Chapter 10 Solutions Expenditures Processes and Controls –
Payroll and Fixed Assets
10-1
Turner/Accounting Information Systems, 2e
Solutions Manual
Chapter 10
Concept Check
1. c
2. a
3. b
4. b
5. c
6. d
7. c
Discussion Questions
19. (SO 1) Sales and inventory purchases are routine processes that occur
nearly every day in a business. How are these routine processes
different from payroll or fixed asset processes? The major difference is
Chapter 10 Solutions Expenditures Processes and Controls –
Payroll and Fixed Assets
10-2
20. (SO 1) Even though payroll and fixed asset processes may not be as
routine as revenue processes, why are they just as important? They
21. (SO 2) Why do you think management should specifically approve all
employees hired? It is a nonroutine process, and therefore, the
22. (SO 2) Why is it important that the human resources department
maintain records authorizing the various deductions from an
employee’s paycheck? First, state or federal laws require that
employees authorize (allow) deductions from their salary or wages.
Secondly, without adequate records, it would be difficult to ensure the
correct deductions have been taken from employee wages.
23. (SO 2) Explain why an employee’s individual record is accessed
frequently, but changed relatively infrequently. Typically, an
24. (SO 2) Explain two things that should occur to ensure that hours
worked on a time card are accurate and complete. Each employee
should update their time card daily and a supervisor should check the
25. (SO 2) Explain the reasons that an organization would have a separate
bank account established for payroll. A separate bank account for
payroll makes it easier to account for payroll transactions and to
distinguish these transactions from other cash disbursements.
Chapter 10 Solutions Expenditures Processes and Controls –
Payroll and Fixed Assets
10-3
26. (SO 3) What is the purpose of supervisory review of employee time
cards? The supervisory approval serves as an independent check of
27. (SO3) Why is it important to use an independent paymaster to
distribute paychecks? It is the best segregation of duties to have a
28. (SO 3) Why do payroll processes result in sensitive information and
what is the sensitive information? The amount of salary or wages is
sensitive, as well as the types and amounts of deductions. Also,
personal information such as SSN, dependents, address and phone
numbers are sensitive.
29. (SO 4) Why is batch processing well-suited to payroll processes?
30. (SO 4) What are the advantages of automated time keeping such as
bar code readers or ID badges that are swiped through a reader?
31. (SO 4) What are the advantages of outsourcing payroll? Outsourcing
payroll provides increased convenience, confidentiality, and protection
from risk of liability for failure to submit tax withholdings and reports.
32. (SO 5) Fixed assets are purchased and retired frequently. Given this
frequent change, why are clear accounting records of fixed assets
necessary? Not only must the cost and resale value be accounted for
33. (SO 5) Why is it important to conduct an investment analysis prior to
the purchase of fixed assets? Since the dollar investment can be
Chapter 10 Solutions Expenditures Processes and Controls –
Payroll and Fixed Assets
10-4
35. (SO 5) What are some of the practical characteristics of fixed assets
that complicate the calculation of depreciation? For many companies,
36. (SO 6) What is different about the nature of fixed asset purchasing that
makes authorization controls important? Fixed asset purchases can
37. (SO 6) Explain the necessity of supervision over fixed assets. Fixed
assets must be located throughout the company where employees
38. (SO 6) Why are some fixed assets susceptible to theft? In some
cases, fixed assets are small or very portable. Examples would be
laptop computers, hand tools, or vehicles. These would be easy to
steal. Conversely, a large fixed asset such as a manufacturing robot
would not be easy to steal.
39. (SO 7) Explain why a real-time update of fixed asset records might be
preferable to batch processing of fixed asset changes. Often, fixed
40. (SO 7) Why is the beginning of a fiscal year the best time to implement
a fixed asset software system? Because it eliminates any mid-year
adjustments for depreciation that would be necessary.
Chapter 10 Solutions Expenditures Processes and Controls –
Payroll and Fixed Assets
10-5
41. (SO 7) What negative things might occur if fixed asset software
systems lack appropriate access controls? It would be much easier for
an employee to steal a fixed asset and alter the records to hide this
theft.
42. (SO 8) Why might a supervisor collude with an employee to falsify time
cards? In some cases, the supervisor might agree to the fraud so as
to share in the extra money that results from the fraudulent pay.
43. (SO 8) How does the misclassification of fixed asset expenditures
Brief Exercises
44. (SO 2) Describe the type of information that a human resources
department should maintain for each employee. They should maintain
personnel records that include employee application, contract, resume,
45. (SO 2) The calculation of gross and net pay can be a complicated
process. Explain the items that complicate payroll calculations. Each
46. (SO 3) Explain how duties are segregated in payroll. Specifically, who
or which departments conduct the authorization, timekeeping,
recording, and custody functions? Authorizing, timekeeping, record
Chapter 10 Solutions Expenditures Processes and Controls –
Payroll and Fixed Assets
10-6
departments should not have check-signing authority and should not
47. (SO 3) Explain the various reconciliation procedures that should occur
in payroll. The number of hours reported on time sheets should be
reconciled to the payroll register, and time sheets should be reconciled
48. (SO 4) Explain the ways in which electronic transfer of funds can
improve payroll processes. EFT can be used to directly deposit p[ay to
49. (SO 5) Explain the kinds of information that must be maintained in
fixed asset records during the asset continuance phase. For each
fixed assets, there must be records of the asset cost, estimated life
and salvage values, depreciation, maintenance records, and repair or
improvement costs.
50. (SO 6) The authorization to purchase fixed assets should include
investment analysis. Explain the two parts of investment analysis.
Chapter 10 Solutions Expenditures Processes and Controls –
Payroll and Fixed Assets
10-7
quantify in dollars. A written narrative of the need for investment can
help justify the expenditure when financial benefits do not immediately
exceed costs.
51. (SO 8) Explain the types of unethical behavior that may occur in the
fixed assets area. The use of estimates for useful lives and salvage
values are an area that unethical managers can use to manipulate
Problems
52. (SO 2) Following is a time sheet completed by an hourly wage earner
at Halfrid, Inc.
Use Microsoft Excel to perform the following:
a. Design an appropriate format for a data entry screen that could be
53. (SO 2) The text book Web site has a Microsoft Excel spreadsheet titled
payroll_problem.xls. This spreadsheet is used by Neltner Company to
calculate its bi-weekly payroll. Using the information in that
spreadsheet, calculate all details for the February 22, 2008 payroll.
Hours worked by each employee are contained in the first worksheet.
The following four worksheets contain details for each of the three
Chapter 10 Solutions Expenditures Processes and Controls –
Payroll and Fixed Assets
10-8
54. (SO 5) The text book Web site has a Microsoft Excel spreadsheet titled
fixed_asset.xls. The spreadsheet represents a fixed asset subsidiary
ledger for Brazos Corporation. On July 3, 2008, Brazos purchased for
55. (SO 6) Explain the process of approval of purchases for fixed assets.
How does this process differ from that of purchasing raw materials?
When a request to purchase a fixed asset is initiated by a manager, a
formal investment analysis should occur. This would include a cost-
benefit analysis such as net present value, and a written justification of
The processes mentioned above are most of the different processes
for fixed asset purchases when compared to raw material purchases.
One other difference is that requests to purchase raw materials
generally originate in inventory control or production scheduling, the
56. (SO 3) Using an Internet search engine, search for the phrase
“biometric time clock” (be sure to include the quotation marks). Based
Chapter 10 Solutions Expenditures Processes and Controls –
Payroll and Fixed Assets
10-9
on your search results, describe a biometric time recording system and
its advantages. A biometric time clock system uses unique physical
characteristics of human beings to identify and record time for
employees. Such biometric characteristics are finger print, hand print,
face, retina, or voice pattern. The most commonly used biometric
57. (SO 7) Using an Internet search engine, search for the phrase “fixed
asset software” (be sure to include the quotation marks). Examine the
results to find companies that sell fixed asset software. List and
explain some of the features of fixed asset software that these
companies use as selling points for their software.
Calculate depreciation for one book or multiple books (state, federal
and corporate).
Compute and retain depreciation figures for past, current and future
periods.
Create ‘Parent/Child’ asset relationships to establish key dependencies
and hierarchies.
Produce a full range of standard and customized reports and forecasts.
Set user-defined data and description fields (up to 30 levels of
analysis).
Chapter 10 Solutions Expenditures Processes and Controls –
Payroll and Fixed Assets
10–10
Adapt quickly to the familiar Windows® inspired interface.
accessing the database.
Establish individual or group access rights for security purposes.
Quickly add new asset details in a single input screen.
A simple process for depreciation calculations whether for individual
assets or groups of assets.
Several methods of depreciation including Straight Line, Double
Straight Line, Reducing Balance, Variable Rate, Adjusted Declining,
Digressive, MACRS, ACRS, adjustments and Residual, Multiple Units
of Production (MUOP) and Non Depreciating
The ability to forecast depreciation as far into the future as desired.
The ability to recalculate the current period’s depreciation to reflect
58. (SO 8) Read the article at this link:
perspectives. Also discuss whether you believe the use of this
device could be an internal control for the company. Yes, it is
ethical for a company to use such devices because they have a
valid business related purpose. As stated in the article, they would
use it to prevent company funds or assets being used for non-
Chapter 10 Solutions Expenditures Processes and Controls –
Payroll and Fixed Assets
10–11
business reasons. Without these devices the company may pay
expenses (gasoline and maintenance) that should be personal
expenses. Also, the company is not likely to have insurance
coverage that would cover a driver other than the employee and
this could cause many problems if other family members drive the
car. Therefore the company has many valid reasons to monitor the
From the employee perspective, the ethical behavior is to only use
vehicles for work related purposes. Certainly, common sense may
dictate minor use outside of company expectations might be
Acceptable. For example, is it unethical for an employee to deviate
slightly off course while driving to a company appointment so that
he/she could buy aspirin? This line of thinking should also be an
interesting and fruitful class discussion.
As is true for any internal control, the company would have to
determine whether it is cost effective. There are two types of cost.
One cost is the tangible, measurable cost of buying and
maintaining the GPS systems. The second type of cost is
Chapter 10 Solutions Expenditures Processes and Controls –
Payroll and Fixed Assets
10–12
59. (SO 8) Using an Internet search engine, search for the terms “Patti
Dale” and theft (be sure to include the quotation marks around the
name). Explain the unethical behavior that occurred. Also, explain
any internal controls that you believe were missing or not followed in
this case.
reduced the falsified time records.
Ms. Dale also had submitted over $65,000 in falsified travel
expenditures.
Cases
60. Flozner Company is a small manufacturing firm with 60 employees
with seven departments.
Required:
Describe any improvements you would suggest to strengthen the
payroll internal controls at Flozner.
Chapter 10 Solutions Expenditures Processes and Controls –
Payroll and Fixed Assets
10–13
rates.
Time cards are now kept in a holder near the door and workers keep
them all day. This gives employees too much opportunity to misuse
time cards. They can easily be stolen, altered, or use for “buddy
punch” where an employee clocks in for his buddy. Time cards should
be more secure or the company should use a more advanced solution
such as automated time keeping through ID badges or biometric time
recording.
Rather than the manager calling the payroll department to report pay
rate changes, there should be written documentation of pay rate
changes using a personnel action form. Without such documentation,
there is no audit trail of rate changes. In addition, a manager may
suggest rate changes, but final approval should occur in the HR
department.
61. Alomna Industries has payroll processes as described in the following
paragraphs.
Required:
a. Prepare a process map of the payroll processes at Alomna. Refer
to the separate Microsoft Excel file “Chapter 10 Solutions Process
Maps.xls.
b. Identify both internal control strengths and internal control
weaknesses of the payroll processes.
Chapter 10 Solutions Expenditures Processes and Controls –
Payroll and Fixed Assets
10–14
There is a separate HR department involved in hiring, and
completing and approving documents related to hiring and
terminations.
WEAKNESSES
An automated time keeping system would be more accurate and
less susceptible to fraud.
There is no supervisory approval of time cards.
There is no reconciliation or independent check of employee hours
worked.
c. For any internal control weaknesses, describe suggested
improvements.
Purchase and use an automated time keeping system.
Have supervisors approve time cards before they are forwarded to
payroll.
There should be a reconciliation to job cards or an independent
verification of hours worked.
Chapter 10 Solutions Expenditures Processes and Controls –
Payroll and Fixed Assets
10–15
62. Breightner Enterprises is a mid-size manufacturing company with 120
employees and approximately 45 million in sales.
Required:
a. Identify any internal control strengths and weaknesses in the
fixed asset processes at Breightner. Explain why each of those
that you identify are strengths or weaknesses.
STRENGTHS
There is a process to identify benefits and costs for new asset
requests.
There is an independent review of costs and benefits of
WEAKNESSES
A set of levels of approval, dependent on the amount of the
asset, have not been established.
The VP of operations may not necessarily need to exhaust all
funds. If there are not enough asset proposals with acceptable
b. For each internal control weakness, describe improvement(s) in
the processes to address the weakness.
Establish higher levels of managerial approval for assets with
higher costs.
Establish a policy that assets must meet some minimum level of
Chapter 10 Solutions Expenditures Processes and Controls –
Payroll and Fixed Assets
10–16
63. The Rampart Company has the following processes related to fixed
assets.
Required:
Describe any improvements you would suggest to strengthen the fixed
asset internal controls at Grundoll.
There should be a more formal approval process that would include:
identification of costs and benefits, a discounted cash flow analysis, a
64. (CMA Adapted) Rophna Co. makes automobile parts for sale to major
automobile manufacturers in the United States.
Required:
Identify any internal control weaknesses and suggest improvements to
strengthen the internal controls over machinery and equipment at
Rophna.
Chapter 10 Solutions Expenditures Processes and Controls –
Payroll and Fixed Assets
10–17
Weakness: Asset purchases are approved as long as funds exist.
Improvement: There should be established expectations of return on
investment that assets must be expected to achieve before purchase is
approved.
Weakness: Assets are not inspected at the receiving dock.
Improvement: When practical, fixed assets should be delivered to the
receiving department and inspected for damage before delivery to the
user department. This may not be possible for fixed assets such as
those that must be installed at the user location.
Weakness: The plant manager notifies property accounting of
retirements, but it does not indicate that any documents are prepared,
or that approval is necessary.
Improvement: There should be formal documents prepare for asset
disposal or retirement, this should have proper managerial approval,
and there should be an established policy on what happens to retired
assets.