CHAPTER 1

1. Which of the following is not a business resource?

a. raw material
b. labor
c. information
d. all are business resources
ANS: D

2. Which level of management is responsible for short-term planning and coordination of activities
necessary to accomplish organizational objectives?
a. operations management
b. middle management
c. top management
d. line management
ANS: B

3. Which level of management is responsible for controlling day-to-day operations?

a. top management
b. middle management
c. operations management
d. executive management
ANS: C

4. The ability to achieve the goals of a system depends upon the effective functioning and harmonious
interaction between its subsystems. This is called
a. system decomposition
b. system redundancy
c. backup system
d. subsystem interdependency
ANS: D

5. The value of information for users is determined by all of the following but
a. reliability
b. relevance
c. convenience
d. completeness
ANS: C

6. An example of a nonfinancial transaction is

a. sale of products
b. cash disbursement
c. log of customer calls
d. purchase of inventory
ANS: C

7. An example of a financial transaction is

 a. the purchase of computer
b. a suppliers price list
c. a delivery schedule
d. an employee benefit brochure
ANS: A

8. Which subsystem is not part of the Accounting Information System?

a. Transaction Processing System
b. Expert System
c. General Ledger/Financial Reporting System
d. Management Reporting System
ANS: B

9. The major difference between the Financial Reporting System (FRS) and the Management Reporting
System (MRS) is the
a. FRS provides information to internal and external users; the MRS provides information to
internal users
b. FRS provides discretionary information; the MRS provides nondiscretionary information
c. FRS reports are prepared using information provided by the General Ledger System; the
MRS provides information to the General Ledger System
d. FRS reports are prepared in flexible, nonstandardized formats; the MRS reports are
prepared in standardized, formal formats
ANS: A

10. The purpose of the Transaction Processing System includes all of the following except
a. converting economic events into financial transactions
b. recording financial transactions in the accounting records
c. distributing essential information to operations personnel to support their daily operations
d. measuring and reporting the status of financial resources and the changes in those
resources
ANS: D

11. The Transaction Processing System includes all of the following cycles except
a. the revenue cycle
b. the administrative cycle
c. the expenditure cycle
d. the conversion cycle
ANS: B

12. The primary input to the Transaction Processing System is

a. a financial transaction
b. an accounting record
c. an accounting report
d. a nonfinancial transaction
ANS: A

13. When designing the data collection activity, which type of data should be avoided?
 a. data that is relevant
b. data that is efficient
c. data that is redundant
d. data that is accurate
ANS: C

14. The most basic element of useful data in the database is

a. the record
b. the key
c. the file
d. the attribute
ANS: D

15. In a database, a complete set of attributes for a single occurrence of an entity class is called
a. a key
b. a file
c. a record
d. a character
ANS: C

16. Effective information has all of the following characteristics except

a. relevance
b. completeness
c. summarization
d. structure
ANS: D

17. Database management tasks do not include

a. summarization
b. storage
c. retrieval
d. deletion
ANS: A

18. The author distinguishes between the Accounting Information System and the management Information
System based on
a. whether the transactions are financial or nonfinancial
b. whether discretionary or nondiscretionary reports are prepared
c. the end users of the reports
d. the organizational structure of the business
ANS: A

19. Which activity is not part of the finance function?

a. cash receipts
b. portfolio management
c. credit
d. general ledger
 ANS: D

20. Market research and advertising are part of which business function?
a. materials management
b. finance
c. marketing
d. production
ANS: C

21. Which function manages the financial resources of the firm through portfolio management, banking,
credit evaluation, and cash receipts and disbursements?
a. accounting
b. finance
c. materials management
d. distribution
ANS: B

22. Which of the following is not part of the accounting function?

a. managing the financial information resource of the firm
b. capturing and recording transactions in the database
c. distributing transaction information to operations personnel
d. managing the physical information system of the firm
ANS: D

23. The term accounting independence refers to

a. data integrity
b. separation of duties, such as record keeping and custody of physical resources
c. generation of accurate and timely information
d. business segmentation by function
ANS: B

24. In the distributed data processing approach

a. computer services are consolidated and managed as a shared organization resource
b. the computer service function is a cost center
c. the end users are billed using a charge-back system
d. computer services are organized into small information processing units under the control
of end users
ANS: D

25. The data control group is responsible for

a. performing the day-to-day processing of transactions
b. security and integrity of the database
c. liaison between the end user and data processing
d. providing safe storage for off-line data files
ANS: C
26. Data processing does not involve
a. data control
b. computer operations
c. system maintenance
d. data conversion
ANS: C

27. Independent auditing is performed by

a. external auditors
b. internal accountants
c. licensed auditors
d. third-party accountants
ANS: A

28. Which individual is least involved in new systems development?

a. systems analyst
b. external auditor
c. end user
d. data librarian
ANS: D

29. The objectives of all information systems include all of the following except
a. support for the stewardship function of management
b. evaluating transaction data
c. support for the day-to-day operations of the firm
d. support for management decision making
ANS: B

30. Which individuals may be involved in the Systems Development Life Cycle?
a. accountants
b. systems professionals
c. end users
d. all of the above
ANS: D

31. An appraisal function housed within the organization that performs a wide range of services for
management is
a. internal auditing
b. data control group
c. external auditing
d. database administration
ANS: A

32. Advantages of a database system include all of the following except

a. elimination of data redundancy
b. open access to all data by all users
c. single update for changes in data
 d. confidence that all data is current
ANS: B

33. Disadvantages of distributed data processing include all of the following except
a. mismanagement of organizationwide resources
b. hardware and software incompatibility
c. cost reductions
d. difficulty in hiring qualified IT professionals
ANS: C

34. Advantages of distributed data processing include each of the following except
a. cost reductions
b. better management of organization resources
c. improved operational efficiency
d. increased user satisfaction
ANS: B

35. Disadvantages of the distributed data processing approach include all of the following except
a. possible mismanagement of organization resources
b. redundancy of tasks
c. software incompatibility
d. system is not responsive to the users situation
ANS: D

36. ERP packages include all of the following modules except

a. human resources
b. general ledger
c. inventory management
d. they include all of the above
ANS: D

37. All of the following are external end users except

a. cost accountants
b. creditors
c. stockholders
d. tax authorities
ANS: A

38. Useful information must possess all of the following characteristics except
a. relevance
b. timelessness
c. accuracy
d. completeness
ANS: B

39. The objectives of an information system include each of the following except
 a. support for the stewardship responsibilities of management
b. furthering the financial interests of shareholders
c. support for management decision making
d. support for the firms day-to-day operations
ANS: B

40. Accountants play many roles relating to the accounting information system, including all of the following
except
a. system users
b. system designers
c. system auditors
d. system converters
ANS: D

CHAPTER 2

1. Which system is not part of the expenditure cycle?

a. cash disbursements
b. payroll
c. production planning/control
d. purchases/accounts payable
ANS: C

2. Which system produces information used for inventory valuation, budgeting, cost control, performance
reporting, and make-buy decisions?
a. sales order processing
b. purchases/accounts payable
c. cash disbursements
d. cost accounting
ANS: D

3. Which of the following is a turn-around document?

a. remittance advice
b. sales order
c. purchase order
d. payroll check
ANS: A

4. The order of the entries made in the ledger is by

a. transaction number
b. account number
c. date
d. user
ANS: B

5. The order of the entries made in the general journal is by

 a. date
b. account number
c. user
d. customer number
ANS: A

6. In general a special journal would not be used to record

a. sales
b. cash disbursements
c. depreciation
d. purchases
ANS: C

7. Which account is least likely to have a subsidiary ledger?

a. sales
b. accounts receivable
c. fixed assets
d. inventory
ANS: A

8. Subsidiary ledgers are used in manual accounting environments. What file is comparable to a subsidiary
ledger in a computerized environment?
a. archive file
b. reference file
c. transaction file
d. master file
ANS: D

9. A journal is used in manual accounting environments. What file is comparable to a journal in a

computerized environment?
a. archive file
b. reference file
c. transaction file
d. master file
ANS: C

10. In a computerized environment, a list of authorized suppliers would be found in the

a. master file
b. transaction file
c. reference file
d. archive file
ANS: C

11. Which of the following is an archive file?

a. an accounts payable subsidiary ledger
b. a cash receipts file
c. a sales journal
 d. a file of accounts receivable that have been written off
ANS: D

12. Which document is not a type of source document?

a. a sales order
b. an employee time card
c. a paycheck
d. a sales return receipt
ANS: C

13. The most important purpose of a turn-around document is to

a. serve as a source document
b. inform a customer of the outstanding amount payable
c. provide an audit trail for the external auditor
d. inform the bank of electronic funds deposits
ANS: A

14. Which type of graphical documentation represents systems at different levels of detail?
a. data flow diagram
b. document flowchart
c. system flowchart
d. program flowchart
ANS: A

15. Data flow diagrams

a. depict logical tasks that are being performed, but not who is performing them
b. illustrate the relationship between processes, and the documents that flow between them
and trigger activities
c. represent relationships between key elements of the computer system
d. describe in detail the logic of the process
ANS: A

16. Document flowcharts

a. depict logical tasks that are being performed, but not who is performing them
b. illustrate the relationship between processes, and the documents that flow between them
and trigger activities
c. represent relationships between key elements of the computer system
d. describe the logic of the process
ANS: B

17. When determining the batch size, which consideration is the least important?
a. achieving economies by grouping together large numbers of transactions
b. complying with legal mandates
c. providing control over the transaction process
d. balancing the trade off between batch size and error detection
ANS: B
18. In contrast to a real-time system, in a batch processing system
a. there is a lag between the time when the economic event occurs and the financial records
are updated
b. relatively more resources are required
c. a greater resource commitment per unit of output is required
d. processing takes place when the economic event occurs
ANS: A

19. In contrast to a batch processing system, in a real-time system

a. a lag occurs between the time of the economic event and when the transaction is recorded
b. relatively fewer hardware, programming, and training resources are required
c. a lesser resource commitment per unit of output is required
d. processing takes place when the economic event occurs
ANS: D

20. The type of transaction most suitable for batch processing is

a. airline reservations
b. credit authorization
c. payroll processing
d. adjustments to perpetual inventory
ANS: C

21. The type of transaction most suitable for real-time processing is

a. recording fixed asset purchases
b. recording interest earned on long-term bonds
c. adjusting prepaid insurance
d. recording a sale on account
ANS: D

22. Which step is not found in batch processing using sequential files?
a. control totals
b. sort runs
c. edit runs
d. immediate feedback of data entry errors
ANS: D

23. Both the revenue and the expenditure cycle can be viewed as having two key parts. These are
a. manual and computerized
b. physical and financial
c. input and output
d. batch and real-time
ANS: B

24. All of the following can provide evidence of an economic event except
a. source document
b. turn-around document
 c. master document
d. product document
ANS: C

25. Which method of processing does not use the destructive update approach?
a. batch processing using direct access files
b. real-time processing
c. batch processing using sequential files
d. all of the above use the destructive update approach
ANS: C

26. Which symbol represents a data store?

a.

b.

c.

d.

ANS: B

27. Which symbol represents a manual operation?

a.

b.

c.

d.

ANS: D

28. Which symbol represents accounting records?

 a.

b.

c.

d.

ANS: A

29. Which symbol represents a document?

a.

b.

c.

d.

ANS: B

30. Which symbol represents a magnetic tape (sequential storage device)?

a.

b.
 c.

d.

ANS: D

31. Which symbol represents a decision?

a.

b.

c.

d.

ANS: A

32. The characteristics that distinguish between batch and real-time systems include all of the following
except
a. time frame
b. resources used
c. file format
d. efficiency of processing
ANS: C

33. A file that stores data used as a standard when processing transactions is
a. a reference file
b. a master file
c. a transaction file
d. an archive file
ANS: A

34. Sequential storage means

a. data is stored on tape
b. access is achieved through an index
 c. access is direct
d. reading record 100 requires first reading records 1 to 99
ANS: D

35. Real-time processing would be most beneficial in handling a firms

a. fixed asset records
b. retained earning information
c. merchandise inventory
d. depreciation records
ANS: C

36. Which accounting application is least suited for batch processing?

a. general ledger
b. vendor payments
c. sales order processing
d. payroll
ANS: C

37. Which accounting application is best suited for batch processing?

a. general ledger
b. vendor payments
c. sales order processing
d. payroll
ANS: D

38. Operational inefficiencies occur because

a. accounts both common and unique to many concurrent transactions need to be updated in
real time.
b. accounts common to many concurrent transactions need to be updated in real time.
c. accounts unique to many concurrent transactions need to be updated in real time.
d. None of the above are true statements
ANS: B

39. Operational efficiencies can be improved by

a. updating accounts both common and unique to many concurrent transactions in real time.
b. updating accounts both common and unique to many concurrent transactions in batch
mode.
c. updating accounts unique to many concurrent transactions in real time and updating
common accounts in batch mode.
d. None of the above are true statements
ANS: C

CHAPTER4
1. The revenue cycle consists of
a. one subsystemorder entry
b. two subsystemssales order processing and cash receipts
 c. two subsystemsorder entry and inventory control
d. three subsystemssales order processing, credit authorization, and cash receipts
ANS: B

2. The reconciliation that occurs in the shipping department is intended to ensure that
a. credit has been approved
b. the customer is billed for the exact quantity shipped
c. the goods shipped match the goods ordered
d. inventory records are reduced for the goods shipped
ANS: C

3. The adjustment to accounting records to reflect the decrease in inventory due to a sale occurs in the
a. warehouse
b. shipping department
c. billing department
d. inventory control department
ANS: D

4. Which document triggers the revenue cycle?

a. the sales order
b. the customer purchase order
c. the sales invoice
d. the journal voucher
ANS: B

5. Copies of the sales order can be used for all of the following except
a. purchase order
b. credit authorization
c. shipping notice
d. packing slip
ANS: A

6. The purpose of the sales invoice is to

a. record reduction of inventory
b. transfer goods from seller to shipper
c. bill the customer
d. select items from inventory for shipment
ANS: C

7. The customer open order file is used to

a. respond to customer queries
b. fill the customer order
c. ship the customer order
d. authorize customer credit
ANS: A
 8. The stock release copy of the sales order is not used to
a. locate and pick the items from the warehouse shelves
b. record any out-of-stock items
c. authorize the warehouse clerk to release custody of the inventory to shipping
d. record the reduction of inventory
ANS: D

9. The shipping notice

a. is mailed to the customer
b. is a formal contract between the seller and the shipping company
c. is always prepared by the shipping clerk
d. informs the billing department of the quantities shipped
ANS: D

10. The billing department is not responsible for

a. updating the inventory subsidiary records
b. recording the sale in the sales journal
c. notifying accounts receivable of the sale
d. sending the invoice to the customer
ANS: A

11. Customers should be billed for backorders when

a. the customer purchase order is received
b. the backordered goods are shipped
c. the original goods are shipped
d. customers are not billed for backorders because a backorder is a lost sale
ANS: B

12. Usually specific authorization is required for all of the following except
a. sales on account which exceed the credit limit
b. sales of goods at the list price
c. a cash refund for goods returned without a receipt
d. write off of an uncollectible account receivable
ANS: B

13. Which of following functions should be segregated?

a. opening the mail and making the journal entry to record cash receipts
b. authorizing credit and determining reorder quantities
c. maintaining the subsidiary ledgers and handling customer queries
d. providing information on inventory levels and reconciling the bank statement
ANS: A

14. Which situation indicates a weak internal control structure?

a. the mailroom clerk authorizes credit memos
b. the record keeping clerk maintains both accounts receivable and accounts payable
subsidiary ledgers
c. the warehouse clerk obtains a signature before releasing goods for shipment
 d. the accounts receivable clerk prepares customer statements every month
ANS: A

15. The most effective internal control procedure to prevent or detect the creation of fictitious credit
memoranda for sales returns is to
a. supervise the accounts receivable department
b. limit access to credit memoranda
c. prenumber and sequence check all credit memoranda
d. require management approval for all credit memoranda
ANS: D

16. The accounts receivable clerk destroys all invoices for sales made to members of her family and does not
record the sale in the accounts receivable subsidiary ledger. Which procedure will not detect this fraud?
a. prenumber and sequence check all invoices
b. reconcile the accounts receivable control to the accounts receivable subsidiary ledger
c. prepare monthly customer statements
d. reconcile total sales on account to the debits in the accounts receivable subsidiary ledger
ANS: C

17. Which department is least likely to be involved in the revenue cycle?

a. credit
b. accounts payable
c. billing
d. shipping
ANS: B

18. Which document is included with a shipment sent to a customer?

a. sales invoice
b. stock release form
c. packing slip
d. shipping notice
ANS: C

19. Good internal controls in the revenue cycle should ensure all of the following except
a. all sales are profitable
b. all sales are recorded
c. credit is authorized
d. inventory to be shipped is not stolen
ANS: A

20. Which control does not help to ensure that accurate records are kept of customer accounts and inventory?
a. reconcile accounts receivable control to accounts receivable subsidiary
b. authorize credit
c. segregate custody of inventory from record keeping
d. segregate record keeping duties of general ledger from accounts receivable
ANS: B
21. Internal controls for handling sales returns and allowances do not include
a. computing bad debt expense using the percentage of credit sales
b. verifying that the goods have been returned
c. authorizing the credit memo by management
d. using the original sales invoice to prepare the sales returns slip
ANS: A

22. The printer ran out of preprinted sales invoice forms and several sales invoices were not printed. The best
internal control to detect this error is
a. a batch total of sales invoices to be prepared compared to the actual number of sales
invoices prepared
b. sequentially numbered sales invoices
c. visual verification that all sales invoices were prepared
d. none of the above will detect this error
ANS: A

23. Which department prepares the bill of lading?

a. sales
b. warehouse
c. shipping
d. credit
ANS: C

24. A remittance advice is

a. used to increase (debit) an account receivable by the cash received
b. is a turn-around document
c. is retained by the customer to show proof of payment
d. none of the above
ANS: B

25. A weekly reconciliation of cash receipts would include comparing

a. the cash prelist with bank deposit slips
b. the cash prelist with remittance advices
c. bank deposit slips with remittance advices
d. journal vouchers from accounts receivable and general ledger
ANS: A

26. At which point is supervision most critical in the cash receipts system?
a. accounts receivable
b. general ledger
c. mail room
d. cash receipts
ANS: C

27. EDI trading partner agreements specify all of the following except
a. selling price
 b. quantities to be sold
c. payment terms
d. person to authorize transactions
ANS: D

28. A cash prelist is

a. a document that records sales returns and allowances
b. a document returned by customers with their payments
c. the source of information used to prepare monthly statements
d. none of the above
ANS: D

29. An advantage of real-time processing of sales is

a. the cash cycle is lengthened
b. current inventory information is available
c. hard copy documents provide a permanent record of the transaction
d. data entry errors are corrected at the end of each batch
ANS: B

30. Commercial accounting systems have fully integrated modules. The word integrated means that
a. segregation of duties is not possible
b. transfer of information among modules occurs automatically
c. batch processing is not an option
d. separate entries are made in the general ledger accounts and the subsidiary ledgers
ANS: B

31. The data processing method that can shorten the cash cycle is
a. batch, sequential file processing
b. batch, direct access file processing
c. real-time file processing
d. none of the above
ANS: C

32. Which of the following is not a risk exposure in a microcomputer accounting system?
a. reliance on paper documentation is increased
b. functions that are segregated in a manual environment may be combined in a
microcomputer accounting system
c. backup procedures require human intervention
d. data are easily accessible
ANS: A

33. Which journal is not used in the revenue cycle?

a. cash receipts journal
b. sales journal
c. purchases journal
d. general journal
 ANS: C

34. Periodically, the general ledger department receives all of the following except
a. total increases to accounts receivable
b. total of all sales backorders
c. total of all sales
d. total decreases in inventory
ANS: B

35. The credit department

a. prepares credit memos when goods are returned
b. approves credits to accounts receivable when payments are received
c. authorizes the granting of credit to customers
d. none of the above
ANS: C

36. Adjustments to accounts receivable for payments received from customers is based upon
a. the customers check
b. the cash prelist
c. the remittance advice that accompanies payment
d. a memo prepared in the mailroom
ANS: C

37. The revenue cycle utilizes all of the following files except
a. credit memo file
b. sales history file
c. shipping report file
d. cost data reference file
ANS: D

38. All of the following are advantages of real-time processing of sales except
a. The cash cycle is shortened
b. Paper work is reduced
c. Incorrect data entry is difficult to detect
d. Up-to-date information can provide a competitive advantage in the marketplace
ANS: C
Chapter 5

1. The purpose of the purchase requisition is to

a order goods from vendors

.

b record receipt of goods from vendors

.
 c authorize the purchasing department to order goods
.

d bill for goods delivered

.

ANS: C

2. The purpose of the receiving report is to

a order goods from vendors

.

b record receipt of goods from vendors

.

c authorize the purchasing department to order goods

.

d bill for goods delivered

.

ANS: B

3. All of the following departments have a copy of the purchase order except

a the purchasing department

.

b the receiving department

.

c accounts payable
.

d general ledger
.

ANS: D

4. The purpose of the purchase order is to

 a order goods from vendors
.

b record receipt of goods from vendors

.

c authorize the purchasing department to order goods

.

d approve payment for goods received

.

ANS: A

5. The open purchase order file in the purchasing department is used to determine

a the quality of items a vendor ships

.

b the best vendor for a specific item

.

c the orders that have not been received

.

d the quantity of items received

.

ANS: C

6. The purchase order

a is the source document to make an entry into the accounting records

.

b indicates item description, quantity, and price

.

c is prepared by the inventory control department

.

d is approved by the end-user department

.
 ANS: B

7. The reason that a blind copy of the purchase order is sent to receiving is to

a inform receiving when a shipment is due

.

b force a count of the items delivered

.

c inform receiving of the type, quantity, and price of items to be delivered

.

d require that the goods delivered are inspected

.

ANS: B

8. The receiving report is used to

a accompany physical inventories to the storeroom or warehouse

.

b advise the purchasing department of the dollar value of the goods delivered
.

c advise general ledger of the accounting entry to be made

.

d advise the vendor that the goods arrived safely

.

ANS: A

9. When a copy of the receiving report arrives in the purchasing department, it is used to

a adjust perpetual inventory records

.

b record the physical transfer of inventory from receiving to the warehouse

.
 c analyze the receiving departments process
.

d recognize the purchase order as closed

.

ANS: D

10. The financial value of a purchase is determined by reviewing the

a packing slip
.

b purchase requisition
.

c receiving report
.

d suppliers invoice
.

ANS: D

11. Which document is least important in determining the financial value of a purchase?

a purchase requisition
.

b purchase order
.

c receiving report
.

d suppliers invoice
.

ANS: A

12. In a merchandising firm, authorization for the payment of inventory is the responsibility of
 a inventory control
.

b purchasing
.

c accounts payable
.

d cash disbursements
.

ANS: C

13. In a merchandising firm, authorization for the purchase of inventory is the responsibility of

a inventory control
.

b purchasing
.

c accounts payable
.

d cash disbursements
.

ANS: A

14. When purchasing inventory, which document usually triggers the recording of a liability?

a purchase requisition
.

b purchase order
.

c receiving report
.

d suppliers invoice
.
 ANS: D

15. Because of time delays between receiving inventory and making the journal entry

a liabilities are usually understated

.

b liabilities are usually overstated

.

c liabilities are usually correctly stated

.

d none of the above

.

ANS: A

16. Usually the open voucher payable file is organized by

a vendor
.

b payment due date

.

c purchase order number

.

d transaction date
.

ANS: B

17. Which of the following statements is not correct?

a the voucher system is used to improve control over cash disbursements

.

b the sum of the paid vouchers represents the voucher payable liability of the firm
.

c the voucher system permits the firm to consolidate payments of several invoices on one
 . voucher

d many firms replace accounts payable with a voucher payable system

.

ANS: B

18. In the expenditure cycle, general ledger does not

a post the journal voucher from the accounts payable department

.

b post the account summary from inventory control

.

c post the journal voucher from the purchasing department

.

d reconcile the inventory control account with the inventory subsidiary summary
.

ANS: C

19. The documents in a voucher packet include all of the following except

a a check
.

b a purchase order
.

c a receiving report
.

d a suppliers invoice
.

ANS: A

20. To maintain a good credit rating and to optimize cash management, cash disbursements should arrive at
the vendors place of business
 a as soon as possible
.

b on the due date

.

c on the discount date

.

d by the end of the month

.

ANS: C

21. The cash disbursement clerk performs all of the following tasks except

a reviews the supporting documents for completeness and accuracy

.

b prepares checks
.

c signs checks
.

d marks the supporting documents paid

.

ANS: C

22. When a cash disbursement in payment of an accounts payable is recorded

a the liability account is increased

.

b the income statement is changed

.

c the cash account is unchanged

.

d the liability account is decreased

.
 ANS: D

23. Authorization for payment of an accounts payable liability is the responsibility of

a inventory control
.

b purchasing
.

c accounts payable
.

d cash disbursements
.

ANS: C

24. Of the following duties, it is most important to separate

a warehouse from stores

.

b warehouse from inventory control

.

c accounts payable and accounts receivable

.

d purchasing and accounts receivable

.

ANS: B

25. In a firm with proper segregation of duties, adequate supervision is most critical in

a purchasing
.

b receiving
.
 c accounts payable
.

d general ledger
.

ANS: B

26. The receiving department is not responsible to

a inspect shipments received

.

b count items received from vendors

.

c order goods from vendors

.

d safeguard goods until they are transferred to the warehouse

.

ANS: C

27. The major risk exposures associated with the receiving department include all of the following except

a goods are accepted without a physical count

.

b there is no inspection for goods damaged in shipment

.

c inventories are not secured on the receiving dock

.

d the audit trail is destroyed

.

ANS: D

28. When searching for unrecorded liabilities at the end of an accounting period, the accountant would search
all of the files except
 a the purchase requisition file
.

b the cash receipts file

.

c the purchase order file

.

d the receiving report file

.

ANS: B

29. In regards to the accounts payable department, which statement is not true?

a the purchase requisition shows that the transaction was authorized

.

b the purchase order proves that the purchase was required

.

c the receiving report provides evidence of the physical receipt of the goods
.

d the suppliers invoice indicates the financial value of the transaction

.

ANS: B

30. In a computerized system that uses an economic order quantity (EOQ) model and the perpetual inventory
method, who determines when to reorder inventory?

a the inventory control clerk

.

b the purchasing department

.

c the vendor
.

d the computer system

 .

ANS: D

31. Firms can expect that proper use of a valid vendor file will result in all of the following benefits except

a purchasing agents will be discouraged from improperly ordering inventory from related
. parties

b purchases from fictitious vendors will be detected

.

c the most competitive price will be obtained

.

d the risk of purchasing agents receiving kickbacks and bribes will be reduced
.

ANS: C

32. In a real-time processing system with a high number of transactions, the best and most practical control
over cash disbursements is to have

a all checks manually signed by the treasurer

.

b all checks signed by check-signing equipment

.

c checks over a certain dollar amount manually signed by the treasurer

.

d checks over a certain dollar amount manually signed by the cash disbursements clerk
.

ANS: C

33. The document which will close the open purchase requisition file is the

a purchase order
.
 b vendor invoice
.

c receiving report
.

d none of the above

.

ANS: C

34. Goods received are inspected and counted to

a determine that the goods are in good condition

.

b determine the quantity of goods received

.

c preclude payment for goods not received or received in poor condition

.

d all of the above

.

ANS: D

35. If a company uses a standard cost system, inventory records can be updated from the

a vendor invoice
.

b purchase order
.

c receiving report
.

d purchase requisition
.

ANS: C
36. If a company uses an actual cost system, inventory records can first be updated from the

a vendor invoice
.

b purchase order
.

c receiving report
.

d purchase requisition
.

ANS: A

37. Copies of a purchase order are sent to all of the following except

a inventory control
.

b receiving
.

c general ledger
.

d accounts payable
.

ANS: C

38. The receiving report

a is used to update the actual cost inventory ledger

.

b accompanies the goods to the storeroom

.

c is sent to general ledger

.
 d is returned to the vendor to acknowledge receipt of the goods
.

ANS: B

39. A supplier invoice

a is included with the goods

.

b shows what was ordered even if all was not shipped

.

c is sent by vendor to accounts payable

.

d none of the above

.

ANS: C

40. The cash disbursement function is

a part of accounts payable

.

b an independent accounting function

.

c a treasury function
.

d part of the general ledger department

.

ANS: C

CHAPTER 6

1. The document that captures the total amount of time that individual workers spend on each production job
is called a
 a time card
.

b job ticket
.

c personnel action form

.

d labor distribution form

.

ANS: B

2. An important reconciliation in the payroll system is

a general ledger compares the labor distribution summary from cost accounting to the
. disbursement voucher from accounts payable

b personnel compares the number of employees authorized to receive a paycheck to the

. number of paychecks prepared

c production compares the number of hours reported on job tickets to the number of hours
. reported on time cards

d payroll compares the labor distribution summary to the hours reported on time cards
.

ANS: A

3. Which internal control is not an important part of the payroll system?

a Supervisors verify the accuracy of employee time cards.

.

b Paychecks are distributed by an independent paymaster.

.

c Accounts payable verifies the accuracy of the payroll register before transferring payroll
. funds to the general checking accounting.

d General ledger reconciles the labor distribution summary and the payroll disbursement
. voucher.
 ANS: C

4. Which transaction is not processed in the Fixed Asset System?

a purchase of building
.

b improvement of equipment
.

c purchase of raw materials

.

d sale of company van

.

ANS: C

5. Depreciation

a is calculated by the department that uses the fixed asset

.

b allocates the cost of the asset over its useful life

.

c is recorded weekly
.

d results in book value approximating fair market value

.

ANS: B

6. Depreciation records include all of the following information about fixed assets except

a the economic benefit of purchasing the asset

.

b the cost of the asset

.
 c the depreciation method being used
.

d the location of the asset

.

ANS: A

7. Which control is not a part of the Fixed Asset System?

a formal analysis of the purchase request

.

b review of the assumptions used in the capital budgeting model

.

c development of an economic order quantity model

.

d estimates of anticipated cost savings

.

ANS: C

8. Objectives of the Fixed Asset System do not include

a authorizing the acquisition of fixed assets

.

b recording depreciation expense

.

c computing gain and/or loss on disposal of fixed assets

.

d maintaining a record of the fair market value of all fixed assets

.

ANS: D

9. Which of the following is not a characteristic of the Fixed Asset System?

 a Acquisitions are routine transactions requiring general authorization.
.

b Retirements are reported on an authorized disposal report form.

.

c Acquisition cost is allocated over the expected life of the asset.

.

d Transfer of fixed assets among departments is recorded in the fixed asset subsidiary
. ledger.

ANS: A

10. In the payroll subsystem, which function should distribute paychecks?

a personnel
.

b timekeeping
.

c paymaster
.

d payroll
.

ANS: C

11. Where does the responsibility lie for reconciling the labor distribution summary and the payroll
disbursement voucher?

a cash disbursements
.

b cost accounting
.

c personnel
.

d general ledger
 .

ANS: D

12. Which of the following statements is not true?

a Routine payroll processing begins with the submission of time cards.

.

b Payroll clerks must verify the hours reported on the time cards.
.

c Payroll reconciles personnel action forms with time cards and prepares paychecks.
.

d Cash disbursements signs paychecks and forwards them to the paymaster for distribution.
.

ANS: B

13. In a manufacturing firm, employees use time cards and job tickets. Which of the following statements is
not correct?

a Job tickets are prepared by employees for each job worked on, so an employee may have
. more that one job ticket on a given day.

b An individual employee will have only one time card.

.

c The time reported on job tickets should reconcile with the time reported on time cards.
.

d Paychecks should be prepared from the job tickets.

.

ANS: D

14. Which department is responsible for approving changes in pay rates for employees?

a payroll
.
 b treasurer
.

c personnel
.

d cash disbursements
.

ANS: C

15. Which of the following situations represents a serious control weakness?

a Timekeeping is independent of the payroll department.

.

b Paychecks are distributed by the employees immediate supervisor.

.

c Time cards are reconciled with job tickets.

.

d Personnel is responsible for updating employee records, including creation of records for
. new hires.

ANS: B

16. Why would an organization require the paymaster to deliver all unclaimed paychecks to the internal audit
department?

a to detect a phantom employee for whom a check was produced

.

b to prevent an absent employees check from being lost

.

c to avoid paying absent employees for payday

.

d to prevent the paymaster from cashing unclaimed checks

.

ANS: A
17. Which of the following is not a reasonable control for fixed assets?

a Proper authorization is required for acquisition and disposal of fixed assets.

.

b Fixed asset records show the location of each asset.

.

c Fully depreciated assets are immediately disposed of.

.

d Depreciation policies are in writing.

.

ANS: C

18. Cost accounting updates work-in-process accounts from

a time cards
.

b the labor distribution summary

.

c job tickets
.

d personnel action forms

.

ANS: C

19. Payroll uses time card data to do all of the following except

a prepare the payroll register

.

b update employee payroll records

.

c prepare the labor distribution summary

.
 d prepare paychecks
.

ANS: C

20. Payroll checks are typically drawn on

a the regular checking account

.

b a payroll imprest account

.

c a wages payable account

.

d petty cash
.

ANS: B

21. The personnel action form provides authorization control by

a preventing paychecks for terminated employees

.

b verifying pay rates for employees

.

c informing payroll of new hires

.

d all of the above

.

ANS: D

22. Accounting records that provide the audit trail for payroll include all of the following except

a time cards
.
 b job tickets
.

c payroll register
.

d accounts payable register

.

ANS: D

23. Personnel actions forms are used to do all of the following except

a activate new employees

.

b terminate employees
.

c record hours worked

.

d change pay rates

.

ANS: C

24. The payroll department performs all of the following except

a prepares the payroll register

.

b distributes paychecks
.

c updates employee payroll records

.

d prepares paychecks
.

ANS: B
25. The document that records the total amount of time spent on a production job is the

a time card
.

b job ticket
.

c labor distribution summary

.

d personnel action form

.

ANS: C

26. A control technique that can reduce the risk of a terminated employee being paid is

a a security camera viewing the time clock

.

b the supervisor taking role during the shift

.

c paychecks being distributed by an independent paymaster

.

d reconciliation of time cards and job tickets

.

ANS: C

27. Accounts payable

a signs paychecks
.

b prepares the payroll voucher

.

c reconciles time cards and employee records

.
 d distributes paychecks to employees
.

ANS: B

28. All of the following are processed by the Fixed Asset System except

a sale of unneeded equipment

.

b purchase of raw materials

.

c repair of production equipment

.

d purchase of a new plant

.

ANS: B

29. The Fixed Asset System performs all of the following except

a determines the need for new assets

.

b maintains depreciation records

.

c records retirement and disposal of assets

.

d tracks the physical location of fixed assets

.

ANS: A

30. The payroll department performs all of the following except

a prepares paychecks
.
 b transfers adequate funds to the payroll imprest account
.

c updates employee payroll records

.

d prepares the payroll register

.

ANS: B

31. Depreciation

a assures that assets are reported at fair market value

.

b is discretionary for many firms

.

c allocates the cost of an asset over its useful life

.

d is the responsibility of the department using the asset

.

ANS: C

32. The Fixed Asset System is similar to the expenditure cycle except

a fixed asset transactions are non-routine and require special authorization and controls
.

b fixed assets are capitalized, not expensed

.

c both a and b
.

d none of the above

.

ANS: C
33. Asset maintenance involves

a the recording of periodic depreciation

.

b adjusting the asset records to reflect the cost of physical improvements

.

c keeping track of the physical location of the assets

.

d all of the above

.

ANS: D

34. The Fixed Asset Systems does all of the following except

a records acquisition of assets

.

b records improvements to assets

.

c estimates the fair market value of assets in service

.

d records the disposal of assets

.

ANS: C

35. Asset disposal

a occurs as soon as an asset is fully depreciated

.

b requires no special authorization

.

c automatically initiates the purchase of a replacement asset

.
 d must follow formal authorization procedures
.

ANS: D

CHAPTER 7

1. Which item does not describe a world-class company?

a the goal of a world-class company is to delight its customers

.

b customers in a world-class company are external departments only

.

c world-class companies work in cross-functional teams

.

d a world-class company has a flat organizational structure

.

ANS: B

2. Which subsystem is not a part of the production system?

a directing the movement of work through the process

.

b determining raw material requirements

.

c authorizing work to be performed

.

d monitoring the flow of cost information related to production

.

ANS: D

3. The purpose of the cost accounting system is to

 a produce information for inventory valuation
.

b authorize release of raw materials

.

c direct the movement of work-in-process

.

d determine material requirements

.

ANS: A

4. Which process creates a homogeneous product through a continuous series of standard procedures?

a batch process
.

b make-to-order process
.

c continuous process
.

d none of the above

.

ANS: C

5. An example of a continuous process is the production of

a wedding invitations
.

b milk products
.

c jet aircraft
.

d all of the above

.
 ANS: B

6. All of the following are characteristics of batch processing except

a each item in the batch is similar

.

b batches are produced in accordance with detailed customer specifications

.

c batches are produced to replenish depleted inventory levels

.

d setting up and retooling is required for different batches

.

ANS: B

7. When determining which items to produce, a firm must know

a last years production level

.

b raw material inventory levels

.

c the standard cost of the item

.

d the sales forecast

.

ANS: D

8. The production schedule is

a the expected demand for the firms finished goods for a given year
.

b the formal plan and authority to begin production

.

c a description of the type and quantity of raw materials and subassemblies used to
 . produce a single unit of finished product

d the sequence of operations during manufacturing

.

ANS: B

9. A move ticket

a is the formal plan and authority to begin production

.

b specifies the materials and production required for each batch

.

c records the work done in each work center

.

d authorizes the storekeeper to release materials to work centers

.

ANS: C

10. The internal control significance of the excess materials requisition is that it

a indicates the amount of material released to work centers

.

b identifies materials used in production that exceed the standard amount allowed
.

c indicates the standard quantities required for production

.

d documents the return to raw materials inventory of unused production materials

.

ANS: B

11. Inventory control performs all of the following tasks except it

a provides production planning and control with the inventory status report of finished
 . goods

b updates the raw material inventory records

.

c prepares a materials requisition for each production batch

.

d records the completed production as an increase to finished goods inventory

.

ANS: C

12. The storekeeper releases raw materials based on the

a production schedule
.

b materials requisition
.

c work order
.

d bill of materials
.

ANS: B

13. Which of the following is not an assumption of the Economic Order Quantity model?

a demand for the product is known with certainty

.

b total cost per year of placing orders is fixed

.

c lead time is known and is constant

.

d there are no quantity discounts

.
 ANS: B

14. Firms hold safety stock to compensate for

a mathematical weaknesses of the Economic Order Quantity model

.

b variations in lead time or daily demand

.

c fluctuations in carrying costs

.

d uncertainty in the estimation of ordering costs

.

ANS: B

15. What is the economic order quantity if the annual demand is 10,000 units, set up cost of placing each
order is $3 and the holding cost per unit per year is $2?

a 174
.

b 123
.

c 245
.

d none of the above

.

ANS: A

16. If the daily demand is 40 units and the lead time is 12 days, the reorder point is

a 52 units
.

b 48 units
.
 c 480 units
.

d none of the above

.

ANS: C

17. Which statement is not correct?

a general ledger creates a new cost record upon receipt of a work order from production
. planning and control

b cost accounting updates the cost record with data gathered from the materials requisition
.

c general ledger posts summary information about the manufacturing process based on a
. journal voucher prepared by cost accounting

d cost accounting computes variances and applies overhead to individual cost records
.

ANS: A

18. Which of the following is not a category of critical success factors in most manufacturing companies?

a product quality
.

b customer service
.

c revenue generation
.

d resource management
.

ANS: C

19. Computer integrated manufacturing groups all of the following technologies except
 a robotics
.

b materials requirements planning

.

c automated storage and retrieval systems

.

d computer aided design

.

ANS: B

20. The SAP R/3 system provides pre-defined modules to support business processes in the all of the
following categories except

a human resources
.

b business process support

.

c strategic
.

d financial
.

ANS: C

21. Which situation violates the segregation of functions control procedure?

a production planning and control is located apart from the work centers
.

b inventory control maintains custody of inventory items

.

c cost accounting has custody of and makes entries on cost records

.

d work centers record direct labor on job tickets

 .

ANS: B

22. All of the following are internal control procedures that should be in place in the conversion cycle except

a calculation and analysis of direct material and direct labor variances

.

b retention of excess materials by work centers

.

c physical count of inventory items on hand

.

d limited access to raw material and finished goods inventories

.

ANS: B

23. Process simplification focuses on

a using Computer Numerical Controlled machines which stand alone within a traditional
. setting

b completely automating the manufacturing environment

.

c reducing the complexity of the physical manufacturing layout of the shop floor
.

d organizing the process into functional departments

.

ANS: C

24. A manufacturing process that is organized into group technology cells utilizing no human labor is called

a islands of technology
.
 b process simplification
.

c Computer Integrated Manufacturing

.

d traditional manufacturing
.

ANS: C

25. An example of automation of manufacturing design is

a Computer Aided Engineering

.

b Automated Storage and Retrieval Systems

.

c Computer Numerical Control

.

d robotics
.

ANS: A

26. An example of automation of manufacturing planning is

a Computer Aided Engineering

.

b Automated Storage and Retrieval Systems

.

c Materials Requirements Planning

.

d Computer Numerical Control

.

ANS: C
27. Firms implement a Just-In-Time inventory approach to

a reduce investment in inventories

.

b determine the optimum inventory level using the EOQ model

.

c camouflage production problems

.

d ensure overproduction of inventory

.

ANS: A

28. Characteristics of Just-In-Time manufacturing include all of the following except

a push manufacturing
.

b zero defects
.

c reduced setup time and small lot sizes

.

d reliable vendors
.

ANS: A

29. The cost of poor quality includes all of the following except

a cost of rework
.

b warranty claims
.

c scheduling delays
.
 d proceeds from the sale of scrap
.

ANS: D

30. A flexible manufacturing system

a creates bottlenecks in the process

.

b leads to an us versus them attitude among workers

.

c shortens the physical distance between activities

.

d is organized along functional lines

.

ANS: C

31. Deficiencies of the traditional cost accounting information system include all of the following except

a an emphasis on financial performance

.

b inaccurate cost allocations

.

c an emphasis on standard costs

.

d immediate feedback about deviations from the norm

.

ANS: D

32. Which statement is not correct?

a an activity driver is a means to measure the activity used by the cost object
.
 b cost object describes the work performed in a firm
.

c activities cause costs

.

d cost objects create a demand for activities

.

ANS: B

33. Firms are adopting Activity Based Costing (ABC) because

a it facilitates the analysis of variances

.

b it more accurately allocates costs to products

.

c it recognizes the importance of direct labor as a component of total manufacturing cost

.

d the financial nature of the reports permits comparisons to be made among different types
. of products

ANS: B

34. In traditional firms, information reporting

a provides financially oriented information relating to operations

.

b presents detailed information about activities

.

c shows the allocation of costs first to activities and then to cost objects
.

d identifies nonessential activities

.

ANS: A
35. Types of information provided by Activity Based Costing include

a a description of the single activity driver used for overhead application

.

b the dollar value of the direct material usage variance

.

c identification of cost drivers

.

d details of the components of the single overhead cost pool

.

ANS: C

36. Which statement is not correct?

a the benchmark approach compares key activities with similar activities in other firms
.

b critical success factors include product and process quality

.

c the ABC model includes two perspectives: an allocation of cost perspective and a
. process perspective

d in world-class manufacturing firms, quality control activities at the end of the process are
. essential

ANS: D

37. All of the following are documents in batch process production systems except

a production schedule
.

b route sheet
.

c materials requisition
.
 d purchase order
.

ANS: D

38. Transaction authorization occurs in a traditional manufacturing environment in all of the following ways
except

a production planning and control initiates production with a work order

.

b movement of the work through the production process follows the move ticket
.

c the sales department modifies work orders to match changes in demand

.

d the materials requisition authorizes the storekeeper to release materials to the work
. centers

ANS: C

39. Manufacturing flexibility incorporates four characteristics. These include all of the following except

a high product quality

.

b high inventory levels

.

c automation of manufacturing processes

.

d physical reorganization of production facilities

.

ANS: B

40. The stages of the automation continuum are (in order)

a traditional, computer-integrated manufacturing, islands of technology, process

 . simplification

b process simplification, traditional, islands of technology, computer-integrated

. manufacturing

c traditional, islands of technology, process simplification, computer-integrated

. manufacturing

d traditional, process simplification, computer-integrated manufacturing, islands of

. technology

ANS: C

CHAPTER 8

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

a. sequential code
b. block code
c. group code
d. mnemonic code
ANS: B

2. A common use for sequential coding is

a. creating the chart of accounts
b. identifying inventory items
c. identifying documents
d. identifying fixed assets
ANS: C

3. The most important advantage of sequential coding is that

a. missing or unrecorded documents can be identified
b. the code itself lacks informational content
c. items cannot be inserted
d. deletions affect the sequence
ANS: A

4. When a firm wants its coding system to convey meaning without reference to any other document, it
would choose
a. an alphabetic code
b. a mnemonic code
c. a group code
d. a block code
ANS: B

5. The most important advantage of an alphabetic code is that

 a. meaning is readily conveyed to users
b. sorting is simplified
c. the capacity to represent items is increased
d. missing documents can be identified
ANS: C

6. Entries into the General Ledger System (GLS) can be made using information from
a. the general journal
b. a journal voucher which represents a summary of similar transactions
c. a journal voucher which represents a single, unusual transaction
d. all of the above
ANS: D

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

a. is based on the firms chart of account
b. contains a record for control accounts
c. is an output of the Financial Reporting System (FRS)
d. supplies information for management decision making
ANS: C

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

a. a chronological record of all transactions
b. the balance of each account in the chart of accounts
c. budget records for each account in the chart of accounts
d. subsidiary details supporting a control account
ANS: B

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

a. variance analysis report
b. statement of cash flows
c. tax return
d. comparative balance sheet
ANS: A

10. Which steps in the Financial Accounting Process are in the correct sequence?
a. record the transaction, post to the ledger, prepare the adjusted trial balance, enter adjusting
entries, prepare financial statements
b. record the transaction, prepare the unadjusted trial balance, record adjusting journal
entries, record closing entries, prepare financial statements
c. record the transaction, post to the ledger, record adjusting entries, prepare the unadjusted
trial balance, prepare financial statements
d. record the transaction, post to the ledger, prepare the adjusted trial balance, prepare
financial statements, record closing entries
ANS: D

11. Which statement is not correct?

a. the post-closing trial balance reports the ending balance of each account in the general
 ledger
b. one purpose of preparing the unadjusted trial balance is to ensure that debits equal credits
c. financial statements are prepared based on the unadjusted trial balance
d. the unadjusted trial balance reports control account balances but omits subsidiary ledger
detail
ANS: C

12. What account appears on the postclosing trial balance?

a. income summary
b. machinery
c. rent expense
d. interest income
ANS: B

13. Financial statements are prepared from the

a. trial balance
b. adjusted trial balance
c. general ledger
d. general journal
ANS: B

14. Risk exposures in the General Ledger and Financial Reporting Systems include all of the following
except
a. loss of the audit trail
b. unauthorized access to the general ledger
c. loss of physical assets
d. general ledger account out of balance with the subsidiary account
ANS: C

15. Which situation indicates an internal control risk in the General Ledger/Financial Reporting Systems
(GL/FRS)?
a. the employee who maintains the cash journal computes depreciation expense
b. the cash receipts journal voucher is approved by the Treasurer
c. the cash receipts journal vouchers are prenumbered and stored in a locked safe
d. the employee who maintains the cash receipts journal records transactions in the accounts
receivable subsidiary ledger
ANS: D

16. With a limited work force and a desire to maintain strong internal control, which combination of duties
performed by a single individual presents the least risk exposure?
a. maintaining the inventory ledger and recording the inventory journal voucher in the
general ledger
b. recording the inventory journal voucher in the general ledger and maintaining custody of
inventory
c. maintaining the cash disbursements journal and recording direct labor costs applied to
specific jobs
d. preparing the accounts payable journal voucher and recording it in the general ledger
 ANS: C

17. The audit trail fulfills all of the following purposes except
a. provides the ability to answer inquiries
b. ensures the accuracy of the application software
c. fulfills governmental regulations
d. offers a means for preventing, detecting, and correcting errors
ANS: B

18. Which best describes a batch process General Ledger System (GLS)
a. paper documents are eliminated
b. the general ledger master file is updated each night
c. there is a time lag between transaction processing and posting to the general ledger
d. no direct access or querying of the General Ledger is possible
ANS: C

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

a. separation between authorization and transaction processing is strictly enforced
b. the general ledger master file is recreated with each update
c. updates and reconciliation of transactions occur as a step within the transaction cycle
d. errors and out-of-balance conditions are identified at the end of the month
ANS: C

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

a. the MRS operates in conformity with generally accepted accounting principles
b. it is a legal requirement that the MRS be installed and functioning properly
c. the MRS is developed by implementing SEC requirements
d. the MRS focuses on internal decision-making information
ANS: D

21. Which statement is not true?

a. authority refers to an individuals obligation to achieve desired results
b. if an employee is given the responsibility for a task, that employee should be given
authority to make decisions within the limits of that task
c. the level of detail provided to an employee is a function of the employees position with
the firm
d. all of the above are true
ANS: A

22. Which statement is not true? The managers span of control

a. is narrow for routine and repetitive tasks
b. is related to the number of layers of management
c. affects the amount of detail provided to a manager
d. can affect employee morale and motivation
ANS: A

23. Short-range planning involves

 a. setting goals and objectives of the firm
b. planning the production schedule for the next quarter
c. planning the growth of the firm
d. deciding on the degree of diversification among the firms products
ANS: B

24. Long-range planning involves

a. planning the marketing and promotion for a product
b. presenting department heads with budgetary goals for the next year
c. preparing a work force utilization budget for the next quarter
d. deciding the optimum size of the firm
ANS: D

25. The level of management that makes tactical planning decisions is

a. top management
b. middle management
c. operations management
d. front-line management
ANS: B

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

a. strategic planning
b. tactical planning
c. management control
d. operational control
ANS: A

27. All of the following are elements of operational control decisions except
a. determining the scope of the activity
b. setting operating standards
c. evaluating performance
d. taking corrective action when necessary
ANS: A

28. In contrast to tactical planning decisions, management control decisions, and operational control
decisions, strategic planning decisions usually
a. are more focused
b. have a shorter time frame
c. are unstructured
d. have a high degree of certainty
ANS: C

29. Which of the following management principles affects the management reporting system?
a. formalization of tasks
b. authorization
c. span of control
d. all of the above
 ANS: D

30. All of the following are elements of problem structure except

a. certainty
b. data
c. procedures
d. objectives
ANS: A

31. All of the following are examples of programmed reports except

a. cash flow reports for Division B
b. year-to-date local income tax payments made by all employees living in City X and
working in City Y
c. inventory exception reports for Division G
d. equipment utilization reports for Plant M
ANS: B

32. A fundamental principle of responsibility accounting is that

a. managers are accountable only for items they control
b. a managers span of control should not exceed eight people
c. structured reports should be prepared weekly
d. the information flow is in one direction, top-down
ANS: A

33. Which statement is not true? Responsibility accounting

a. involves both a top-down and bottom-up flow of information
b. acknowledges that some economic events cannot be traced to any manager
c. creates a budget
d. compares actual performance with budget
ANS: B

34. What mechanism is used to convey to managers the standards by which their performance will be
measured?
a. the responsibility report
b. the scheduled report
c. the budget
d. all of the above
ANS: C

35. All of the following concepts encourage goal congruence except

a. detailed information reporting at all management levels
b. authority and responsibility
c. formalization of tasks
d. responsibility accounting
ANS: A
36. Which of the following statements is NOT true?
a. Sorting records that are coded alphabetically tends to be more difficult for users than
sorting numeric sequences.
b. Mnemonic coding requires the user to memorize codes.
c. Sequential codes carry no information content beyond their order in the sequence.
d. Mnemonic codes are limited in their ability to represent items within a class.
ANS: B

37. Which file has as its primary purpose to present comparative financial reports on a historic basis?
a. journal voucher history file
b. budget master file
c. responsibility file
d. general ledger history file
ANS: D

38. All of the following are characteristics of the strategic planning process except the
a. emphasis on both the short and long run.
b. review of the attributes and behavior of the organizations competition.
c. analysis of external economic factors.
d. analysis of consumer demand.
ANS: A

39. Which of the following performance measures can not result in dysfunctional behavior?
a. price variance
b. quotas
c. ROI
d. net income
e. all of the above can result in dysfunctional behavior
ANS: E

40. Which of the following best describes a profit center:

a. authority to make decisions affecting the major determinants of profit, including the power
to choose its markets and sources of supply.
b. authority to make decisions affecting the major determinants of profit, including the power
to choose its markets and sources of supply, and significant control over the amount of
invested capital.
c. authority to make decisions over the most significant costs of operations, including the
power to choose the sources of supply.
d. authority to provide specialized support to other units within the organization.
e. responsibility for combining the raw materials, direct labor, and other factors of
production into a final product.
ANS: A