Accounting Information Systems, 8e—Test Bank, Chapter 6
Chapter 6—The Expenditure Cycle Part II: Payroll Processing and Fixed Asset
Procedures
TRUE/FALSE
1. Time cards are used by cost accounting to allocate direct labor charges to work in process.
2. The personnel department authorizes changes in employee pay rates.
3. Most payroll systems for mid-size firms use real-time data processing.
4. To improve internal control, paychecks should be distributed by the employee’s supervisor.
5. Employee paychecks should be drawn against a special checking account.
6. Because a time clock is used, no supervision is required when employees enter and leave the work
place.
7. Inventory control performs the formal record keeping function for fixed assets.
8. The depreciation schedule shows when assets are fully depreciated.
9. Authorization to dispose of fixed assets should be issued by the user of the asset.
10. Work-in-process records are updated by payroll personnel.
11. Ideally, payroll checks are written on a special bank account used only for payroll.
12. The supervisor is the best person to determine the existence of a “phantom employee” and should
distribute paychecks.
13. Payroll processing can be automated easily because accounting for payroll is very simple.
14. Timekeeping is part of the personnel function.
15. Fixed asset accounting systems include cost allocation and matching procedures that are not part of
routine expenditure systems.
16. Asset maintenance involves only the recording of depreciation charges. Physical improvements are
always expensed.
17. Fixed Asset Systems must keep track of the physical location of each asset to promote accountability.
18. Time cards capture the total time an individual worker spends on each production job.
19. Accounting conventions and IRS rules sometime specify the depreciation parameters to be used.
20. The fixed asset disposal report authorizes the user department to dispose of a fixed asset.
21. Work centers provide the personnel action form, which triggers the payroll process.
22. The payroll department is responsible for both updating the employee records and writing paychecks.
23. The paymaster distributes paychecks to work center supervisors.
ANS: F PTS: 1
24. Inventory control authorizes fixed asset purchases with a purchase requisition.
25. When fixed assets are received, the receiving clerk sends copies of the receiving report to the
inventory control clerk and the AP clerk.
ANS: F PTS: 1
MULTIPLE CHOICE
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
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
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.
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
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
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
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
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
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.
10. In the payroll subsystem, which function should distribute paychecks?
a.
personnel
b.
timekeeping
c.
paymaster
d.
payroll
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
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.
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.
14. Which department is responsible for approving changes in pay rates for employees?
a.
payroll
b.
treasurer
c.
personnel
d.
cash disbursements
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.
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 employee’s check from being lost
c.
to avoid paying absent employees for payday
d.
to prevent the paymaster from cashing unclaimed checks
17. Which of the following is not a reasonable control for fixed assets?
Accounting Information Systems, 8e—Test Bank, Chapter 6
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.
18. Cost accounting updates work-in-process accounts from
a.
time cards
b.
the labor distribution summary
c.
job tickets
d.
personnel action forms
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
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
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
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
23. Personnel action 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
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
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
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
27. Accounts payable
a.
signs paychecks
b.
prepares the payroll voucher
c.
reconciles time cards and employee records
d.
distributes paychecks to employees
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
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
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
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
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
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
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
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
36. Which of the following uses fingerprint or hand-vein scan technology to produce the time and
attendance file?
a.
Biometric time clocks
b.
Magnetic swipe ID cards
c.
Mobile remote devices
d.
Proximity cards
37. Which of the following works like a credit card with the time clock?
a.
Biometric time clocks
b.
Magnetic swipe ID cards
c.
Mobile remote devices
d.
Proximity cards
38. Which of the following works through wallets, purses and card holders?
a.
Biometric time clocks
b.
Magnetic swipe ID cards
c.
Mobile remote devices
d.
Proximity cards
39. Which of the following is popular among businesses with employees in the field who travel between
clients and companies with foreign-based employees?
a.
Biometric time clocks
b.
Magnetic swipe ID cards
c.
Mobile remote devices
d.
Proximity cards
40. Which of the following is NOT an input control to reduce the risks of data entry errors and payroll
fraud for a company with a mobile or distributed work force?
a.
Limit tests that detect excessive hours
b.
Check digits that detect transcription errors in employee identification
c.
Biometric scanners, swipe cards, and PINS
d.
Multilevel security that achieves segregation of duties
SHORT ANSWER
1. Describe an internal control procedure that would prevent an employee from punching the time clock
for another, absent employee.
2. Why should the employee’s supervisor not distribute paychecks?
3. Describe an internal control procedure that would prevent a supervisor from stealing the unclaimed
paychecks of employees who have been terminated.
4. Why should employee paychecks be drawn against a special checking account?
5. Why should employees clocking on and off the job be supervised?
6. What is a personnel action form?
7. In a manufacturing firm, employees typically fill out two different documents regarding their time
worked. What are they? Why are there two?
8. List two types of authorization required in the Fixed Asset System.
9. List four types of data that appear on a depreciation schedule.
10. Which documents prompt the fixed asset department to create a fixed asset record?
11. Describe an internal control that would prevent an employee from stealing a computer and then
reporting it as scrapped.
12. Describe an internal control that would prevent the payment of insurance premiums on an automobile
that is no longer owned by the company.
13. Describe an internal control that would prevent the charging of depreciation expense to the
maintenance department for a sweeper that is now located in and used by the engineering department.
14. Describe an internal control that would prevent the acquisition of office equipment which is not
needed by the firm.
15. What negative consequences result when fixed asset records include assets that are no longer owned
by the firm?
16. Explain the purpose of each of the following documents used in the payroll system:
the personnel action form, the job ticket, the time card.
17. How do Fixed Asset Systems differ from the expenditure cycle?
18. What is recorded by the asset maintenance part of the Fixed Asset System?
19. How are the following carried out in the Fixed Asset System: authorization, supervision, independent
verification?
20. Which department authorizes changes to employee pay rates?
21. Erroneous data in the payroll system can corrupt WIP, employee records and the payroll register. What
edit controls will minimize this risk?
22. Describe three process controls that pertain to payroll application logic.
Accounting Information Systems, 8e—Test Bank, Chapter 6
ESSAY
1. The Golf Club Company makes custom golf clubs. The manufacturing supervisor interviews people
who have specialized manufacturing skills, and he informs payroll when an employee is hired. The
employees use a time clock to record the hours they work. The employees are also required to keep a
record of the time they spend working on each order. The supervisor approves all time cards.
The accountant analyzes the job tickets and prepares a labor distribution summary. Payroll prepares
the payroll register and paychecks. The supervisor distributes the paychecks to the employees. Payroll
informs cash disbursement of the funds required to cover the entire payroll amount. The cash
disbursements clerk ensures that there are adequate funds in the company’s regular checking account to
cover the payroll.
Describe at least three internal control weaknesses; for each weakness suggest an improvement to
internal control.
2. Describe how the Fixed Asset System differs from the expenditure cycle.
3. Three major tasks are handled by the Fixed Asset System. What is the purpose of each? What special
control issues affect each?
4. The Baccus Corp. manufactures medical equipment. This is a capital intensive industry and
investments in fixed assets exceed $5 million a year. The minimum cost for production equipment is
$75,000. When supervisors want new production machinery, they contact the plant manager. The plant
manager approves or denies the request based on discussions with the production supervisor, the repair
and maintenance supervisor, and the quality control supervisor.
A purchase order is prepared by the purchasing department and sent to one of the three major suppliers
of production machinery for medical equipment. The equipment is delivered immediately to the
production floor and put into service. At the end of the month, the production supervisor informs the
general ledger clerk about the receipt of the machinery. The general ledger clerk establishes an asset
record for the machine. At the end of the year, the general ledger clerk computes straight-line
depreciation based on a 10-year life with a 10 percent salvage value. Depreciation expense is recorded
as a direct reduction of the asset cost.
The repair department performs routine maintenance on all of the production equipment. Occasionally
the repair department rebuilds a machine to extend its useful life. All of the costs associated with the
repair department are charged to manufacturing overhead. When a machine becomes obsolete,
production employees move it to a corner of the factory floor and break it down so that parts can be
used in other machines. Production employees routinely remove parts for personal use. Some smaller
machines have disappeared completely from the factory floor.
The general ledger clerk takes a physical inventory every three years. About 75 percent of the fixed
assets can be located and identified. Other assets have serial numbers that are inaccessible, so the item
cannot be matched to a fixed asset record. Some fixed asset records cannot be traced to an actual item.
Several machines that have been scrapped and are being used for spare parts were matched to fixed
asset records. At the last inventory, the general ledger clerk did not make any adjustments to the fixed
asset records explaining that 75 percent accuracy in the fixed asset physical inventory was excellent.
Describe five internal control weaknesses and explain how to correct them.
Accounting Information Systems, 8e—Test Bank, Chapter 6
5. Why does the payroll process lend itself to batch processing?
6. Discuss the fundamental risk and control issues associated with fixed assets that are different from raw
materials and finished goods.
7. Outline the key steps taken in a payroll system that deals with hourly workers who are paid once each
week.
8. Describe several technologies developed for producing the time and attendance fil in a modern
business with telecommuting employees working from multiple locations.