when revenue is to be recorded.

249. In a service company, revenue is recognized when the service is ______________.

250. The expense recognition principle attempts to match ______________ with ______________.

251. Expenses paid and recorded in an asset account before they are used or consumed are called ______________. Revenue received and recorded as a liability before it is recognized is referred to as ______________.

252. Failure to adjust a prepaid expense account for the amount expired will cause ______________ to be understated and ________________ to be overstated.

253. Depreciation is a ______________ allocation process rather than a process of ______________.

254. Depreciation expense for a period is an ______________ rather than a factual measurement of cost that has expired.

255. An adjusting entry recording accrued salaries for a period indicates that Salaries Expense has been ________________ but has not yet been ________________ or recorded.

256. An adjusted trial balance proves the ______________ of the total debit and credit balances after all ______________ entries have been made.

MATCHING
257. Match the items below by entering the appropriate code letter in the space provided.

A. Time period assumption F. Accrued revenues
B. Fiscal year G. Depreciation
C. Revenue recognition principle H. Accumulated depreciation
D. Prepaid expenses I. Accrued expenses
E. Expense recognition principle J. Book value

1. A twelve month accounting period
2. Expenses paid before they are incurred
3. Cost less accumulated depreciation
4. Divides the economic life of a business into artificial time periods
5. Efforts are related to accomplishments
6. A contra asset account
7. Recognition of revenue when the performance obligation is satisfied
8. Revenues recognized but not yet received
9. Expenses incurred but not yet paid
10. A cost allocation process

SHORT-ANSWER ESSAY QUESTIONS
S-A E 258
The income statement is an important financial statement used by individuals who are interested in the operations of a business enterprise. Explain how the time period assumption and the revenue recognition and expense recognition principles provide guidance to accountants in preparing an income statement.

S-A E 259
In developing an accounting information system, it is important to establish procedures whereby all transactions that affect the components of the accounting equation are recorded. Why then, is it often necessary to adjust the accounts before financial statements are prepared even in a properly designed accounting system? Identify the major types of adjustments that are frequently made and give a specific example of each.

S-A E 260
You are visiting with a friend, Jim Borke, who wants to start a new business. During discussions on forming the business, Jim makes this statement:
Our business will have accounts receivable and accounts payable. It will also acquire a substantial amount of computers and equipment. Will it be acceptable to use the cash basis of accounting?

Prepare a response for Jim.

S-A E 261
The long-term liability section of Escovedo Company’s Balance Sheet includes the following accounts:
Notes Payable $100,000
Mortgage Payable 250,000
Salaries and Wages Payable 75,000
Accumulated Depreciation 125,000
Total Long-Term Liabilities $550,000
Escovedo Company is an established company and does not experience any financial difficulties or have any cash flow problems. Discuss at least two items that are questionable as long-term liabilities.

S-A E 262 (Ethics)
Jay Farrar Company is a manufacturing company that specializes in writing instruments. The past year was a difficult one for the company, as it sought to retain its share in a market in which the largest competitors were also rapid innovators. Jay Farrar introduced a new product late in the year, even though testing was not complete. It was a pen designed with two cartridges: one supplying ink and the other correction fluid. A person could then switch easily between writing and correcting errors. It was priced fairly high, and was never heavily advertised. Even so, the Correct-O-Pen, as the product was named, was an overwhelming success.

The success of the product has Josh Ritter, the manager of the New Products division, worried, however. He was concerned that quality problems would begin occurring, since the longevity of the pen and stability of the correction fluid formulation had not been tested. He did not want sales personnel to get the bonuses that appeared to be indicated, since they might aggressively promote a product that would fail in use. He preferred to complete testing of the pen first, so that more confidence could be placed in the results.

Top management, however, declined the tests. Mr. Ritter then instructed you, the accountant, not to prorate payroll taxes or rent expense for the rest of the year, but to show them as current expenses in total. In this way, the new product would appear to be only slightly profitable.

Required:
1. Describe the alternatives that you as an accountant would have in this situation.
2. Indicate which alternative is best.

S-A E 263 (Communication)
A new sales representative, Jiggs Lucero, has just received his copy of the month-end financial reports. He is puzzled by the term “unearned revenue.” He left the following e-mail message for you on the company’s bulletin board system:

What is this??? Creative Accounting, or what??? Line item 12 on year-to-date financials shows over $25Gs in Unearned Revenue!!! Come on, guys! Either we earned it, or we didn’t … Right??! Is this how you guys lower our commissions? Reply to j.lucero@sbd

Required:
Write a response to send to Jiggs.

CHALLENGE EXERCISES
CE 1
O’Brien Industries collected $190,000 from customers in 2015. Of the amount collected, $40,000 was from revenue accrued from services performed in 2014, and $20,000 was received in advance for 2016 revenue. In addition, O’Brien earned $70,000 of revenue in 2015, which will not be collected until 2016. O’Brien also earned $25,000 of revenue in 2015 which had been collected in 2014.
O’Brien Industries paid $150,000 for expenses in 2015. Of the amount paid, $50,000 was for expenses incurred on account in 2014, $22,000 was paid in advance for 2016 expenses. In addition, O’Brien incurred $78,000 of expenses in 2015, which will not be paid until 2016. O’Brien also incurred $29,000 of expenses in 2015 which had been paid in 2014.

Instructions
(a) Compute 2015 cash-basis net income.
(b) Compute 2015 accrual-basis net income.

CE 2
The ledger of Laurie Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared
Debit Credit
Prepaid Insurance $6,000
Supplies 4,500
Equipment 40,000
Accumulated Depreciation–Equipment $12,600
Notes Payable 20,000
Unearned Rent Revenue 14,100
Rent Revenue 90,000
Interest expense -0-
Salaries and Wages Expense 20,000
An analysis of the accounts shown the following.
1. The equipment depreciates $400 per month.
2. Two-thirds of the unearned rent revenue was recognized during the quarter.
3. The note payable is dated January 1 and bears 12% interest.
CE 2 (Cont.)
4. Suppliers on hand total $800.
5. The insurance policy is a two-year policy dated January 1.

Instructions
A. Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are: Depreciation Expense, Insurance Expense, Interest Payable, and Supplies Expense.
B. Compute the ending balances for Prepaid Insurance, Supplies, Unearned Rent Revenue, and Rent Revenue, and indicate in which financial statement those items will be reported.

CE 3
The income statement of Annette Co, for the month of July shows net income of $2,400 based on Service Revenue $7,200, Salaries and Wages Expense $2,900 Supplies Expense $1,400, and Utilities Expense $500.In reviewing the statement, you discover the following.
1. Insurance expired during July of $600 was omitted.
2. Supplies expense includes $300 of supplies that are still on hand at July 31.
3. Depreciation on equipment of $250 was omitted.
4. Accrued but unpaid salaries and wages at July 31 of $400 were not included.
5. Services performed but unrecorded totaled $700.

CE 3 (Cont.)
Instructions
A. Prepare a correct income statement for July 2015.
B. What effect do the corrections have on the amount reported as total assets on the balance sheet?
C. What effect do the corrections have on the amount reported as total liabilities on the balance sheet?

CHAPTER 4

COMPLETING THE ACCOUNTING CYCLE

CHAPTER Learning OBJECTIVES
1. Prepare a worksheet.
2. Explain the process of closing the books
3. Describe the content and purpose of a post-closing trial balance.
4. State the required steps in the accounting cycle
5. Explain the approaches to preparing correcting entries.
6. Identify the sections of a classified balance sheet.
a7. Prepare reversing entries.

TRUE-FALSE STATEMENTS
1. A worksheet is a mandatory form that must be prepared along with an income statement and balance sheet.

2. If a worksheet is used, financial statements can be prepared before adjusting entries are journalized.

3. If total credits in the income statement columns of a worksheet exceed total debits, the enterprise has net income.

4. It is not necessary to prepare formal financial statements if a worksheet has been prepared because financial position and net income are shown on the worksheet.

5. The adjustments on a worksheet can be posted directly to the accounts in the ledger from the worksheet.

6. The adjusted trial balance columns of a worksheet are obtained by subtracting the adjustment columns from the trial balance columns.

7. The balance of the depreciation expense account will appear in the income statement debit column of a worksheet.

8. Closing entries are unnecessary if the business plans to continue operating in the future and issue financial statements each year.

9. The dividends account is closed to the Income Summary account in order to properly determine net income (or loss) for the period.

10. After closing entries have been journalized and posted, all temporary accounts in the ledger should have zero balances.

11. Closing revenue and expense accounts to the Income Summary account is an optional bookkeeping procedure.

12. Closing the dividends account to Retained Earnings is not necessary if net income is greater than dividends during the period.

13. The dividends account is a permanent account whose balance is carried forward to the next accounting period.

14. Closing entries are journalized after adjusting entries have been journalized.

15. The amounts appearing on an income statement should agree with the amounts appearing on the post-closing trial balance.

16. The post-closing trial balance is entered in the first two columns of a worksheet.

17. A business entity has only one accounting cycle over its economic existence.

18. The accounting cycle begins at the start of a new accounting period.

19. Both correcting entries and adjusting entries always affect at least one balance sheet account and one income statement account.

20. Correcting entries are made any time an error is discovered even though it may not be at the end of an accounting period.

21. An incorrect debit to Accounts Receivable instead of the correct account Notes Receivable does not require a correcting entry because total assets will not be misstated.

22. In a corporation, Retained Earnings is a part of stockholders’ equity.

23. A company’s operating cycle and fiscal year are usually the same length of time.

24. Cash and supplies are both classified as current assets.

25. Long-term investments would appear in the property, plant, and equipment section of the balance sheet.

26. A liability is classified as a current liability if the company is to pay it within the forthcoming year.

27. A company’s liquidity is concerned with the relationship between long-term investments and long-term debt.

28. Current assets are customarily the first items listed on a classified balance sheet.

29. The operating cycle of a company is determined by the number of years the company has been operating.

a30. Reversing entries are an optional bookkeeping procedure.

31. After a worksheet has been completed, the statement columns contain all data that are required for the preparation of financial statements.

32. To close net income to retained earnings, Income Summary is debited and Retained Earnings is credited.

33. In one closing entry, Dividends is credited and Income Summary is debited.

34. The post-closing trial balance will contain only retained earnings statement accounts and balance sheet accounts.

35. The operating cycle of a company is the average time required to collect the receivables resulting from producing revenues.

36. Current assets are listed in the order of liquidity.

37. Current liabilities are obligations that the company is to pay within the coming year.

MULTIPLE CHOICE QUESTIONS
38. Preparing a worksheet involves
a. two steps.
b. three steps.
c. four steps.
d. five steps.

39. The adjustments entered in the adjustments columns of a worksheet are
a. not journalized.
b. posted to the ledger but not journalized.
c. not journalized until after the financial statements are prepared.
d. journalized before the worksheet is completed.

40. The information for preparing a trial balance on a worksheet is obtained from
a. financial statements.
b. general ledger accounts.
c. general journal entries.
d. business documents.

41. After the adjusting entries are journalized and posted to the accounts in the general ledger, the balance of each account should agree with the balance shown on the
a. adjusted trial balance.
b. post-closing trial balance.
c. the general journal.
d. adjustments columns of the worksheet.

42. If the total debit column exceeds the total credit column of the income statement columns on a worksheet, then the company has
a. earned net income for the period.
b. an error because debits do not equal credits.
c. suffered a net loss for the period.
d. to make an adjusting entry.

43. A worksheet is a multiple column form that facilitates the
a. identification of events.
b. measurement process.
c. preparation of financial statements.
d. analysis process.

44. Which of the following companies would be least likely to use a worksheet to facilitate the adjustment process?
a. Large company with numerous accounts
b. Small company with numerous accounts
c. All companies, since worksheets are required under generally accepted accounting principles
d. Small company with few accounts

45. A worksheet can be thought of as a(n)
a. permanent accounting record.
b. optional device used by accountants.
c. part of the general ledger.
d. part of the journal.

46. The account, Supplies, will appear in the following debit columns of the worksheet.
a. Trial balance
b. Adjusted trial balance
c. Balance sheet
d. All of these answer choices are correct

47. When constructing a worksheet, accounts are often needed that are not listed in the trial balance already entered on the worksheet from the ledger. Where should these additional accounts be shown on the worksheet?
a. They should be inserted in alphabetical order into the trial balance accounts already given.
b. They should be inserted in chart of account order into the trial balance already given.
c. They should be inserted on the lines immediately below the trial balance totals.
d. They should not be inserted on the trial balance until the next accounting period.

48. When using a worksheet, adjusting entries are journalized
a. after the worksheet is completed and before financial statements are prepared.
b. before the adjustments are entered on to the worksheet.
c. after the worksheet is completed and after financial statements have been prepared.
d. before the adjusted trial balance is extended to the proper financial statement columns.

49. Assuming that there is a net loss for the period, debits equal credits in all but which section of the worksheet?
a. Income statement columns
b. Adjustments columns
c. Trial balance columns
d. Adjusted trial balance columns

50. Adjusting entries are prepared from
a. source documents.
b. the adjustments columns of the worksheet.
c. the general ledger.
d. last year’s worksheet.

51. The net income (or loss) for the period
a. is found by computing the difference between the income statement credit column and the balance sheet credit column on the worksheet.
b. cannot be found on the worksheet.
c. is found by computing the difference between the income statement columns of the worksheet.
d. is found by computing the difference between the trial balance totals and the adjusted trial balance totals.

52. The worksheet does not show
a. net income or loss for the period.
b. revenue and expense account balances.
c. the ending balance in the retained earnings account.
d. the trial balance before adjustments.

53. If the total debits exceed total credits in the balance sheet columns of the worksheet, stockholders’ equity
a. will increase because net income has occurred.
b. will decrease because a net loss has occurred.
c. is in error because a mistake has occurred.
d. will not be affected.

54. The income statement and balance sheet columns of Iron and Wine Company’s worksheet reflect the following totals:

Income Statement Balance Sheet
Dr. Cr. Dr. Cr.
Totals $72,000 $44,000 $60,000 $88,000

The net income (or loss) for the period is
a. $44,000 income.
b. $28,000 income.
c. $28,000 loss.
d. not determinable.

55. The income statement and balance sheet columns of Iron and Wine Company’s worksheet reflect the following totals:

Income Statement Balance Sheet
Dr. Cr. Dr. Cr.
Totals $72,000 $48,000 $60,000 $84,000

To enter the net income (or loss) for the period into the above worksheet requires an entry to the
a. income statement debit column and the balance sheet credit column.
b. income statement credit column and the balance sheet debit column.
c. income statement debit column and the income statement credit column.
d. balance sheet debit column and the balance sheet credit column.

56. Closing entries are necessary for
a. permanent accounts only.
b. temporary accounts only.
c. both permanent and temporary accounts.
d. permanent or real accounts only.

57. Each of the following accounts is closed to Income Summary except
a. Expenses.
b. Dividends.
c. Revenues.
d. All of these are closed to Income Summary.

58. Closing entries are made
a. in order to terminate the business as an operating entity.
b. so that all assets, liabilities, and stockholders’ equity accounts will have zero balances when the next accounting period starts.
c. in order to transfer net income (or loss) and dividends to the retained earnings account.
d. so that financial statements can be prepared.

59. Closing entries are
a. an optional step in the accounting cycle.
b. posted to the ledger accounts from the worksheet.
c. made to close permanent or real accounts.
d. journalized in the general journal.

60. The income summary account
a. is a permanent account.
b. appears on the balance sheet.
c. appears on the income statement.
d. is a temporary account.

61. If Income Summary has a credit balance after revenues and expenses have been closed into it, the closing entry for Income Summary will include a
a. debit to the retained earnings account.
b. debit to the dividends account.
c. credit to the retained earnings account.
d. credit to the dividends account.

62. Closing entries are journalized and posted
a. before the financial statements are prepared.
b. after the financial statements are prepared.
c. at management’s discretion.
d. at the end of each interim accounting period.

63. Closing entries
a. are prepared before the financial statements.
b. reduce the number of permanent accounts.
c. cause the revenue and expense accounts to have zero balances.
d. summarize the activity in every account.

64. Which of the following is a true statement about closing the books of a corporation?
a. Expenses are closed to the Expense Summary account.
b. Only revenues are closed to the Income Summary account.
c. Revenues and expenses are closed to the Income Summary account.
d. Revenues, expenses, and the dividends account are closed to the Income Summary account.

65. Closing entries may be prepared from all of the following except
a. Adjusted balances in the ledger
b. Income statement and balance sheet columns of the worksheet
c. Balance sheet
d. Income and retained earnings statements

66. In order to close the dividends account, the
a. income summary account should be debited.
b. income summary account should be credited.
c. retained earnings account should be credited.
d. retained earnings account should be debited.

67. In preparing closing entries
a. each revenue account will be credited.
b. each expense account will be credited.
c. the retained earnings account will be debited if there is net income for the period.
d. the dividends account will be debited.

68. The most efficient way to accomplish closing entries is to
a. credit the income summary account for each revenue account balance.
b. debit the income summary account for each expense account balance.
c. credit the dividends balance directly to the income summary account.
d. credit the income summary account for total revenues and debit the income summary account for total expenses.

69. The closing entry process consists of closing
a. all asset and liability accounts.
b. out the retained earnings account.
c. all permanent accounts.
d. all temporary accounts.

70. The final closing entry to be journalized is typically the entry that closes the
a. revenue accounts.
b. dividends account.
c. retained earnings account.
d. expense accounts.

71. An error has occurred in the closing entry process if
a. revenue and expense accounts have zero balances.
b. the retained earnings account is credited for the amount of net income.
c. the dividends account is closed to the retained earnings account.
d. the balance sheet accounts have zero balances.

72. The Income Summary account is an important account that is used
a. during interim periods.
b. in preparing adjusting entries.
c. annually in preparing closing entries.
d. annually in preparing correcting entries.

73. The balance in the income summary account before it is closed will be equal to
a. the net income or loss on the income statement.
b. the beginning balance in the retained earnings account.
c. the ending balance in the retained earnings account.
d. zero.

74. After closing entries are posted, the balance in the retained earnings account in the ledger will be equal to
a. the beginning retained earnings reported on the retained earnings statement.
b. the amount of the retained earnings reported on the balance sheet.
c. zero.
d. the net income for the period.

75. The income statement for the month of June, 2015 of Camera Obscura Enterprises contains the following information:
Revenues $7,000
Expenses:
Salaries and Wages Expense $3,000
Rent Expense 1,500
Advertising Expense 800
Supplies Expense 300
Insurance Expense 100
Total expenses 5,700
Net income $1,300

The entry to close the revenue account includes a
a. debit to Income Summary for $1,300.
b. credit to Income Summary for $1,300.
c. debit to Income Summary for $7,000.
d. credit to Income Summary for $7,000.

76. The income statement for the month of June, 2015 of Camera Obscura Enterprises contains the following information:
Revenues $7,000
Expenses:
Salaries and Wages Expense $3,000
Rent Expense 1,500
Advertising Expense 800
Supplies Expense 300
Insurance Expense 100
Total expenses 5,700
Net income $1,300

The entry to close the expense accounts includes a
a. debit to Income Summary for $1,300.
b. credit to Rent Expense for $1,500.
c. credit to Income Summary for $5,700.
d. debit to Salaries and Wages Expense for $3,000.

77. The income statement for the month of June, 2015 of Camera Obscura Enterprises contains the following information:
Revenues $7,000
Expenses:
Salaries and Wages Expense $3,000
Rent Expense 1,500
Advertising Expense 800
Supplies Expense 300
Insurance Expense 100
Total expenses 5,700
Net income $1,300

After the revenue and expense accounts have been closed, the balance in Income Summary will be
a. $0.
b. a debit balance of $1,300.
c. a credit balance of $1,300.
d. a credit balance of $7,000.

78. The income statement for the month of June, 2015 of Camera Obscura Enterprises contains the following information:
Revenues $7,000
Expenses:
Salaries and Wages Expense $3,000
Rent Expense 1,500
Advertising Expense 800
Supplies Expense 300
Insurance Expense 100
Total expenses 5,700
Net income $1,300

The entry to close Income Summary to Retained Earnings includes
a. a debit to Revenues for $7,000.
b. credits to Expenses totalling $5,700.
c. a credit to Income Summary for $1,300
d. a credit to Retained Earnings for $1,300.

79. The income statement for the month of June, 2015 of Camera Obscura Enterprises contains the following information:
Revenues $7,000
Expenses:
Salries and Wages Expense $3,000
Rent Expense 1,500
Advertising Expense 800
Supplies Expense 300
Insurance Expense 100
Total expenses 5,700
Net income $1,300

At June 1, 2015, Camera Obscura reported retained earnings of $35,000. The company had no dividends during June. At June 30, 2015, the company will report retained earnings of
a. $29,300.
b. $35,000.
c. $36,300.
d. $42,000.

80. The income statement for the year 2015 of Fugazi Co. contains the following information:
Revenues $70,000
Expenses:
Salaries and Wages Expense $45,000
Rent Expense 12,000
Advertising Expense 10,000
Supplies Expense 6,000
Utilities Expense 2,500
Insurance Expense 2,000
Total expenses 77,500
Net income (loss) $ (7,500)

The entry to close the revenue account includes a
a. debit to Income Summary for $7,500.
b. credit to Income Summary for $7,500.
c. debit to Revenues for $70,000.
d. credit to Revenues for $70,000.

81. The income statement for the year 2015 of Fugazi Co. contains the following information:
Revenues $70,000
Expenses:
Salaries and Wages Expense $45,000
Rent Expense 12,000
Advertising Expense 10,000
Supplies Expense 6,000
Utilities Expense 2,500
Insurance Expense 2,000
Total expenses 77,500
Net income (loss) $ (7,500)

The entry to close the expense accounts includes a
a. debit to Income Summary for $7,500.
b. credit to Income Summary for $7,500.
c. debit to Income Summary for $77,500.
d. debit to Utilities Expense for $2,500.

82. The income statement for the year 2015 of Fugazi Co. contains the following information:
Revenues $70,000
Expenses:
Salaries and Wages Expense $45,000
Rent Expense 12,000
Advertising Expense 10,000
Supplies Expense 6,000
Utilities Expense 2,500
Insurance Expense 2,000
Total expenses 77,500
Net income (loss) $ (7,500)

After the revenue and expense accounts have been closed, the balance in Income Summary will be
a. $0.
b. a debit balance of $7,500.
c. a credit balance of $7,500.
d. a credit balance of $70,000.

83. The income statement for the year 2015 of Fugazi Co. contains the following information:
Revenues $70,000
Expenses:
Salaries and Wages Expense $45,000
Rent Expense 12,000
Advertising Expense 10,000
Supplies Expense 6,000
Utilities Expense 2,500
Insurance Expense 2,000
Total expenses 77,500
Net income (loss) $ (7,500)

The entry to close Income Summary to Retained Earnings includes
a. a debit to Revenue for $70,000.
b. credits to Expenses totalling $77,500.
c. a credit to Income Summary for $7,500.
d. a credit to Retained Earnings for $7,500.

84. The income statement for the year 2015 of Fugazi Co. contains the following information:
Revenues $70,000
Expenses:
Salaries and Wages Expense $45,000
Rent Expense 12,000
Advertising Expense 10,000
Supplies Expense 6,000
Utilities Expense 2,500
Insurance Expense 2,000
Total expenses 77,500
Net income (loss) $ (7,500)

At January 1, 2015, Fugazi reported retained earnings of $50,000. Dividends for the year totalled $10,000. At December 31, 2015, the company will report retained earnings of
a. $17,500.
b. $32,500.
c. $40,000.
d. $42,500.

85. The income statement for the year 2015 of Fugazi Co. contains the following information:
Revenues $70,000
Expenses:
Salaries and Wages Expense $45,000
Rent Expense 12,000
Advertising Expense 10,000
Supplies Expense 6,000
Utilities Expense 2,500
Insurance Expense 2,000
Total expenses 77,500
Net income (loss) $ (7,500)

After all closing entries have been posted, the Income Summary account will have a balance of
a. $0.
b. $7,500 debit.
c. $7,500 credit.
d. $77,500 credit.

86. The income statement for the year 2015 of Fugazi Co. contains the following information:
Revenues $70,000
Expenses:
Salaries and Wages Expense $45,000
Rent Expense 12,000
Advertising Expense 10,000
Supplies Expense 6,000
Utilities Expense 2,500
Insurance Expense 2,000
Total expenses 77,500
Net income (loss) $ (7,500)

After all closing entries have been posted, the revenue account will have a balance of
a. $0.
b. $70,000 credit.
c. $70,000 debit.
d. $7,500 credit.

87. A post-closing trial balance is prepared
a. after closing entries have been journalized and posted.
b. before closing entries have been journalized and posted.
c. after closing entries have been journalized but before the entries are posted.
d. before closing entries have been journalized but after the entries are posted.

88. All of the following statements about the post-closing trial balance are correct except it
a. shows that the accounting equation is in balance.
b. provides evidence that the journalizing and posting of closing entries have been properly completed.
c. contains only permanent accounts.
d. proves that all transactions have been recorded.

89. A post-closing trial balance will show
a. only permanent account balances.
b. only temporary account balances.
c. zero balances for all accounts.
d. the amount of net income (or loss) for the period.

90. A post-closing trial balance should be prepared
a. before closing entries are posted to the ledger accounts.
b. after closing entries are posted to the ledger accounts.
c. before adjusting entries are posted to the ledger accounts.
d. only if an error in the accounts is detected.

91. A post-closing trial balance will show
a. zero balances for all accounts.
b. zero balances for balance sheet accounts.
c. only balance sheet accounts.
d. only income statement accounts.

92. The purpose of the post-closing trial balance is to
a. prove that no mistakes were made.
b. prove the equality of the balance sheet account balances that are carried forward into the next accounting period.
c. prove the equality of the income statement account balances that are carried forward into the next accounting period.
d. list all the balance sheet accounts in alphabetical order for easy reference.

93. The balances that appear on the post-closing trial balance will match the
a. income statement account balances after adjustments.
b. balance sheet account balances after closing entries.
c. income statement account balances after closing entries.
d. balance sheet account balances after adjustments.

94. Which account listed below would be double ruled in the ledger as part of the closing process?
a. Cash
b. Retained Earnings
c. Dividends
d. Accumulated Depreciation—Equipment

95. A double rule applied to accounts in the ledger during the closing process implies that
a. the account is a temporary account.
b. the account is a balance sheet account.
c. the account balance is not zero.
d. a mistake has been made, since double ruling is prescribed.

96. The heading for a post-closing trial balance has a date line that is similar to the one found on
a. a balance sheet.
b. an income statement.
c. a retained earnings statement.
d. the worksheet.

97. Which one of the following is usually performed only at the end of a company’s annual accounting period?
a. Preparing financial statements
b. Journalizing and posting adjusting entries
c. Journalizing and posting closing entries
d. Preparing an adjusted trial balance

98. The step in the accounting cycle that is performed on a periodic basis (i.e., monthly, quarterly) is
a. analyzing transactions.
b. journalizing and posting adjusting entries.
c. preparing a post-closing trial balance.
d. posting to ledger accounts.

99. Which one of the following is an optional step in the accounting cycle of a business enterprise?
a. Analyze business transactions
b. Prepare a worksheet
c. Prepare a trial balance
d. Post to the ledger accounts

100. The final step in the accounting cycle is to prepare
a. closing entries.
b. financial statements.
c. a post-closing trial balance.
d. adjusting entries.

101. Which of the following steps in the accounting cycle would not generally be performed daily?
a. Journalize transactions
b. Post to ledger accounts
c. Prepare adjusting entries
d. Analyze business transactions

102. Which of the following steps in the accounting cycle may be performed most frequently?
a. Prepare a post-closing trial balance
b. Journalize closing entries
c. Post closing entries
d. Prepare a trial balance

103. Which of the following depicts the proper sequence of steps in the accounting cycle?
a. Journalize the transactions, analyze business transactions, prepare a trial balance
b. Prepare a trial balance, prepare financial statements, prepare adjusting entries
c. Prepare a trial balance, prepare adjusting entries, prepare financial statements
d. Prepare a trial balance, post to ledger accounts, post adjusting entries

104. The two optional steps in the accounting cycle are preparing
a. a post-closing trial balance and reversing entries.
b. a worksheet and post-closing trial balances.
c. reversing entries and a worksheet.
d. an adjusted trial balance and a post-closing trial balance.

105. The first required step in the accounting cycle is
a. reversing entries.
b. journalizing transactions in the book of original entry.
c. analyzing transactions.
d. posting transactions.

106. Correcting entries
a. always affect at least one balance sheet account and one income statement account.
b. affect income statement accounts only.
c. affect balance sheet accounts only.
d. may involve any combination of accounts in need of correction.

107. Merriweather Post Pavillion received a $820 check from a customer for the balance due. The transaction was erroneously recorded as a debit to Cash $280 and a credit to Service Revenue $280. The correcting entry is
a. debit Cash, $820; credit Accounts Receivable, $820.
b. debit Cash, $540 and Accounts Receivable, $280; credit Service Revenue, $820.
c. debit Cash, $540 and Service Revenue, $280; credit Accounts Receivable, $820.
d. debit Accounts Receivable, $820; credit Cash, $540 and Service Revenue, $280.

108. If errors occur in the recording process, they
a. should be corrected as adjustments at the end of the period.
b. should be corrected as soon as they are discovered.
c. should be corrected when preparing closing entries.
d. cannot be corrected until the next accounting period.

109. A correcting entry
a. must involve one balance sheet account and one income statement account.
b. is another name for a closing entry.
c. may involve any combination of accounts.
d. is a required step in the accounting cycle.

110. An unacceptable way to make a correcting entry is to
a. reverse the incorrect entry.
b. erase the incorrect entry.
c. compare the incorrect entry with the correct entry and make a correcting entry to correct the accounts.
d. correct it immediately upon discovery.

111. Zen Arcade paid the weekly payroll on January 2 by debiting Salaries and Wages Expense for $47,000. The accountant preparing the payroll entry overlooked the fact that Salaries and Wages Expense of $27,000 had been accrued at year end on December 31. The correcting entry is
a. Salaries and Wages Payable 27,000
Cash 27,000
b. Cash 20,000
Salaries and Wages Expense 20,000
c. Salaries and Wages Payable 27,000
Salaries and Wages Expense 27,000
d. Cash 27,000
Salaries and Wages Expense 27,000

112. Jawbreaker Company paid $940 on account to a creditor. The transaction was erroneously recorded as a debit to Cash of $490 and a credit to Accounts Receivable, $490. The correcting entry is
a. Accounts Payable 940
Cash 940
b. Accounts Receivable 490
Cash 490
c. Accounts Receivable 490
Accounts Payable 490
d. Accounts Receivable 490
Accounts Payable 940
Cash 1,430

113. A lawyer collected $710 of legal fees in advance. He erroneously debited Cash for $170 and credited Accounts Receivable for $170. The correcting entry is
a. Cash 170
Accounts Receivable 540
Unearned Service Revenue 710
b. Cash 710
Service Revenue 710
c. Cash 540
Accounts Receivable 170
Unearned Service Revenue 710
d. Cash 540
Accounts Receivable 540

114. On May 25, Yellow House Company received a $650 check from Grizzly Bean for services to be performed in the future. The bookkeeper for Yellow House Company incorrectly debited Cash for $650 and credited Accounts Receivable for $650. The amounts have been posted to the ledger. To correct this entry, the bookkeeper should:
a. debit Cash $650 and credit Unearned Service Revenue $650.
b. debit Accounts Receivable $650 and credit Service Revenue $650.
c. debit Accounts Receivable $650 and credit Cash $650.
d. debit Accounts Receivable $650 and credit Unearned Service Revenue $650.

115. On March 8, Black Candy Company bought supplies on account from the Arcade Fire Company for $550. Black Candy Company incorrectly debited Equipment for $500 and credited Accounts Payable for $500. The entries have been posted to the ledger. the correcting entry should be:
a. Supplies 550
Accounts Payable 550
b. Supplies 550
Accounts Payable 500
Equipment 50
c. Supplies 550
Equipment 550
d. Supplies 550
Equipment 500
Accounts Payable 50

116. The following information is for Sunny Day Real Estate:
Sunny Day Real Estate
Balance Sheet
December 31, 2015

Cash $ 25,000 Accounts Payable $ 60,000
Prepaid Insurance 30,000 Salaries and Wages Payable 15,000
Accounts Receivable 50,000 Mortgage Payable 85,000
Inventory 70,000 Total Liabilities 160,000
Land Held for Investment 85,000
Land 120,000
Buildings $100,000 Common Stock $120,000
Less Accumulated Retained Earnings 250,000 370,000
Depreciation (20,000) 80,000
Trademark 70,000 Total Liabilities and
Total Assets $530,000 Stockholders’ Equity $530,000

The total dollar amount of assets to be classified as current assets is
a. $105,000.
b. $175,000.
c. $190,000.
d. $260,000.

117. The following information is for Sunny Day Real Estate:
Sunny Day Real Estate
Balance Sheet
December 31, 2015

Cash $ 25,000 Accounts Payable $ 60,000
Prepaid Insurance 30,000 Salaries and Wages Payable 15,000
Accounts Receivable 50,000 Mortgage Payable 85,000
Inventory 70,000 Total Liabilities 160,000
Land Held for Investment 85,000
Land 120,000
Buildings $100,000 Common Stock $120,000
Less Accumulated Retained Earnings 250,000 370,000
Depreciation (20,000) 80,000
Trademark 70,000 Total Liabilities and
Total Assets $530,000 Stockholders’ Equity $530,000

The total dollar amount of assets to be classified as property, plant, and equipment is
a. $200,000.
b. $220,000.
c. $285,000.
d. $305,000.

118. The following information is for Sunny Day Real Estate:
Sunny Day Real Estate
Balance Sheet
December 31, 2015

Cash $ 25,000 Accounts Payable $ 60,000
Prepaid Insurance 30,000 Salaries and Wages Payable 15,000
Accounts Receivable 50,000 Mortgage Payable 85,000
Inventory 70,000 Total Liabilities 160,000
Land Held for Investment 85,000
Land 120,000
Buildings $100,000 Common Stock $120,000
Less Accumulated Retained Earnings 250,000 370,000
Depreciation (20,000) 80,000
Trademark 70,000 Total Liabilities and
Total Assets $530,000 Stockholders’ Equity $530,000

The total dollar amount of assets to be classified as investments is
a. $0.
b. $70,000.
c. $85,000.
d. $155,000.

119. The following information is for Sunny Day Real Estate:
Sunny Day Real Estate
Balance Sheet
December 31, 2015

Cash $ 25,000 Accounts Payable $ 60,000
Prepaid Insurance 30,000 Salaries and Wages Payable 15,000
Accounts Receivable 50,000 Mortgage Payable 85,000
Inventory 70,000 Total Liabilities 160,000
Land Held for Investment 85,000
Land 120,000
Buildings $100,000 Common Stock $120,000
Less Accumulated Retained Earnings 250,000 370,000
Depreciation (20,000) 80,000
Trademark 70,000 Total Liabilities and
Total Assets $530,000 Stockholders’ Equity $530,000

The total dollar amount of liabilities to be classified as current liabilities is
a. $15,000.
b. $60,000.
c. $75,000.
d. $160,000.

120. The following information is for Bright Eyes Auto Supplies:
Bright Eyes Auto Supplies
Balance Sheet
December 31, 2015

Cash $ 40,000 Accounts Payable $ 130,000
Prepaid Insurance 80,000 Salaries and Wages Payable 50,000
Accounts Receivable 100,000 Mortgage Payable 150,000
Inventory 140,000 Total Liabilities 330,000
Land Held for Investment 180,000
Land 250,000
Buildings $200,000 Common Stock $400,000
Less Accumulated Retained Earnings 340,000 740,000
Depreciation (60,000) 140,000
Trademark 140,000 Total Liabilities and
Total Assets $1,070,000 Stockholders’ Equity $1,070,000

The total dollar amount of assets to be classified as current assets is
a. $140,000.
b. $220,000.
c. $360,000.
d. $500,000.

121. The following information is for Bright Eyes Auto Supplies:
Bright Eyes Auto Supplies
Balance Sheet
December 31, 2015

Cash $ 40,000 Accounts Payable $ 130,000
Prepaid Insurance 80,000 Salaries and Wages Payable 50,000
Accounts Receivable 100,000 Mortgage Payable 150,000
Inventory 140,000 Total Liabilities 330,000
Land Held for Investment 180,000
Land 250,000
Buildings $200,000 Common Stock $400,000
Less Accumulated Retained Earnings 340,000 740,000
Depreciation (60,000) 140,000
Trademark 140,000 Total Liabilities and
Total Assets $1,070,000 Stockholders’ Equity $1,070,000

The total dollar amount of assets to be classified as property, plant, and equipment is
a. $390,000.
b. $450,000.
c. $570,000.
d. $630,000.

122. The following information is for Bright Eyes Auto Supplies:
Bright Eyes Auto Supplies
Balance Sheet
December 31, 2015

Cash $ 40,000 Accounts Payable $ 130,000
Prepaid Insurance 80,000 Salaries and Wages Payable 50,000
Accounts Receivable 100,000 Mortgage Payable 150,000
Inventory 140,000 Total Liabilities 330,000
Land Held for Investment 180,000
Land 250,000
Buildings $200,000 Common Stock $400,000
Less Accumulated Retained Earnings 340,000 740,000
Depreciation (60,000) 140,000
Trademark 140,000 Total Liabilities and
Total Assets $1,070,000 Stockholders’ Equity $1,070,000

The total dollar amount of assets to be classified as investments is
a. $0.
b. $140,000.
c. $180,000.
d. $250,000.

123. The following information is for Bright Eyes Auto Supplies:
Bright Eyes Auto Supplies
Balance Sheet
December 31, 2015

Cash $ 40,000 Accounts Payable $ 130,000
Prepaid Insurance 80,000 Salaries and Wages Payable 50,000
Accounts Receivable 100,000 Mortgage Payable 150,000
Inventory 140,000 Total Liabilities 330,000
Land Held for Investment 180,000
Land 250,000
Buildings $200,000 Common Stock $400,000
Less Accumulated Retained Earnings 340,000 740,000
Depreciation (60,000) 140,000
Trademark 140,000 Total Liabilities and
Total Assets $1,070,000 Stockholders’ Equity $1,070,000

The total dollar amount of liabilities to be classified as current liabilities is
a. $50,000.
b. $130,000.
c. $180,000.
d. $330,000.

124. All of the following are property, plant, and equipment except
a. supplies.
b. machinery.
c. land.
d. buildings.

125. The first item listed under current liabilities is usually
a. accounts payable.
b. notes payable.
c. salaries and wages payable.
d. taxes payable.

126. Equipment is classified in the balance sheet as
a. a current asset.
b. property, plant, and equipment.
c. an intangible asset.
d. a long-term investment.

127. A current asset is
a. the last asset purchased by a business.
b. an asset which is currently being used to produce a product or service.
c. usually found as a separate classification in the income statement.
d. an asset that a company expects to convert to cash or use up within one year.

128. An intangible asset
a. does not have physical substance, yet often is very valuable.
b. is worthless because it has no physical substance.
c. is converted into a tangible asset during the operating cycle.
d. cannot be classified on the balance sheet because it lacks physical substance.

129. Liabilities are generally classified on a balance sheet as
a. small liabilities and large liabilities.
b. present liabilities and future liabilities.
c. tangible liabilities and intangible liabilities.
d. current liabilities and long-term liabilities.

130. Which of the following would not be classified a long-term liability?
a. Current maturities of long-term debt
b. Bonds payable
c. Mortgage payable
d. Lease liabilities

131. Which of the following liabilities are not related to the operating cycle?
a. Salaries and wages payable
b. Accounts payable
c. Utilities payable
d. Bonds payable

132. Intangible assets include each of the following except
a. copyrights.
b. goodwill.
c. land improvements.
d. patents.

133. It is not true that current assets are assets that a company expects to
a. realize in cash within one year.
b. sell within one year.
c. use up within one year.
d. acquire within one year.

134. The operating cycle of a company is the average time that is required to go from cash to
a. sales in producing revenues.
b. cash in producing revenues.
c. inventory in producing revenues.
d. accounts receivable in producing revenues.

135. On a classified balance sheet, current assets are customarily listed
a. in alphabetical order.
b. with the largest dollar amounts first.
c. in the order of liquidity.
d. in the order of acquisition.

136. Intangible assets are
a. listed under current assets on the balance sheet.
b. not listed on the balance sheet because they do not have physical substance.
c. long-lived assets that are often very valuable.
d. listed as a long-term investment on the balance sheet.

137. The relationship between current assets and current liabilities is important in evaluating a company’s
a. profitability.
b. liquidity.
c. market value.
d. accounting cycle.

138. The most important information needed to determine if companies can pay their current obligations is the
a. net income for this year.
b. projected net income for next year.
c. relationship between current assets and current liabilities.
d. relationship between short-term and long-term liabilities.

139. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Multiple Choice 139. (Cont.)
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000
Equipment 210,000

What is the company’s net income for the year ending December 31, 2015?
a. $12,000
b. $28,000
c. $42,000
d. $133,000

140. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000
Equipment 210,000

What is the amount that would be reported for stockholders’ equity at December 31, 2015?
a. $158,000
b. $144,000
c. $130,000
d. $102,000

141. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000
Equipment 210,000

What are total current assets at December 31, 2015?
a. $26,000
b. $32,000
c. $36,000
d. $42,000

142. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Equipment 210,000
Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000

Multiple Choice 142. (Cont.)

What is the book value of the equipment at December 31, 2015?
a. $170,000
b. $182,000
c. $210,000
d. $238,000

143. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000
Equipment 210,000

What are total current liabilities at December 31, 2015?
a. $18,000
b. $70,000
c. $88,000
d. $120,000

144. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Multiple Choice 144. (Cont.)

Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000
Equipment 210,000

What are total long-term liabilities at December 31, 2015?
a. $0
b. $70,000
c. $88,000
d. $90,000

145. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Equipment 210,000
Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000

What is total liabilities and stockholders’ equity at December 31, 2015?
a. $176,000
b. $218,000
c. $190,000
d. $232,000

146. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Equipment 210,000
Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000

The sub-classifications for assets on the company’s classified balance sheet would include all of the following except
a. Current Assets.
b. Property, Plant, and Equipment.
c. Intangible Assets.
d. Long-term Assets.

147. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000
Equipment 210,000

Multiple Choice 147. (Cont.)

The current assets should be listed on Postal Service’s balance sheet in the following order:
a. cash, accounts receivable, prepaid insurance, equipment.
b. cash, prepaid insurance, supplies, accounts receivable.
c. cash, accounts receivable, prepaid insurance, supplies.
d. equipment, supplies, prepaid insurance, accounts receivable, cash.

148. Which statement about long-term investments is not true?
a. They will be held for more than one year.
b. They are not currently used in the operation of the business.
c. They include investments in stock of other companies and land held for future use.
d. They can never include cash accounts.

149. What is the order in which assets are generally listed on a classified balance sheet?
a. Current and long-term
b. Current; property, plant, and equipment; long-term investments; intangible assets
c. Current; property, plant, and equipment; intangible assets; long-term investments
d. Current; long-term investments; property, plant, and equipment; intangible assets

150. These are selected account balances on December 31, 2015.
Land (location of the office building) $100,000
Land (held for future use) 150,000
Office Building 700,000
Inventory 200,000
Equipment 450,000
Office Furniture 150,000
Accumulated Depreciation 425,000
What is the total amount of property, plant, and equipment that will appear on the balance sheet?
a. $975,000
b. $1,125,000
c. $1,175,000
d. $1,400,000

151. The following selected account balances appear on the December 31, 2015 balance sheet of Superchunk Co.
Land (location of the office building) $150,000
Land (held for future use) 225,000
Office Building 800,000
Inventory 300,000
Equipment 675,000
Office Furniture 225,000
Accumulated Depreciation 640,000
What is the total amount of property, plant, and equipment that will be reported on the balance sheet?
a. $1,210,000
b. $1,435,000
c. $1,510,000
d. $1,850,000

a152. A reversing entry
a. reverses entries that were made in error.
b. is the exact opposite of an adjusting entry made in a previous period.
c. is made when a business disposes of an asset it previously purchased.
d. is made when a company sustains a loss in one period and reverses the effect with a profit in the next period.

a 153. If a company utilizes reversing entries, they will
a. be made at the beginning of the next accounting period.
b. not actually be posted to the general ledger accounts.
c. be made before the post-closing trial balance.
d. be part of the adjusting entry process.

154. The steps in the preparation of a worksheet do not include
a. analyzing documentary evidence.
b. preparing a trial balance on the worksheet.
c. entering the adjustments in the adjustment columns.
d. entering adjusted balances in the adjusted trial balance columns.

155. Balance sheet accounts are considered to be
a. temporary stockholders’ equity accounts.
b. permanent accounts.
c. equity accounts.
d. nominal accounts.

156. Income Summary has a credit balance of $17,000 in S. Sufjan Co. after closing revenues and expenses. The entry to close Income Summary is
a. credit Income Summary $17,000, debit Retained Earnings $17,000.
b. credit Income Summary $17,000, debit Dividends $17,000.
c. debit Income Summary $17,000, credit Dividends $17,000.
d. debit Income Summary $17,000, credit Retained Earnings $17,000.

157. The post-closing trial balance contains only
a. income statement accounts.
b. balance sheet accounts.
c. balance sheet and income statement accounts.
d. income statement, balance sheet, and retained earnings statement accounts.

158. Which of the following is an optional step in the accounting cycle?
a. Adjusting entries
b. Closing entries
c. Correcting entries
d. Reversing entries

159. Which one of the following statements concerning the accounting cycle is incorrect?
a. The accounting cycle includes journalizing transactions and posting to ledger accounts.
b. The accounting cycle includes only one optional step.
c. The steps in the accounting cycle are performed in sequence.
d. The steps in the accounting cycle are repeated in each accounting period.

160. Correcting entries are made
a. at the beginning of an accounting period.
b. at the end of an accounting period.
c. whenever an error is discovered.
d. after closing entries.

161. On September 23, Sebadoh Company received a $350 check from Surfer Rosa Inc. for services to be performed in the future. The bookkeeper for Sebadoh Company incorrectly debited Cash for $350 and credited Accounts Receivable for $350. The amounts have been posted to the ledger. To correct this entry, the bookkeeper should
a. debit Cash $350 and credit Unearned Service Revenue $350.
b. debit Accounts Receivable $350 and credit Unearned Service Revenue $350.
c. debit Accounts Receivable $350 and credit Cash $350.
d. debit Accounts Receivable $350 and credit Service Revenue $350.

162. All of the following are stockholders’ equity accounts except
a. Dividends.
b. Common Stock.
c. Investment in Stock.
d. Retained Earnings.

163. Current liabilities
a. are obligations that the company is to pay within the forthcoming year.
b. are listed in the balance sheet in order of their expected maturity.
c. are listed in the balance sheet, starting with accounts payable.
d. should not include long-term debt that is expected to be paid within the next year.

a164. The use of reversing entries
a. is a required step in the accounting cycle.
b. changes the amounts reported in the financial statements.
c. simplifies the recording of subsequent transactions.
d. is required for all adjusting entries.

165. The classified balance sheet is
a. required under GAAP but not under IFRS.
b. required under IFRS in the same format as under GAAP.
c. required under IFRS but not under GAAP.
d. required under IFRS with certain variations in format as compared to GAAP.

166. IFRS requires the use of
a. the term balance sheet.
b. the term statement of financial position.
c. neither balance sheet nor statement of financial position, but recommends use of the term balance sheet.
d. neither balance sheet nor statement of financial position, but recommends use of the term statement of financial position.

167. IFRS
a. requires a specific format for the balance sheet (statement of financial position) that is identical to U.S. GAAP.
b. requires a specific format for the balance sheet (statement of financial position) that is different from U.S. GAAP.
c. requires no specific format for the balance sheet (statement of financial position) but most companies that follow IFRS prepare the statement identical to U.S. GAAP.
d. requires no specific format for the balance sheet (statement of financial position) but most companies that follow IFRS prepare the statement in a different format from U.S. GAAP.

168. Most companies that follow IFRS present balance sheet (statement of financial position) information in this order:
a. current assets; investments; property, plant and equipment; intangible assets; current liabilities; long term liabilities; equity.
b. intangible assets; property, plant and equipment; investments; current assets; current liabilities; equity; long term liabilities.
c. current assets; noncurrent assets; current liabilities; noncurrent liabilities; equity.
d. noncurrent assets; current assets; equity; noncurrent liabilities; current liabilities.

169. Under IFRS and under GAAP, current assets are listed in
IFRS GAAP
a. order of liquidity order of liquidity
b. reverse order of liquidity order of liquidity.
c. order of liquidity reverse order of liquidity
d. reverse order of liquidity reverse order of liquidity

170. The subtotal net assets is used in
a. both GAAP and IFRS.
b. GAAP but not IFRS.
c. IFRS but not GAAP.
d. neither IFRS nor GAAP.

171. Both IFRS and GAAP require disclosure about
a. accounting policies followed.
b. judgements that management has made in the process of applying the entity’s accounting policies.
c. the key assumptions and estimation uncertainty.
d. All of these answer choices are correct.

172. Under IFRS
a. comparative prior-period information must be presented, but financial statements need not be provided annually.
b. comparative prior-period informaton must be presented, and financial statements must be provided annually.
c. comparative prior-period information is not required, and financial statements need not be provided annually.
d. comparative prior-period information is not required, but financial statements must be provided annually.

173. The use of fair value to report assets
a. is not allowed under GAAP or IFRS.
b. is required by GAAP and IFRS.
c. is increasing under GAAP and IFRS, but GAAP has adopted it more broadly.
d. is increasing under GAAP and IFRS, but IFRS has adopted it more broadly.

174. Under IFRS
a. companies can apply fair value to property, plant, and equipment and natural resources.
b. companies can apply fair value to property, plant, and equipment but not to natural resources.
c. companies can apply fair value to neither property, plant, and equipment nor natural resources.
d. companies can apply fair value to natural resources but not to property, plant, and equipment.

175. The IASB and FASB are working on a converged statement of financial position using the headings of
a. assets, liabilities, and equity.
b. revenues and expenses.
c. assets, liabilities, revenues, expenses and equity.
d. operating, investing, and financing.

BRIEF EXERCISES

BE 176
Use the following income statement for the year 2015 for Belle Company to prepare entries to close the revenue and expense accounts for the company.
Service revenue $85,000
Expenses:
Salaries and Wages Expense $40,000
Rent Expense 12,500
Advertising Expense 8,700
Total expenses 61,200
Net income (loss) $23,800

BE 177
Sebastien Company earned net income of $44,000 during 2014. The company paid dividends totalling $20,000 during the period. Prepare the entries to close Income Summary and the Dividends account.

BE 178
At April 1, 2015, Spiderland Company reported a balance of $20,000 in the Retained Earnings account. Spiderland Company earned revenues of $50,000 and incurred expenses of $32,000 during April 2015. The company paid dividends of $10,000 during the month.

(a) Prepare the entries to close Income Summary and the Dividends acccount at April 30, 2015.
(b) What is the balance in Retained Earnings on the April 30, 2015 post-closing trial balance?

BE 179
Identify which of the following are temporary accounts of Sabrina Company.
(1) Retained Earnings
(2) Dividends
(3) Equipment
(4) Accumulated Depreciation
(5) Depreciation Expense

BE 180
Identify which of the following accounts would have balances on a post-closing trial balance.
(1) Service Revenue
(2) Income Summary
(3) Notes Payable
(4) Interest Expense
(5) Cash

BE 181
Prepare the necessary correcting entry for each of the following.
a. A payment on account of $840 was debited to Accounts Payable $480 and credited to Cash $480.
b. The collection of Accounts Receivable of $680 was recorded as a debit to Cash $680 and a credit to Service Revenue $680.

BE 182
Prepare the necessary correcting entry for each of the following.
a. A payment of $5,000 for salaries was recorded as a debit to Supplies Expense and a credit to Cash.
b. A purchase of supplies on account for $1,000 was recorded as a debit to Equipment and a credit to Accounts Payable.

BE 183
The following accounts were included on Aeroplane Consultants adjusted trial balance at December 31, 2015:
Accounts payable $ 9,200
Accounts receivable 12,000
Cash 5,500
Common stock 25,000
Dividends 10,000
Equipment 5,000
Interest expense 3,000
Note payable, due 8/31/17 60,000
Retained earnings 15,000
Supplies 1,000
Service revenue 39,000

(a) What are total current assets?
(b) What are total current liabilities?

BE 184
The following items are taken from the adjusted trial balance of Westley Company for the month ending July 31, 2015:

Accounts payable $ 2,000
Accounts receivable 3,300
Accumulated depreciation – equipment 8,000
Cash 2,600
Common stock 30,000
Depreciation expense 2,000
Equipment 54,000
Retained earnings 7/1/15 22,000
Service revenue 33,000
Supplies 1,200
Prepare the current assets section of Westley’s classified balance sheet.

BE 185
The following information is available for Elwes Company for the year ended December 31, 2015:

Accounts payable $ 3,800
Accumulated depreciation-equipment 4,000
Common stock 5,000
Retain earnings 4,300
Intangible assets 2,300
Notes payable (due in 5 years) 5,000
Accounts receivable 1,500
Cash 2,800
Short-term investments 1,000
Equipment 8,800
Long-term investments 5,700

Instructions
Use the above information to prepare a classified balance sheet for the year ended December 31, 2015.

BE 186
The following lettered items represent a classification scheme for a balance sheet, and the numbered items represent accounts found on balance sheets. In the blank next to each account, write the letter indicating to which category it belongs.
A. Current assets E. Current liabilities
B. Long-term investments F. Long-term liabilities
C. Property, plant, and equipment G. Stockholders’ equity
D. Intangible assets H. Not on the balance sheet

_____ 1. Accumulated Depreciation _____ 6. Inventory
_____ 2. Retained Earnings _____ 7. Patents
_____ 3. Interest Expense _____ 8. Prepaid Rent
_____ 4. Salaries and Wages Payable _____ 9. Mortgage Payable
_____ 5. Dividends _____ 10. Land Held for Investment

aBE 187
Inigo Company prepared the following adjusting entries at year end on December 31, 2015:
(a) Interest Expense 250
Interest Payable 250

(b) Interest Receivable 450
Interest Revenue 450

(c) Salaries and Wages Expense 3,500
Salaries and Wages Payable 3,500

In an effort to minimize errors in recording transactions, Inigo Company utilizes reversing entries. Prepare reversing entries on January 1, 2016.

EXERCISES
Ex. 188
The worksheet for Montoya Company has been completed through the adjusted trial balance. You are ready to extend each amount to the appropriate financial statement column. Indicate for each account, the financial statement column to which the account should be extended by placing a check mark () in the appropriate column.
———————————————————————————————————————————
Income Statement Balance Sheet
Account Title Dr. Cr. Dr. Cr.
———————————————————————————————————————————
(1) Cash
———————————————————————————————————————————
(2) Retained Earnings
———————————————————————————————————————————
(3) Mortgage Payable
———————————————————————————————————————————
(4) Interest Receivable
———————————————————————————————————————————
(5) Supplies
———————————————————————————————————————————
(6) Accounts Payable
———————————————————————————————————————————
(7) Short-term Investments
———————————————————————————————————————————
(8) Maintenance and Repairs Expense
———————————————————————————————————————————
(9) Unearned Service Revenue
———————————————————————————————————————————
(10) Equipment
———————————————————————————————————————————
(11) Depreciation Expense
———————————————————————————————————————————
(12) Interest Revenue
———————————————————————————————————————————
(13) Salaries and Wages Expense
———————————————————————————————————————————
(14) Dividends
———————————————————————————————————————————
(15) Accum. Deprec.—Equipment
———————————————————————————————————————————
(16) Utilities Expense
———————————————————————————————————————————
(17) Salaries and Wages Payable
———————————————————————————————————————————
(18) Accounts Receivable
———————————————————————————————————————————
(19) Notes Payable
———————————————————————————————————————————
(20) Service Revenue
———————————————————————————————————————————

Ex. 189
Indicate the worksheet column (income statement Dr., balance sheet Cr., etc.) to which each of the following accounts would be extended. Account Worksheet Column
a. Accounts Receivable ________________ b. Accumulated Depreciation—Equip. ________________ c. Service Revenue ________________ d. Interest Expense ________________ e. Dividends ________________ f. Unearned Service Revenue ________________
Ex. 190
The worksheet for Gibler Rental Company appears below. Using the adjustment data below, complete the worksheet. Add any accounts that are necessary.

Adjustment data:
(a) Prepaid rent expired during August, $3.
(b) Depreciation expense on equipment for the month of August, $8.
(c) Supplies on hand on August 31 amounted to $6.
(d) Salaries and wages expense incurred at August 31 but not yet paid amounted to $10.

Ex. 190 (Cont.)
GIBLER RENTAL COMPANY
Worksheet
For the Month Ended August 31, 2015

Trial Balance
Adjustments Adjusted
Trial Balance Income Statement
Balance Sheet
Account Titles Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash 20
Accounts Receivable 12
Prepaid Rent 8
Supplies 10
Equipment 50
Accum. Depreciation— Equipment
10
Accounts Payable 20
Common Stock 15
Retained Earnings 14
Dividends 2
Rent Revenue 73
Depreciation Expense 6
Rent Expense 4
Salaries and Wages Expense
20

Totals 132 132
Supplies Expense
Salaries Payable
Totals
Net Income
Totals

Ex. 191
The account balances appearing on the trial balance (below) were taken from the general ledger of Irick’s Copy Shop at September 30.

Additional information for the month of September which has not yet been recorded in the accounts is as follows:
(a) A physical count of supplies indicates $300 on hand at September 30.
(b) The amount of insurance that expired in the month of September was $200.
(c) Depreciation on equipment for September was $400.
(d) Rent owed on the copy shop for the month of September was $600 but will not be paid until October.

Instructions
Using the above information, complete the worksheet on the following page for Irick’s Copy Shop for the month of September.

IRICK’S COPY SHOP
Worksheet
For the Month Ended September 30, 2015

Trial Balance
Adjustments Adjusted
Trial Balance Income Statement
Balance Sheet
Account Titles Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash 3,000
Supplies 1,100
Prepaid Insurance 2,200
Equipment 24,000
Accum. Depreciation— Equipment
4,500
Accounts Payable 2,400
Notes Payable 4,000
Common Stock 10,000
Retained Earnings 5,300
Dividends 2,400
Service Revenue 6,900
Utilities Expense 400
Totals 33,100 33,100
Supplies Expense
Insurance Expense
Depreciation Expense
Rent Expense
Rent Payable
Totals
Net Income
Totals

Ex. 192
The adjustments columns of the worksheet for Mandy Company are shown below.

Adjustments
Account Titles Debit Credit
Accounts Receivable 800
Prepaid Insurance 650
Accumulated Depreciation 770 Salaries and Wages Payable 1,200 Service Revenue 800 Salaries and Wages Expense 1,200 Insurance Expense 650 Depreciation Expense 770
3,420 3,420

Ex. 192 (Cont.)

Instructions
(a) Prepare the adjusting entries.
(b) Assuming the adjusted trial balance amount for each account is normal, indicate the financial statement column to which each balance should be extended.

Ex. 193
Selected worksheet data for Patinkin Company are presented below.

Adjusted
Account Titles Trial Balance Trial Balance
Dr. Cr. Dr. Cr.
Accounts Receivable ? 31,000
Prepaid Insurance 24,000 18,000
Supplies 7,000 ?
Accumulated Depreciation 12,000 ?
Salaries and Wages Payable ? 7,600
Service Revenue 85,000 100,000
Insurance Expense ?
Depreciation Expense 9,000
Supplies Expense 5,200
Salaries and Wages Expense ? 49,000

Ex. 193 (Cont.)

Instructions
(a) Fill in the missing amounts.
(b) Prepare the adjusting entries that were made.

Ex. 194
These financial statement items are for Rugen Company at year-end, July 31, 2015.

Salaries and wages payable $ 2,980 Notes payable (long-term) $ 3,000
Salaries and wages expense 45,700 Cash 5,200
Utilities expense 21,100 Accounts receivable 9,780
Equipment 38,000 Accumulated depreciation 6,000
Accounts payable 4,100 Dividends 4,000
Service revenue 57,200 Depreciation expense 4,000
Rent revenue 6,500 Retained earnings 28,000
Common stock 20,000 (Aug. 1, 2014)

Instructions
(a) Prepare an income statement and a retained earnings statement for the year. Stockholders not make any new investments during the year.
(b) Prepare a classified balance sheet at July 31.

Ex. 195
Prepare the necessary closing entries based on the following selected accounts.
Accumulated Depreciation $10,000 Depreciation Expense 4,000 Retained Earnings 20,000 Dividends 12,000 Salaries and Wages Expense 18,000 Service Revenue 31,000

Ex. 196
All revenue and expense accounts have been closed at the end of the calendar year for Patton Company. The Income Summary account has total debits of $530,000 and total credits of $600,000. As of the same date, Retained Earnings has a balance of $115,000, and the Dividends account has a balance of $48,000.

Instructions
(a) Journalize the entries required to complete the closing of the accounts.
(b) Prepare a retained earnings statement for the year ended December 31, 2015.

Ex. 197
At March 31, account balances after adjustments for Vizzini Cinema are as follows:
Account Balances
Accounts (After Adjustment)
Cash $ 11,000
Supplies 4,000
Equipment 50,000
Accumulated Depreciation—Equipment 12,000
Accounts Payable 5,000
Common Stock 6,000
Retained Earnings 14,000
Dividends 12,000
Ticket Revenue 65,000
Service Revenue 53,000
Advertising Expense 18,000
Supplies Expense 19,000
Depreciation Expense 4,000
Rent Expense 28,000
Salaries and Wages Expense 24,000
Utilities Expense 5,000

Instructions
Prepare the closing journal entries for Vizzini Cinema.

Ex. 198
Presented below is an adjusted trial balance for Shawn Company, at December 31, 2015.

Cash $ 7,700 Accounts payable $10,000
Accounts receivable 20,000 Notes payable 9,000
Prepaid insurance 15,000 Accumulated depreciation—
Equipment 35,000 Equipment 14,000
Depreciation expense 7,000 Service revenue 29,000
Dividends 1,500 Common stock 10,000
Advertising expense 1,400 Retained earnings 14,000
Rent expense 800 Unearned service revenue 16,000
Salaries and wages expense 12,000
Insurance expense 1,600
$102,000 $102,000

Instructions
(a) Prepare closing entries for December 31, 2015.
(b) Determine the balance in the Retained Earnings account after the entries have been posted.

Ex. 199
The adjusted account balances of the Fitness Center at July 31 are as follows:

Accounts Account Balances Accounts Account Balances
Cash $ 16,000 Service Revenue $105,000
Accounts Receivable 15,000 Interest Revenue 8,000
Supplies 4,000 Depreciation Expense 27,000
Prepaid Insurance 8,000 Insurance Expense 6,000
Buildings 300,000 Salaries and Wages Expense 35,000
Accumulated Depreciation— Supplies Expense 9,000
Buildings 120,000 Utilities Expense 12,000
Accounts Payable 19,000
Common Stock 90,000
Retained Earnings 105,000
Dividends 15,000

Instructions
Prepare the end of the period closing entries for the Fitness Center.

Ex. 200
The income statement of Fezzik’s Shoe Repair is as follows:

FEZZIK’S SHOE REPAIR
Income Statement
For the Month Ended April 30, 2015

Revenue
Service Revenue $9,500
Expenses
Salaries and Wages Expense $4,200
Depreciation Expense 350
Utilities Expense 400
Rent Expense 600
Supplies Expense 1,050
Total Expenses 6,600
Net Income $2,900

On April 1, the Retained Earnings account had a balance of $12,900. During April, the company paid $3,000 in dividends.

Instructions
(a) Prepare closing entries at April 30.
(b) Prepare a retained earnings statement for the month of April.

Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Ex. 201
Identify which of the following accounts would appear in a post-closing trial balance.
Accumulated Depreciation—Equipment Dividends
Depreciation Expense Service Revenue
Interest Payable Equipment

Ex. 202
The trial balances of Orton Company follow with the accounts arranged in alphabetic order. Analyze the data and prepare (a) the adjusting entries and (b) the closing entries made by Orton Company.
Trial Balances
Unadjusted Adjusted Post-Closing
Accounts Payable $10,000 $10,000 $10,000
Accounts Receivable 2,200 3,200 3,200
Accumulated Depreciation—Equipment 13,000 17,000 17,000
Advertising Expense 0 16,300 0
Cash 60,000 60,000 60,000
Common Stock 30,000 30,000 30,000
Depreciation Expense 0 4,000 0
Dividends 11,000 11,000 0
Equipment 75,000 75,000 75,000
Prepaid Advertising 17,800 1,500 1,500
Prepaid Rent 15,000 11,000 11,000
Rent Expense 0 4,000 0
Retained Earnings 52,200 52,200 72,400
Service Revenue 96,000 105,000 0
Supplies 3,200 700 700
Supplies Expense 2,000 4,500 0
Unearned Service Revenue 23,000 15,000 15,000
Salaries and Wages Expense 38,000 45,000 0
Salaries and Wages Payable 0 7,000 7,000

Ex. 203
Indicate the proper sequence of the steps in the accounting cycle by placing numbers 1-8 in the blank spaces. ____ a. Analyze business transactions. ____ b. Journalize and post adjusting entries. ____ c. Journalize and post closing entries. ____ d. Journalize the transactions. ____ e. Prepare a post-closing trial balance. ____ f. Prepare a trial balance. ____ g. Prepare financial statements. ____ h. Post to ledger accounts.
Ex. 204
Prepare the necessary correcting entry for each of the following.
a. A collection on account of $350 from a customer was credited to Accounts Receivable $530 and debited to Cash $530.
b. The purchase of supplies on account for $310 was recorded as a debit to Equipment $310 and a credit to Accounts Payable $310.

Ex. 205
An examination of the accounts of Savage Company for the month of June revealed the following errors after the transactions were journalized and posted.
1. A check for $800 from R. Wright, a customer on account, was debited to Cash $800 and credited to Service Revenue, $800.
2. A payment for Advertising Expense costing $630 was debited to Utilities Expense, $360 and credited to Cash $360.
3. A bill for $850 for Supplies purchased on account was debited to Equipment, $580 and credited to Accounts Payable $580.

Instructions
Prepare correcting entries for each of the above assuming the erroneous entries are not reversed. Explain how the transaction as originally recorded affected net income for the month of June.

Ex. 206
As Mel Smith was doing his year-end accounting, he noticed that the bookkeeper had made errors in recording several transactions. The erroneous transactions are as follows:
(a) A check for $700 was issued for goods previously purchased on account. The bookkeeper debited Accounts Receivable and credited Cash for $700.
(b) A check for $180 was received as payment on account. The bookkeeper debited Accounts Payable for $810 and credited Accounts Receivable for $810.
(c) When making the entry to record the year’s depreciation expense, the bookkeeper debited Accumulated Depreciation—Equipment for $1,000 and credited Cash for $1,000.
(d) When accruing interest on a note payable, the bookkeeper debited Interest Receivable for $200 and credited Interest Payable for $200.

Instructions
Prepare the appropriate correcting entries. (Do not reverse the original entries.)

Ex. 207
Peter Cook, CPA, was asked by Carol Kane to review the accounting records and prepare the financial statements for her upholstering shop. Peter reviewed the records and found three errors.
1. Cash paid on accounts payable for $930 was recorded as a debit to Accounts Payable $390 and a credit to Cash $390.
2. The purchase of supplies on account for $600 was debited to Equipment $600 and credited to Accounts Payable $600.
3. The company paid dividends of $1,300 and the bookkeeper debited Accounts Receivable for $130 and credited Cash $130.

Ex. 207 (Cont.)
Instructions
Prepare an analysis of each error showing the
(a) incorrect entry.
(b) correct entry.
(c) correcting entry.

Ex. 208
Wakefield Company discovered the following errors made in January 2015.
1. A payment of salaries expense of $900 was debited to Equipment and credited to Cash, both for $900.
2. A collection of $2,000 from a client on account was debited to Cash $200 and credited to Service Revenue $200.
3. The purchase of equipment on account for $680 was debited to Equipment $860 and credited to Accounts Payable $860.
Instructions
Correct the errors by reversing the incorrect entry and preparing the correct entry.

Ex. 209
The following items were taken from the financial statements of Buttercup Company. (All dollars are in thousands.)

Mortgage payable $ 2,443 Accumulated depreciation 3,655
Prepaid insurance 880 Accounts payable 1,444
Property, plant, and equipment 11,500 Notes payable after 2016 1,200
Long-term investments 1,100 Common stock 5,000
Short-term investments 3,690 Retained earnings 8,480
Notes payable in 2016 1,000 Accounts receivable 1,696
Cash 2,600 Inventories 1,756

Ex. 209 (Cont.)
Instructions
Prepare a classified balance sheet in good form as of December 31, 2015.

Ex. 210
Compute the dollar amount of current assets based on the following account balances.

Accounts Receivable $22,000 Accumulated Depreciation—Equipment 27,000 Cash 8,400 Equipment 93,000 Prepaid Rent 7,000 Short-term Investments 15,000

Ex. 211
The financial statement columns of the worksheet for Miracle Max at December 31, 2015, are as follows:
MIRACLE MAX
Worksheet
For the Year Ended December 31, 2015
Income Statement Balance Sheet
Accounts Debit Credit Debit Credit
Cash 13,000
Accounts Receivable 7,000
Supplies 4,000
Prepaid Insurance 6,000
Equipment 207,000
Accumulated Depreciation—Equipment 29,000
Accounts Payable 19,000
Notes Payable 70,000
Salaries and Wages Payable 3,000
Common Stock 50,000
Retained Earnings 62,000
Dividends 18,000
Service Revenue 123,000
Advertising Expense 21,000
Depreciation Expense 12,000
Insurance Expense 3,000
Rent Expense 17,000
Salaries and Wages Expense 42,000
Supplies Expense 6,000
Totals 101,000 123,000 255,000 233,000
Net Income 22,000 22,000
123,000 123,000 255,000 255,000

Instructions
(a) Calculate the retained earnings balance that would appear on a balance sheet at December 31, 2015.
(b) Prepare a classified balance sheet for Miracle Max at December 31, 2015 assuming the note payable is a long-term liability.

Ex. 212
The financial statement columns of the worksheet for Booer Company as of December 31, 2015 are as follows:
BOOER COMPANY
Worksheet
For the Year Ended December 31, 2015

Income Statement Balance Sheet
Accounts Debit Credit Debit Credit
Cash 8,000
Accounts Receivable 26,000
Supplies 4,500
Prepaid Insurance 7,000
Equipment 41,000
Accumulated Depreciation—Equipment 4,800
Patents 7,500
Accounts Payable 22,200
Notes Payable (due 2018) 20,000
Common Stock 30,000
Retained Earnings 13,300
Dividends 4,200
Service Revenue 26,400
Salaries and Wages Expense 5,200
Depreciation Expense 4,800
Insurance Expense 5,000
Interest Expense 3,500
Totals 18,500 26,400 98,200 90,300
Net Income 7,900 7,900
26,400 26,400 98,200 98,200

Instructions
Prepare a classified balance sheet for Booer Company.

aEx. 213
Reisner Company prepared the following adjusting entries at year end on December 31, 2015:
(a) Interest Expense 150
Interest Payable 150

(b) Unearned Revenue 1,500
Service Revenue 1,500

(c) Insurance Expense 1,200
Prepaid Insurance 1,200

(d) Interest Receivable 100
Interest Revenue 100

(e) Supplies Expense 250
Supplies 250

(f) Salaries and Wages Expense 3,000
Salaries and Wages Payable 3,000

Ex. 213 (Cont.)
In an effort to minimize errors in recording transactions, Reisner Company utilizes reversing entries.

Instructions
Prepare reversing entries on January 1, 2016, for the adjusting entries given where appropriate.

aEx. 214
On December 31, 2015 the adjusted trial balance of the Yellin Personnel Agency shows the following selected data:
Accounts Receivable, $8,000
Service Revenue, $60,000
Interest Expense, $10,500
Interest Payable, $3,500
Utilities Expense, $4,800
Accounts Payable, $2,700

Analysis indicates that adjusting entries were made for (a) $8,000 of employment commission revenue earned but not billed, (b) $3,500 of accrued but unpaid interest, and (c) $2,700 of utilities expense accrued but not paid.

Instructions
(a) Prepare the closing entries at December 31, 2015.
(b) Prepare the reversing entries on January 1, 2016.
(c) Enter the adjusted trial balance data in T-accounts. Post the entries in (a) and (b) and rule and balance the accounts.
(d) Prepare the entries to record (1) the collection of the accrued commission on January 8, (2) payment of the utility bill on January 10, and (3) payment of all the interest due ($4,000) on January 15.
(e) Post the entries in (d) to the temporary accounts.
(f) What is the interest expense for the month of January 2016?

aEx. 215
Transaction and adjustment data for Doty Company for the calendar year end is as follows:
1. December 24 (initial salary entry): $12,000 of salaries earned between December 1 and December 24 are paid.

2. December 31 (adjusting entry): Salaries earned between December 25 and December 31 are $3,000. These will be paid in the January 8 payroll.

3. January 8 (subsequent salary entry): Total salary payroll amounting to $8,000 was paid.

Instructions
Prepare two sets of journal entries as specified below. The first set of journal entries should assume that the company does not use reversing entries, and the second set should assume that reversing entries are utilized by the company.

Assume no reversing entries Assume reversing entries

(a) Initial Salary Entry

Dec. 24

(b) Adjusting Entry

Dec. 31

(c) Closing Entry

Dec. 31

(d) Reversing Entry

Jan. 1

(e) Subsequent Salary Entry

Jan. 8

COMPLETION STATEMENTS
216. The first step in preparing a worksheet is to prepare a ______________ from the general ledger accounts.

217. The account balances appearing in the adjusted trial balance columns are extended to the ______________ columns and the ______________ columns.

218. The process of transferring net income (or loss) for the period to Retained Earnings is accomplished by making ______________ entries.

219. At the end of an accounting period, all revenue and expense accounts are closed to a temporary account called ______________.

220. The Dividends account is closed to the ______________ account at the end of the accounting period.

221. After all closing entries have been journalized and posted, the final step in the accounting cycle is to prepare a ______________ trial balance.

222. The preparation of a ______________ and ______________ entries are two optional steps in the accounting cycle.

223. Two permanent accounts that are part of the stockholders’ equity in a corporation are ______________ and ______________.

224. The four major classifications of assets in a classified balance sheet are: ________________, ________________, ________________ and ________________.

225. The ______________ of a company is the average time that it takes to purchase inventory, sell it on account, and then collect cash from customers.

226. Assets that do not have a physical substance yet often are very valuable are called ______________ assets.

227. Liabilities are generally classified as either ______________ or ______________ on a classified balance sheet.

MATCHING
228. Match the items below by entering the appropriate code letter in the space provided.

A. Worksheet F. Common Stock
B. Permanent accounts G. Current assets
C. Closing entries H. Operating cycle
D. Income Summary I. Long-term liabilities
E. Reversing entry J. Correcting entries

1. Obligations that a company expects to pay after one year.

2. A part of owners’ equity in a corporation.

3. An optional tool which facilitates the preparation of financial statements.

4. A temporary account used in the closing process.

5. Balance sheet accounts whose balances are carried forward to the next period.

6. The average time that it takes to go from cash to cash in producing revenues.

7. Entries to correct errors made in recording transactions.

8. The exact opposite of an adjusting entry made in a previous period.

9. Entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders’ equity account.

10. Assets that a company expects to pay or convert to cash or use up within one year.

SHORT-ANSWER ESSAY QUESTIONS
S-A E 229
A worksheet is an optional working tool used by accountants to facilitate the preparation of financial statements. Consider the steps followed in preparing a worksheet. How does the use of a worksheet assist the accountant. Could financial statements be prepared without a worksheet? Evaluate how the process would differ. Consider factors such as timeliness, accuracy, and efficiency in your evaluation.

S-A E 230
Journalizing and posting closing entries is a required step in the accounting cycle. Discuss why it is necessary to close the books at the end of an accounting period. If closing entries were not made, how would the preparation of financial statements be affected?

S-A E 231
Give the definition of current assets and current liabilities and provide two examples of each.

S-A E 232
(a) What is the term used to describe the owner’s equity section of a corporation? (b) Identify the two owners’ equity accounts in a corporation and indicate the purpose of each.

S-A E 233
Distinguish between a reversing entry and an adjusting entry. Are reversing entries required?

S-A E 234 (Ethics)
Under Protection provides underground storage facilities for companies desiring off-site storage of sensitive documents, computer records, and other items. They have developed a sophisticated surveillance and security system which they initially used in their own facilities, and have recently started to market elsewhere as well.

The underground storage facilities are made from natural caves in some instances (reinforced and modified as appropriate) and from excavations of natural rock formations in others. The land was purchased over ten years ago for a total of $2.5 million. The modifications have cost approximately $15 million more. The company has never depreciated its storage facilities because the market value of the property has continued to rise. Presently, the market price is between $30 and $40 million.

Betsy Brantley, a new accounting manager, questioned this depreciation policy. Will Gray, the controller, has told her that she needn’t worry about it. For one thing, he says, this is really a special form of Land account, which should not be depreciated at all. For another, this is a privately held company, and so they don’t need to worry about misleading investors. All the owners know about and approve the depreciation policy.

Required:
What are the ethical issues in this situation?

S-A E 235 (Communication)
You have recently started to work for Storry Malcom, manufacturers of cemetery markers and monuments. During your first month at work, you inadvertently recorded as revenue, about $4,000 of prepayments from Budger Company. The financial statements had been released within the company when you discovered your error. The month-end closing had not been completed, however, and you were able to correct the accounts without incident.

Required:
Prepare a short note to accompany the re-released financial statements explaining the mistake.

CHALLENGE EXERCISES
CE 1
The adjusted trial balance for Molina Company is presented below.

MOLINA COMPANY
Adjusted Trial Balance
July 31, 2015
No. Account Titles Debits Credits
101 Cash $18,000
112 Accounts Receivable 9,000
157 Equipment 26,000
167 Accumulated Depreciatio–Equip. $ 8,000
201 Accounts Payable 5,500
208 Unearned Rent Revenue 2,000
311 Common Stock 22,000
320 Retained Earnings 27,500
332 Dividends 17,000
400 Service Revenue 69,000
429 Rent Revenue 11,000
711 Depreciation Expense 5,000
726 Salaries and Wages Expense 60,000
732 Utilities Expense 10,000
$145,000 $145,000

Molina made an error during year when they debited Utilities Expense for $2,000 instead of Equipment for a cash purchase of equipment. In addition, Molina failed to accrue $4,000 of Service Revenue.

Instructions
(a) Prepare an income statement and a retained earnings statement for the year.
(b) Prepare a classified balance sheet at July 31.

CE 2
Remington Company discovered the following errors made in January 2015

1. A payment of salaries and wages of $1,000 was debited to Equipment and credited to Cash, both for $1,000. Remington recorded $200 of depreciation on this “equipment”.
2. A collection of $3,000 from a client on account was debited to Cash $300 and credited to Service Revenue $300.
3. The purchase of supplies on account for $840 was debited to Supplies $480 and credited to Accounts Payable $480.
4. The purchase of short-term investments for $1,500 cash was debited to Prepaid Rent and credited to Cash. At year end, $500 of the “prepaid rent” was recorded as rent expense.

Instructions
(a) Correct the errors by reversing the incorrect entry and preparing the correct entry.
(b) Correct the errors without reversing the incorrect entry.

CE 3
The following items were taken from the financial statements Wyatt Company. (All dollars are in thousands.)

Long-term debt $ 1,950 Accumulated depreciation $ 5,600
Prepaid insurance 900 Accounts payable 2,444
Equipment 14,300 Notes payable after 2016 1,024
Long-term investments 464 Common stock 10,000
Short-term investments 3,490 Retained earnings 5,800
Notes payable in 2016 474 Accounts receivable 1,734
Cash 4,648 Inventory 1,456
Patents 600

2015 net income was 1,000 and dividends paid were $700.
Instructions
Prepare a classified balance sheet in good form as of December 31, 2015.

CHAPTER 5

ACCOUNTING FOR MERCHANDISING OPERATIONS

CHAPTER LEARNING OBJECTIVES
1. Identify the differences between service and merchandising companies.
2. Explain the recording of purchases under a perpetual inventory system.
3. Explain the recording of sales revenues under a perpetual inventory system.
4. Explain the steps in the accounting cycle for a merchandising company.
5. Distinguish between a multiple-step and a single-step income statement.
a6. Prepare a worksheet for a merchandising company.
a7. Explain the recording of purchases and sales of inventory under a periodic inventory system.

TRUE-FALSE STATEMENTS
1. Retailers and wholesalers are both considered merchandisers.

2. The steps in the accounting cycle are different for a merchandising company than for a service company.

3. Sales minus operating expenses equals gross profit.

4. Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.

5. A periodic inventory system requires a detailed inventory record of inventory items.

6. Freight terms of FOB Destination means that the seller pays the freight costs.

7. Freight costs incurred by the seller on outgoing merchandise are an operating expense to the seller.

8. Sales revenues are recognized during the period cash is collected from the buyer.

9. The Sales Returns and Allowances account and the Sales Discount account are both classified as expense accounts.

10. Merchandisers apply the revenue recognition principle by recognizing sales revenues when the performance obligation is satisfied.

11. Sales Returns and Allowances and Sales Discounts are both designed to encourage customers to pay their accounts promptly.

12. To grant a customer a sales return, the seller credits Sales Returns and Allowances.

13. A company’s unadjusted balance in Inventory will usually not agree with the actual amount of inventory on hand at year-end.

14. For a merchandising company, all accounts that affect the determination of income are closed to the Income Summary account.

15. A merchandising company has different types of adjusting entries than a service company.

16. Nonoperating activities exclude revenues and expenses that result from secondary or auxiliary operations.

17. Operating expenses are different for merchandising and service enterprises.

18. Net sales appears on both the multiple-step and single-step forms of an income statement.

19. A multiple-step income statement provides users with more information about a company’s income performance.

20. The multiple-step form of income statement is easier to read than the single-step form.

21. Inventory is classified as a current asset in a classified balance sheet.

22. Gain on sale of equipment and interest expense are reported under other revenues and gains in a multiple-step income statement.

23. The gross profit section for a merchandising company appears on both the multiple-step and single-step forms of an income statement.

24. In a multiple-step income statement, income from operations excludes other revenues and gains and other expenses and losses.

25. A single-step income statement reports all revenues, both operating and other revenues and gains, at the top of the statement.

26. If net sales are $800,000 and cost of goods sold is $600,000, the gross profit rate is 25%.

27. Gross profit represents the merchandising profit of a company.

28. Gross profit is a measure of the overall profitability of a company.

29. Gross profit rate is computed by dividing cost of goods sold by net sales.

a30. In a worksheet, cost of goods sold will be shown in the trial balance (Dr.), adjusted trial balance (Dr.) and income statement (Dr.) columns.

a31. Freight-in is an account that is subtracted from the Purchases account to arrive at cost of goods purchased.

a32. Under a periodic inventory system, the acquisition of inventory is charged to the Purchases account.

a33. Under a periodic inventory system, freight-in on merchandise purchases should be charged to the Inventory account.

a34. Purchase Returns and Allowances and Purchase Discounts are subtracted from Purchases to produce net purchases.

35. Inventory is reported as a long-term asset on the balance sheet.

36. Under a perpetual inventory system, inventory shrinkage and lost or stolen goods are more readily determined.

37. The terms 2/10, n/30 state that a 2% discount is available if the invoice is paid within the first 10 days of the next month.

38. Sales revenue should be recorded in accordance with the matching principle.

39. Sales returns and allowances and sales discounts are subtracted from sales in reporting net sales in the income statement.

40. A merchandising company using a perpetual inventory system will usually need to make an adjusting entry to ensure that the recorded inventory agrees with physical inventory count.

41. If a merchandising company sells land at more than its cost, the gain should be reported in the sales revenue section of the income statement.

42. The major difference between the balance sheets of a service company and a merchandising company is inventory.

MULTIPLE CHOICE QUESTIONS
43. Net income is gross profit less
a. financing expenses.
b. operating expenses.
c. other expenses and losses.
d. other expenses.

44. An enterprise which sells goods to customers is known as a
a. proprietorship.
b. corporation.
c. retailer.
d. service firm.

45. Which of the following would not be considered a merchandising company?
a. Retailer
b. Wholesaler
c. Service firm
d. All of these are considered a merchandising company.

46. A merchandising company that sells directly to consumers is a
a. retailer.
b. wholesaler.
c. broker.
d. service company.

47. Two categories of expenses for merchandising companies are
a. cost of goods sold and financing expenses.
b. operating expenses and financing expenses.
c. cost of goods sold and operating expenses.
d. sales and cost of goods sold.

48. The primary source of revenue for a wholesaler is
a. investment income.
b. service fees.
c. the sale of merchandise.
d. the sale of fixed assets the company owns.

49. Sales revenue less cost of goods sold is called
a. gross profit.
b. net profit.
c. net income.
d. marginal income.

50. After gross profit is calculated, operating expenses are deducted to determine
a. gross margin.
b. net income.
c. gross profit on sales.
d. net margin.

51. Cost of goods sold is determined only at the end of the accounting period in
a. a perpetual inventory system.
b. a periodic inventory system.
c. both a perpetual and a periodic inventory system.
d. neither a perpetual nor a periodic inventory system.

52. Which of the following expressions is incorrect?
a. Gross profit – operating expenses = net income
b. Sales revenue – cost of goods sold – operating expenses = net income
c. Net income + operating expenses = gross profit
d. Operating expenses – cost of goods sold = gross profit

53. Detailed records of goods held for resale are not maintained under a
a. perpetual inventory system.
b. periodic inventory system.
c. double entry accounting system.
d. single entry accounting system.

54. A perpetual inventory system would likely be used by a(n)
a. automobile dealership.
b. hardware store.
c. drugstore.
d. convenience store.

55. Which of the following is a true statement about inventory systems?
a. Periodic inventory systems require more detailed inventory records.
b. Perpetual inventory systems require more detailed inventory records.
c. A periodic system requires cost of goods sold be determined after each sale.
d. A perpetual system determines cost of goods sold only at the end of the accounting period.

56. In a perpetual inventory system, cost of goods sold is recorded
a. on a daily basis.
b. on a monthly basis.
c. on an annual basis.
d. with each sale.

57. If a company determines cost of goods sold each time a sale occurs, it
a. must have a computer accounting system.
b. uses a combination of the perpetual and periodic inventory systems.
c. uses a periodic inventory system.
d. uses a perpetual inventory system.

58. Under a perpetual inventory system, acquisition of merchandise for resale is debited to the
a. Inventory account.
b. Purchases account.
c. Supplies account.
d. Cost of Goods Sold account.

59. The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit
a. Accounts Payable.
b. Purchase Returns and Allowances.
c. Sales Revenue.
d. Inventory.

60. The Inventory account is used in each of the following except the entry to record
a. goods purchased on account.
b. the return of goods purchased.
c. payment of freight on goods sold.
d. payment within the discount period.

61. A buyer would record a payment within the discount period under a perpetual inventory system by crediting
a. Accounts Payable.
b. Inventory.
c. Purchase Discounts.
d. Sales Discounts.

62. If a purchaser using a perpetual system agrees to freight terms of FOB shipping point, then the
a. Inventory account will be increased.
b. Inventory account will not be affected.
c. seller will bear the freight cost.
d. carrier will bear the freight cost.

63. Freight costs paid by a seller on merchandise sold to customers will cause an increase
a. in the selling expense of the buyer.
b. in operating expenses for the seller.
c. to the cost of goods sold of the seller.
d. to a contra-revenue account of the seller.

64. Paden Company purchased merchandise from Emmett Company with freight terms of FOB shipping point. The freight costs will be paid by the
a. seller.
b. buyer.
c. transportation company.
d. buyer and the seller.

65. Glenn Company purchased merchandise inventory with an invoice price of $9,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Glenn Company pays within the discount period?
a. $8,100
b. $8,280
c. $8,820
d. $9,000

66. Scott Company purchased merchandise with an invoice price of $3,000 and credit terms of 1/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?
a. 20%
b. 24%
c. 18%
d. 36%

67. If a company is given credit terms of 2/10, n/30, it should
a. hold off paying the bill until the end of the credit period, while investing the money at 10% annual interest during this time.
b. pay within the discount period and recognize a savings.
c. pay within the credit period but don’t take the trouble to invest the cash while waiting to pay the bill.
d. recognize that the supplier is desperate for cash and withhold payment until the end of the credit period while negotiating a lower sales price.

68. In a perpetual inventory system, the amount of the discount allowed for paying for merchandise purchased within the discount period is credited to
a. Inventory.
b. Purchase Discounts.
c. Purchase Allowance.
d. Sales Discounts.

69. Jake’s Market recorded the following events involving a recent purchase of merchandise:
Received goods for $60,000, terms 2/10, n/30.
Returned $1,200 of the shipment for credit.
Paid $300 freight on the shipment.
Paid the invoice within the discount period.
As a result of these events, the company’s inventory increased by
a. $57,624.
b. $57,918.
c. $57,924.
d. $59,100.

70. Costner’s Market recorded the following events involving a recent purchase of merchandise:
Received goods for $40,000, terms 2/10, n/30.
Returned $800 of the shipment for credit.
Paid $200 freight on the shipment.
Paid the invoice within the discount period.
As a result of these events, the company’s inventory
a. increased by $38,416.
b. increased by $38,612.
c. increased by $38,616.
d. increased by $39,400.

71. Under the perpetual system, freight costs incurred by the buyer for the transporting of goods is recorded in
a. Freight Expense.
b. Freight – In.
c. Inventory.
d Freight – Out.

72. Glover Co. returned defective goods costing $5,000 to Mal Company on April 19, for credit. The goods were purchased April 10, on credit, terms 3/10, n/30. The entry by Glover Co. on April 19, in receiving full credit is:
a. Accounts Payable 5,000
Inventory 5,000
b. Accounts Payable 5,000
Inventory 150
Cash 5,150
c. Accounts Payable 5,000
Purchase Discounts 120
Inventory 4,850
d. Accounts Payable 5,000
Inventory 120
Cash 4,850

73. McIntyre Company made a purchase of merchandise on credit from Marvin Company on August 8, for $9,000, terms 3/10, n/30. On August 17, McIntyre makes the appropriate payment to Marvin. The entry on August 17 for McIntyre Company is:
a. Accounts Payable 9,000
Cash 9,000
b. Accounts Payable 8,730
Cash 8,730
c. Accounts Payable 9,000
Purchase Returns and Allowances 270
MC. 73 (Cont.)
Cash 8,730
d. Accounts Payable 9,000
Inventory 270
Cash 8,730

74. On July 9, Sheb Company sells goods on credit to Wooley Company for $5,000, terms 1/10, n/60. Sheb receives payment on July 18. The entry by Sheb on July 18 is:
a. Cash 5,000
Accounts Receivable 5,000
b. Cash 5,000
Sales Discounts 50
Accounts Receivable 4,950
c. Cash 4,950
Sales Discounts 50
Accounts Receivable 5,000
d. Cash 5,050
Sales Discounts 50
Accounts Receivable 5,000

75. On November 2, 2014, Kasdan Company has cash sales of $6,000 from merchandise having a cost of $3,600. The entries to record the day’s cash sales will include:
a. a $3,600 credit to Cost of Goods Sold.
b. a $6,000 credit to Cash.
c. a $3,600 credit to Inventory.
d a $6,000 debit to Accounts Receivable.

76. A credit sale of $4,000 is made on April 25, terms 2/10, n/30, on which a return of $250 is granted on April 28. What amount is received as payment in full on May 4?
a. $3,675
b. $3,750
c. $3,920
d $4,000

77. The entry to record the receipt of payment within the discount period on a sale of $2,000 with terms of 2/10, n/30 will include a credit to
a. Sales Discounts for $40.
b. Cash for $1,960.
c. Accounts Receivable for $2,000.
d. Sales Revenue for $2,000.

78. The collection of a $6,000 account within the 2 percent discount period will result in a
a. debit to Sales Discounts for $120.
b. debit to Accounts Receivable for $5,880.
c. credit to Cash for $5,880.
d. credit to Accounts Receivable for $5,880.

79. Company X sells $900 of merchandise on account to Company Y with credit terms of 2/10, n/30. If Company Y remits a check taking advantage of the discount offered, what is the amount of Company Y’s check?
a. $630
b. $720
c. $810
d. $882

80. Cleese Company sells merchandise on account for $5,000 to Langston Company with credit terms of 2/10, n/30. Langston Company returns $1,000 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check?
a. $3,920
b. $4,000
c. $4,900
d. $4,920

81. The collection of a $1,500 account after the 2 percent discount period will result in a
a. debit to Cash for $1,470.
b. debit to Accounts Receivable for $1,500.
c. debit to Cash for $1,500.
d. debit to Sales Discounts for $30.

82. The collection of a $1,000 account after the 2 percent discount period will result in a
a. debit to Cash for $980.
b. credit to Accounts Receivable for $1,000.
c. credit to Cash for $1,000.
d. debit to Sales Discounts for $20.

83. In a perpetual inventory system, the Cost of Goods Sold account is used
a. only when a cash sale of merchandise occurs.
b. only when a credit sale of merchandise occurs.
c. only when a sale of merchandise occurs.
d. whenever there is a sale of merchandise or a return of merchandise sold.

84. Sales revenues are usually considered recognized when
a. cash is received from credit sales.
b. an order is received.
c. goods have been transferred from the seller to the buyer.
d. adjusting entries are made.

85. A sales invoice is a source document that
a. provides support for goods purchased for resale.
b. provides evidence of incurred operating expenses.
c. provides evidence of credit sales.
d. serves only as a customer receipt.

86. Sales revenue
a. may be recorded before cash is collected.
b. will always equal cash collections in a month.
c. only results from credit sales.
d. is only recorded after cash is collected.

87. The journal entry to record a credit sale of merchandise is
a. Cash
Sales Revenue
b. Cash
Service Revenue
c. Accounts Receivable
Service Revenue
d. Accounts Receivable
Sales Revenue

88. Sales Returns and Allowances is increased when
a. an employee does a good job.
b. goods are sold on credit.
c. goods that were sold on credit are returned.
d. customers refuse to pay their accounts.

89. The Sales Returns and Allowances account is classified as a(n)
a. asset account.
b. contra asset account.
c. expense account.
d. contra revenue account.

90. A credit granted to a customer for returned goods requires a debit to
a. Sales Revenue and a credit to Cash.
b. Sales Returns and Allowances and a credit to Accounts Receivable.
c. Accounts Receivable and a credit to a contra-revenue account.
d. Cash and a credit to Sales Returns and Allowances.

91. If a customer agrees to retain merchandise that is defective because the seller is willing to reduce the selling price, this transaction is known as a sales
a. discount.
b. return.
c. contra asset.
d. allowance.

92. A credit sale of $3,600 is made on July 15, terms 2/10, n/30, on which a return of $200 is granted on July 18. What amount is received as payment in full on July 24?
a. $3,332
b. $3,440
c. $3,528
d $3,600

93. When goods are returned that relate to a prior cash sale,
a. the Sales Returns and Allowances account should not be used.
b. the cash account will be credited.
c. Sales Returns and Allowances will be credited.
d. Accounts Receivable will be credited.

94. The Sales Returns and Allowances account does not provide information to management about
a. possible inferior merchandise.
b. the percentage of credit sales versus cash sales.
c. inefficiencies in filling orders.
d. errors in overbilling customers.

95. A Sales Returns and Allowances account is not debited if a customer
a. returns defective merchandise.
b. receives a credit for merchandise of inferior quality.
c. utilizes a prompt payment incentive.
d. returns goods that are not in accordance with specifications.

96. As an incentive for customers to pay their accounts promptly, a business may offer its customers
a. a sales discount.
b. free delivery.
c. a sales allowance.
d. a sales return.

97. The credit terms offered to a customer by a business firm are 2/10, n/30, which means that
a. the customer must pay the bill within 10 days.
b. the customer can deduct a 2% discount if the bill is paid between the 10th and 30th day from the invoice date.
c. the customer can deduct a 2% discount if the bill is paid within 10 days of the invoice date.
d. two sales returns can be made within 10 days of the invoice date and no returns thereafter.

98. A sales discount does not
a. provide the purchaser with a cash saving.
b. reduce the amount of cash received from a credit sale.
c. increase a contra-revenue account.
d. increase an operating expense account.

99. Company A sells $2,500 of merchandise on account to Company B with credit terms of 2/10, n/30. If Company B remits a check taking advantage of the discount offered, what is the amount of Company B’s check?
a. $1,750
b. $2,000
c. $2,250
d. $2,450

100. Kern Company sells merchandise on account for $8,000 to Block Company with credit terms of 2/10, n/30. Block Company returns $1,600 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check?
a. $6,272
b. $6,400
c. $7,840
d. $7,872

101. Carter Company sells merchandise on account for $4,000 to Hannah Company with credit terms of 2/10, n/30. Hannah Company returns $600 of merchandise that was damaged, along with a check to settle the account within the discount period. What entry does Carter Company make upon receipt of the check?
a. Cash 3,400
Accounts Receivable 3,400
b. Cash 3,332
Sales Returns and Allowances 668
Accounts Receivable 4,000
c. Cash 3,332
Sales Returns and Allowances 600
Sales Discounts 68
Accounts Receivable 4,000
d. Cash 3,920
Sales Discounts 80
Sales Returns and Allowances 600
Accounts Receivable 3,400

102. Which of the following would not be classified as a contra account?
a. Sales Revenue
b. Sales Returns and Allowances
c. Accumulated Depreciation
d. Sales Discounts

103. Which of the following accounts has a normal credit balance?
a. Sales Returns and Allowances
b. Sales Discounts
c. Sales Revenue
d. Selling Expense

104. With respect to the income statement,
a. contra-revenue accounts do not appear on the income statement.
b. sales discounts increase the amount of sales.
c. contra-revenue accounts increase the amount of operating expenses.
d. sales discounts are included in the calculation of gross profit.

105. When a seller grants credit for returned goods, the account that is credited is
a. Sales Revenue.
b. Sales Returns and Allowances.
c. Inventory.
d. Accounts Receivable.

106. The respective normal account balances of Sales Revenue, Sales Returns and Allowances, and Sales Discounts are
a. credit, credit, credit.
b. debit, credit, debit.
c. credit, debit, debit.
d. credit, debit, credit.

107. All of the following are contra revenue accounts except
a. sales revenue.
b. sales allowances.
c. sales discounts.
d. sales returns.

108. A merchandising company using a perpetual system will make
a. the same number of adjusting entries as a service company does.
b. one more adjusting entry than a service company does.
c. one less adjusting entry than a service company does.
d. different types of adjusting entries compared to a service company.

109. In preparing closing entries for a merchandising company, the Income Summary account will be credited for the balance of
a. sales revenue.
b. inventory.
c. sales discounts.
d. freight-out.

110. A merchandising company using a perpetual system may record an adjusting entry by
a. debiting Income Summary.
b. crediting Income Summary.
c. debiting Cost of Goods Sold.
d. debiting Sales Revenue.

111. The operating cycle of a merchandiser is
a. always one year in length.
b. generally longer than it is for a service company.
c. about the same as for a service company.
d. generally shorter than it is for a service company.

112. When the physical count of Rosanna Company inventory had a cost of $4,350 at year end and the unadjusted balance in Inventory was $4,500, Rosanna will have to make the following entry:
a. Cost of Goods Sold 150
Inventory 150
b. Inventory 150
Cost of Goods Sold 150
c. Income Summary 150
Inventory 150
d. Cost of Goods Sold 4,500
Inventory 4,500

Solution: $4,500 − $4,350 = $150

113. Arquette Company’s financial information is presented below.
Sales Revenue $ ???? Cost of Goods Sold 540,000
Sales Returns and Allowances 40,000 Gross Profit ????
Net Sales 900,000
The missing amounts above are:
Sales Revenue Gross Profit
a. $940,000 $360,000
b. $860,000 $360,000
c. $940,000 $420,000
d. $860,000 $420,000

114. The sales revenue section of an income statement for a retailer would not include
a. Sales discounts.
b. Sales revenue.
c. Net sales.
d. Cost of goods sold.

115. The operating expense section of an income statement for a wholesaler would not include
a. freight-out.
b. utilities expense.
c. cost of goods sold.
d. insurance expense.

116. Income from operations will always result if
a. the cost of goods sold exceeds operating expenses.
b. revenues exceed cost of goods sold.
c. revenues exceed operating expenses.
d. gross profit exceeds operating expenses.

117. Indicate which one of the following would appear on the income statement of both a merchandising company and a service company.
a. Gross profit
b. Operating expenses
c. Sales revenues
d. Cost of goods sold

118. Conrad Company reported the following balances at June 30, 2015:
Sales Revenue $16,200
Sales Returns and Allowances 600
Sales Discounts 300
Cost of Goods Sold 7,500
Net sales for the month is
a. $7,800
b. $15,300.
c. $15,600.
d. $16,200.

119. Income from operations appears on
a. both a multiple-step and a single-step income statement.
b. neither a multiple-step nor a single-step income statement.
c. a single-step income statement.
d. a multiple-step income statement.

120. Gross profit does not appear
a. on a multiple-step income statement.
b. on a single-step income statement.
c. to be relevant in analyzing the operation of a merchandiser.
d. on the income statement if the periodic inventory system is used because it cannot be calculated.

121. Which of the following is not a true statement about a multiple-step income statement?
a. Operating expenses are similar for merchandising and service enterprises.
b. There may be a section for nonoperating activities.
c. There may be a section for operating assets.
d. There is a section for cost of goods sold.

122. Which one of the following is shown on a multiple-step but not on a single-step income statement?
a. Net sales
b. Net income
c. Gross profit
d. Cost of goods sold

123. All of the following items would be reported as other expenses and losses except
a. freight-out.
b. casualty losses.
c. interest expense.
d. loss from employees’ strikes.

124. If a company has net sales of $700,000 and cost of goods sold of $455,000, the gross profit percentage is
a. 25%.
b. 35%.
c. 65%.
d. 100%.

125. A company shows the following balances:
Sales Revenue $2,500,000
Sales Returns and Allowances 450,000
Sales Discounts 50,000
Cost of Goods Sold 1,400,000
What is the gross profit percentage?
a. 30%
b. 44%
c. 56%
d. 70%

126. The gross profit rate is computed by dividing gross profit by
a. cost of goods sold.
b. net income.
c. net sales.
d. sales revenue.

127. In terms of liquidity, inventory is
a. more liquid than cash.
b. more liquid than accounts receivable.
c. more liquid than prepaid expenses.
d. less liquid than store equipment.

128. On a classified balance sheet, inventory is classified as
a. an intangible asset.
b. property, plant, and equipment.
c. a current asset.
d. a long-term investment.

129. Gross profit for a merchandiser is net sales minus
a. operating expenses.
b. cost of goods sold.
c. sales discounts.
d. cost of goods available for sale.

130. During 2015, Parker Enterprises generated revenues of $90,000. The company’s expenses were as follows: cost of goods sold of $45,000, operating expenses of $18,000 and a loss on the sale of equipment of $3,000.

Parker’s gross profit is
a. $24,000.
b. $27,000.
c. $45,000.
d. $90,000.

131. During 2015, Parker Enterprises generated revenues of $90,000. The company’s expenses were as follows: cost of goods sold of $45,000, operating expenses of $18,000 and a loss on the sale of equipment of $3,000.

Parker’s income from operations is
a. $18,000.
b. $27,000.
c. $45,000.
d. $90,000.

132. During 2015, Parker Enterprises generated revenues of $90,000. The company’s expenses were as follows: cost of goods sold of $45,000, operating expenses of $18,000 and a loss on the sale of equipment of $3,000.

Parker’s net income is
a. $24,000.
b. $27,000.
c. $45,000.
d. $90,000.

133. Financial information is presented below:
Operating Expenses $ 60,000
Sales Revenue 225,000
Cost of Goods Sold 135,000

Gross profit would be
a. $30,000.
b. $90,000.

MC. 133 (Cont.)
c. $165,000.
d. $225,000.

134. Financial information is presented below:
Operating Expenses $ 60,000
Sales Revenue 225,000
Cost of Goods Sold 135,000

The gross profit rate would be
a. .133.
b. .400.
c. .600.
d. .733.

135. Financial information is presented below:
Operating Expenses $ 90,000
Sales Returns and Allowances 26,000
Sales Discounts 12,000
Sales 300,000
Cost of Goods Sold 158,000

Gross profit would be
a. $104,000.
b. $116,000.
c. $130,000.
d. $142,000.

136. Financial information is presented below:
Operating Expenses $ 90,000
Sales Returns and Allowances 26,000
Sales Discounts 12,000
Sales Revenue 300,000
Cost of Goods Sold 158,000

The gross profit rate would be
a. .347.
b. .397.
c. .473.
d. .542.

137. Financial information is presented below:
Operating Expenses $ 90,000
Sales Returns and Allowances 18,000
Sales Discounts 12,000
Sales Revenue 320,000
Cost of Goods Sold 174,000

The amount of net sales on the income statement would be
a. $290,000.
b. $302,000.
c. $308,000.
d. $320,000.

138. Financial information is presented below:
Operating Expenses $ 90,000
Sales Returns and Allowances 18,000
Sales Discounts 12,000
Sales Revenue 320,000
Cost of Goods Sold 174,000

Gross profit would be
a. $26,000.
b. $116,000.
c. $128,000.
d. $134,000.

139. Financial information is presented below:
Operating Expenses $ 90,000
Sales Returns and Allowances 18,000
Sales Discounts 12,000
Sales Revenue 320,000
Cost of Goods Sold 174,000

The gross profit rate would be
a. .363.
b. .400.
c. .456.
d. .503.

140. If a company has sales revenue of $630,000, net sales of $600,000, and cost of goods sold of $390,000, the gross profit rate is
a. 35%.
b. 38%
c. 62%.
d. 65%.

141. Dawson’s Fashions sold merchandise for $40,000 cash during the month of July. Returns that month totaled $1,000. If the company’s gross profit rate is 40%, Dawson’s will report monthly net sales revenue and cost of goods sold of
a. $39,000 and $23,400.
b. $39,000 and $24,000.
c. $40,000 and $23,400.
d. $40,000 and $24,000.

142. During August, 2015, Baxter’s Supply Store generated revenues of $60,000. The company’s expenses were as follows: cost of goods sold of $36,000 and operating expenses of $4,000. The company also had rent revenue of $1,000 and a gain on the sale of a delivery truck of $2,000.

Baxter’s gross profit for August, 2015 is
a. $20,000.
b. $21,000.
c. $23,000.
d. $24,000.

143. During August, 2015, Baxter’s Supply Store generated revenues of $60,000. The company’s expenses were as follows: cost of goods sold of $36,000 and operating expenses of $4,000. The company also had rent revenue of $1,000 and a gain on the sale of a delivery truck of $2,000.

Baxter’s nonoperating income (loss) for the month of August, 2015 is
a. $0.
b. $1,000.
c. $2,000.
d. $3,000.

144. During August, 2015, Baxter’s Supply Store generated revenues of $60,000. The company’s expenses were as follows: cost of goods sold of $36,000 and operating expenses of $4,000. The company also had rent revenue of $1,000 and a gain on the sale of a delivery truck of $2,000.

Baxter’s operating income for the month of August, 2015 is
a. $20,000.
b. $21,000.
c. $23,000.
d. $24,000.

145. During August, 2015, Baxter’s Supply Store generated revenues of $60,000. The company’s expenses were as follows: cost of goods sold of $36,000 and operating expenses of $4,000. The company also had rent revenue of $1,000 and a gain on the sale of a delivery truck of $2,000.

Baxter’s net income for August, 2015 is
a. $20,000.
b. $21,000.
c. $23,000.
d. $24,000.

a146. In a worksheet for a merchandising company, Inventory would appear in the
a. trial balance and adjusted trial balance columns only.
b. trial balance and balance sheet columns only.
c. trial balance, adjusted trial balance, and balance sheet columns.
d. trial balance, adjusted trial balance, and income statement columns.

a147. The Inventory account balance appearing in a perpetual inventory worksheet represents the
a. ending inventory.
b. beginning inventory.
c. cost of merchandise purchased.
d. cost of merchandise sold.

a148. The following information is available for Dennehy Company:
Sales Revenue $390,000 Freight-In $30,000
Ending Inventory 37,500 Purchase Returns and Allowances 15,000
Purchases 270,000 Beginning Inventory 45,000

Dennehy’s cost of goods sold is
a. $262,500.
b. $285,000.

MC. 148 (Cont.)
c. $292,500.
d. $345,000.

,
a149. At the beginning of September 2015, Stella Company reported Inventory of $8,000. During the month, the company made purchases of $35,600. At September 30, 2015, a physical count of inventory reported $8,400 on hand. Cost of goods sold for the month is
a. $35,200.
b. $35,600.
c. $36,000.
d. $43,600.

,
a150. At the beginning of the year, Hunt Company had an inventory of $750,000. During the year, the company purchased goods costing $2,400,000. If Hunt Company reported ending inventory of $900,000 and sales of $3,750,000, the company’s cost of goods sold and gross profit rate must be
a. $1,500,000 and 66.7%.
b. $2,250,000 and 40%.
c. $1,500,000 and 40%.
d. $2,250,000 and 60%.

a151. During the year, Slick’s Pet Shop’s inventory decreased by $25,000. If the company’s cost of goods sold for the year was $500,000, purchases must have been
a. $475,000.
b. $500,000.
c. $525,000.
d. Unable to determine.

a152. Cost of goods available for sale is computed by adding
a. beginning inventory to net purchases.
b. beginning inventory to the cost of goods purchased.
c. net purchases and freight-in.
d. purchases to beginning inventory.

a 153. The Freight-In account
a. increases the cost of merchandise purchased.
b. is contra to the Purchases account.
c. is a permanent account.
d. has a normal credit balance.

a 154. Net purchases plus freight-in determines
a. cost of goods sold.
b. cost of goods available for sale.
c. cost of goods purchased.
d. total goods available for sale.

a155. Goldblum Company has the following account balances:
Purchases $96,000
Sales Returns and Allowances 12,800
Purchase Discounts 8,000
Freight-In 6,000
Delivery Expense 10,000
The cost of goods purchased for the period is
a. $80,800.
b. $88,000.
c. $94,000.
d. $104,000.

,
a156. McKendrick Shoe Store has a beginning inventory of $45,000. During the period, purchases were $195,000; purchase returns, $6,000; and freight-in $15,000. A physical count of inventory at the end of the period revealed that $30,000 was still on hand. The cost of goods available for sale was
a. $189,000.
b. $204,000.
c. $219,000.
d. $249,000.

a157. In a periodic inventory system, a return of defective merchandise to a supplier is recorded by crediting
a. Accounts Payable.
b. Inventory.
c. Purchases.
d. Purchase Returns and Allowances.

a158. Which one of the following transactions is recorded with the same entry in a perpetual and a periodic inventory system?
a. Cash received on account with a discount
b. Payment of freight costs on a purchase
c. Return of merchandise sold
d. Sale of merchandise on credit

a159. The journal entry to record a return of merchandise purchased on account under a periodic inventory system would be
a. Accounts Payable
Purchase Returns and Allowances
b. Purchase Returns and Allowances
Accounts Payable
c. Accounts Payable
Inventory
d. Inventory
Accounts Payable

a160. Under a periodic inventory system, acquisition of merchandise is debited to the
a. Inventory account.
b. Cost of Goods Sold account.
c. Purchases account.
d. Accounts Payable account.

a161. Which of the following accounts has a normal credit balance?
a. Purchases
b. Sales Returns and Allowances
c. Freight-In
d. Purchase Discounts

a162. The respective normal account balances of Purchases, Purchase Discounts, and Freight-in are
a. credit, credit, debit.
b. debit, credit, credit.
c. debit, credit, debit.
d. debit, debit, debit.

a163. Cobb Company’s accounting records show the following at the year ending on December 31, 2015:

Purchase Discounts $ 11,200
Freight – In 15,600
Purchases 402,000
Beginning Inventory 47,000
Ending Inventory 57,600
Purchase Returns 12,800

Using the periodic system, the cost of goods purchased is
a. $378,000.
b. $383,000.
c. $393,600.
d. $404,200.

a164. Cobb Company’s accounting records show the following at the year ending on December 31, 2015:

Purchase Discounts $ 11,200
Freight – In 15,600
Purchases 402,000
Beginning Inventory 47,000
Ending Inventory 57,600
Purchase Returns 12,800

Using the periodic system, the cost of goods sold is
a. $378,000.
b. $383,000.
c. $393,600.
d. $404,200.

165. Ezra Company has sales revenue of $60,000, cost of goods sold of $36,000 and operating expenses of $14,000 for the year ended December 31. Ezra’s gross profit is
a. $0.
b. $10,000.
c. $24,000.
d. $46,000.

166. Rae Company uses a perpetual inventory system and made a purchase of merchandise on credit from Tyree Corporation on August 3, for $9,000, terms 2/10, n/45. On August 10, Rae makes the appropriate payment to Tyree. The entry on August 10 for Rae Company is
a. Accounts Payable 9,000
Cash 9,000
b. Accounts Payable 8,820
Cash 8,820
c. Accounts Payable 9,000
Purchase Returns and Allowances 180
Cash 8,820
d. Accounts Payable 9,000
Inventory 180
Cash 8,820

167. Kate Company uses a perpetual inventory system and purchased inventory from Phoebe Company. The shipping costs were $500 and the terms of the shipment were FOB shipping point. Kate would have the following entry regarding the shipping charges:
a. There is no entry on Kate’s books for this transaction.
b. Freight Expense 500
Cash 500
c. Freight-Out 500
Cash 500
d. Inventory 500
Cash 500

168. In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting
a. Purchases.
b. Purchase Returns.
c. Purchase Allowance.
d. Inventory.

169. On October 4, 2015, JT Corporation had credit sales transactions of $4,000 from merchandise having cost $2,400. The entries to record the day’s credit transactions include a
a. debit of $4,000 to Inventory.
b. credit of $4,000 to Sales Revenue.
c. debit of $2,400 to Inventory.
d. credit of $2,400 to Cost of Goods Sold.

170. Which of the following accounts is not closed to Income Summary?
a. Cost of Goods Sold
b. Inventory
c. Sales Revenue
d. Sales Discounts

171. In the Augie Company, sales were $750,000, sales returns and allowances were $30,000, and cost of goods sold was $450,000. The gross profit rate was
a. 36%.
b. 37.5%.
c. 40%.
d. 41.7%.

172. Net sales is sales revenue less
a. sales discounts.
b. sales returns.
c. sales returns and allowances.
d. sales discounts and sales returns and allowances.

173. In the balance sheet, ending inventory is reported
a. in current assets immediately following accounts receivable.
b. in current assets immediately following prepaid expenses.
c. in current assets immediately following cash.
d. under property, plant, and equipment.

a174. Cost of goods available for sale is computed by adding
a. freight-in to net purchases.
b. beginning inventory to net purchases.
c. beginning inventory to purchases and freight-in.
d. beginning inventory to cost of goods purchased.

175. The Income statement is
a. required under GAAP but not under IFRS.
b. required under IFRS in the same format as under GAAP.
c. required under IFRS but not under GAAP.
d. required under IFRS with some differences as compared to GAAP.

176. The basic accounting entries for merchandising are
a. the same under GAAP and under IFRS.
b. required under GAAP but not under IFRS.
c. required under IFRS but not under GAAP.
d. required under IFRS with some differences as compared to GAAP.

177. Under GAAP, companies can choose which inventory system?
Perpetual Periodic
a. Yes No
b. Yes Yes
c. No Yes
d. Yes No

178. Under IFRS, companies can choose which inventory system?
Perpetual Periodic
a. Yes No
b. Yes Yes
c. No Yes
d. Yes No

179. Companies cannot use the
a. periodic inventory system under GAAP.
b. periodic inventory system under IFRS.
c. perpetual system under IFRS.
d. both periodic and perpetual can be used under GAAP and IFRS.

180. Inventories are defined by IFRS as
a. held-for-sale in the ordinary course of business.
b. in the process of production for sale in the ordinary course of business.
c. in the form of materials or supplies to be consumed in the production process or in the providing of services.
d. All of these answer choices are correct.

181. Under GAAP, companies generally classify income statement items by
a. function.
b. nature.
c. nature or function
d. date incurred.

182. Under IFRS, companies must classify income statement items by
a. function.
b. nature.
c. nature or function
d. date incurred.

183. Under GAAP, income statement items are generally described as
a. administration, distribution, manufacturing, etc.
b. salaries, depreciation, utilities, etc.
c. administration, depreciation, manufacturing, etc.
d. salaries, distribution, utilities, etc.

184. Under IFRS, income statement items are generally described as
a. administration, distribution, manufacturing, etc.
b. salaries, depreciation, utilities, etc.
c. administration, depreciation, manufacturing, etc.
d. salaries, distribution, utilities, etc.

185. For the income statement, IFRS requires
a. single-step approach.
b. multiple-step approach.
c. single-step approach or multiple-step approach.
d. no specific income statement approach.

186. Under IFRS, companies can apply revaluation to
a. land, buildings, and intangible assets.
b. land, buildings, but not intangible assets.
c. intangible assets, but not land or buildings.
d. no assets.

187. The use of IFRS results in more transactions affecting
a. net income but not other comprehensive income.
b. other comprehensive income, but not net income.
c. but net income and other comprehensive income.
d. neither net income nor other comprehensive income.

188. Comprehensive income under IFRS
a. includes unrealized gains and losses included in net income, in contrast to GAAP.
b. includes u