To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com ACCOUNTING INFORMATION SYSTEMS CONTROLS AND PROCESSES TURNER / WEICKGENANNT CHAPTER 10: Expenditures Processes and Controls – Payroll and Fixed Assets TEST BANK - CHAPTER 10 - TRUE / FALSE It is not necessary to get specific authorization for each individual routine transaction Routine transactions refer to common business transactions such as payroll and fixed asset transactions Accounting for a fixed asset over the life of the asset would have features of non-routine transactions only The payroll process starts when an employee is hired by the organization Members of management are not required to specifically approve an employee hired by the company when the new employee has been screened by an employment office The hiring of employees is considered to be a routine process A hiring decision normally occurs as the result of an interview or interviews and is documented on a signed letter and / or signed employment contract Amounts withheld from an employee paycheck will ultimately be paid to another vendor Most of the records found in an employee’s personnel file are accounting related 10 A unique feature of the information contained in an individual personnel file is that it is accessed infrequently but is changed relatively frequently 11 It is common that personnel related expenses are one of the largest expenses reported on the company’s income statement 12 A challenging area of payroll computation is computing the amount of deductions related to each employee’s pay 13 Accounting software is available to assist with payroll but it is not very efficient because of all the changes that occur to all payroll variables during the period 14 Preparing payroll manually is extremely time consuming due to the process of extracting all these inputs from the records and performing the mathematical computations 15 Overtime hours are paid at a rate different from the regular hours, usually one and one-half times the standard rate To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 16 Before the paychecks are sent to management for authorization, the human resources department should compare the hours reported on the time sheets with the hours shown on the payroll register 17 Although it is uncommon, some companies maintain separate checking accounts that are used for payroll transactions 18 When an organization uses a separate checking account to handle payroll transactions, it is easier to account for the payroll transactions and to distinguish them from cash disbursements for other business purposes 19 It is the responsibility of the payroll department to make certain that all time sheets represent actual time worked by currently active employees 20 Payroll disbursements are to be authorized by the accounts payable department on the basis of the company’s need to satisfy its obligation to its employees 21 The human resources department should be responsible for the record keeping function related to payroll 22 The cash disbursements department should have the responsibility of signing, essentially approving all paychecks 23 The paymaster should be independent from the departmental supervision responsibilities, so that it can be determined that the paychecks are being distributed to active employees 24 Payroll information includes personal information about employees, such as their pay rate and performance, and must be kept confidential 25 Strong internal controls are just as important for small organizations with few employees paid once per month as it is for large organizations with numerous employees being paid weekly 26 Because of the infrequency of payroll processing and the sequential nature of the payroll process, many companies find that real-time processing is well-suited for payroll activities 27 An alternative to batch processing is the use of electronic timekeeping devices, such as time clocks or badge readers 28 The electronic timekeeping devices accumulated data throughout the period and automatically calculate batch totals At this time, the data batches are not able to prepare the paychecks or the payroll register 29 Payroll outsourcing has become popular (and prevalent) because it offers increased convenience and confidentiality 30 The investment in fixed assets is often the largest asset reported on the income statement To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 31 The acquisition of fixed assets is normally initiated by a user department when they identify a need for a new asset, either to replace an existing asset or to enhance its current pool 32 When a new asset is requested, and the cost is below a pre-established amount, it is necessary for specific authorization of the purchase 33 Many companies use a tracking system for their fixed assets that would include applying a fixed asset tag, number, or label to the asset 34 Organizations should have written procedures in place to identify when the costs related to fixed assets are capitalized (recorded to repair and maintenance expense) 35 If a new cost is incurred related to an asset that is considered to enhance that, either by extending the useful life or increasing the efficiency, the fixed asset accountant must make sure the appropriate adjustments are made to the fixed asset subsidiary ledger 36 Accounting for fixed assets requires the use of estimates - specifically the cost and the salvage value 37 The use of estimates when accounting for fixed assets requires that the estimates may need to be changed as time passes and new information is discovered 38 For any company, and any asset, the method of depreciation and the related estimates (salvage value and useful life) are the same for financial statements and income taxes 39 In order to compute the book value of any asset, start with the cost of the asset and add the accumulated depreciation 40 In the case of high-dollar assets, there should be a strict approval process that requires the authorization of top management or the initiation of the capital budgeting procedures 41 For most companies, fixed asset acquisitions are considered to be routine processes 42 One area where earnings management may be prevalent due to the judgmental nature of the underlying data is with fixed assets 43 Earnings management related to fixed assets would occur when reducing expenses by decreasing the useful life of the fixed assets 44 A method of earnings management is to misclassify capitalized costs as repair and maintenance expenses 45 Although there is no direct benefit, in terms of cash received, when a fraudster engages in earnings management, it is still unethical because it results in the falsification of the company’s financial statements 46 Historically, there have been a large number of cases of fraud, theft, manipulation, and misuse of funds in the areas of payroll and fixed assets To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 47 Corporate governance policies and procedures must be in place to ensure that funds are expended to benefit managers and employees 48 The controls discussed in the chapter, related to safeguarding assets within the expenditures process and ensuring the accuracy and completeness of expenditure processes, help to enhance corporate governance structure ANSWERS TO TEST BANK – CHAPTER 10 – TRUE / FALSE: 10 T F F T F F T F F F 11 12 13 14 15 16 17 18 19 20 T T F T T F F T F T 21 22 23 24 25 26 27 28 29 30 F F T T F F T F T F 31 32 33 34 35 36 37 38 39 40 T F T F T F T F F T 41 42 43 44 45 46 47 48 F T F F T T F T TEST BANK - CHAPTER 10 - MULTIPLE CHOICE 49 Routine business transactions would include which of the following? A Purchase of merchandise inventory B Payment of principal on a note C Purchase of fixed asset D Paying wages and salaries to employees 50 This type of transaction is one that a business encounters on a regular, recurring basis The volume of the transactions is so large that transactions and the related accounting activities become second nature to the employees responsible for handling them Specific authorization for each of these transactions is not necessary The type of transaction referred to is: A Non-routine transaction B Payroll transaction C Fixed asset transaction D Routine transaction 51 Which of the following is a characteristic of a non-routine transaction? A A business encounters this type of transaction on a regular, recurring basis B Required to have specific authorization C Volume of transactions becomes second nature to the employees responsible D Specific authorization for the specific transaction is not necessary To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 52 A company must have systems in place to take care of all activities related to both routine and non-routine processes The activities would include all of the following, except: A Record B Summarize C Review D Report 53 The policies and procedures that employees following in acquiring and maintaining human resources, capturing and maintaining employee data, paying employees for time worked, and recorded the related cash payroll liabilities and expenses are collectively referred to as: A Payroll processes B Human resources C Salary administration D Administrative procedures 54 The policies and procedures involved in purchasing property; capturing and maintaining relevant data about the assets; paying for and recording the related assets; depreciation and other expenses; and gains or losses are collectively referred to as: A Capital resources B Fixed asset processes C Property administration D Capital procedures 55 There are many risks that may affect the payroll and fixed asset transactions Which of the following is not one of those risks? A Recorded transactions may not be valid B Expenditure transactions may be recorded in the wrong account C Valid expenditures recorded properly by the wrong employee D Transactions may not be recorded in a timely manner 56 This department is responsible for maintaining records for each job and each employee within the organization, as well as tracking job vacancies and supporting the company’s recruitment efforts A Salary and Wage Administration Department B Vice President for Employees Department C Employee Services Department D Human Resources Department 57 The document is prepared in order to map out the jobs and reporting relationships within an organization This may include only top branches of an organization or may include all positions within the company A Employee List B Organization Chart C Hierarchy Tree D Human Resources Listing To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 58 This item would include explanations concerning the qualifications and responsibilities of each position shown on organization chart The item is also supported by policies and procedures manuals that outline specific activities performed by each position A Job profile B Human resources listing C Organization chart description D Position description 59 Personnel records will typically include all of the following, except: A Documentation related to the initial hiring B Personal information, such as the employee address C Medical history subsequent to hiring D Social security number 60 Each of the following items would likely be found in an employee’s personnel records related to the initial hiring, except: A Employment application B Recommendation letters C Background investigation results D Overtime and commission rates 61 It is necessary for employees to maintain adequate records of the hours worked and the projects worked on The record of hours worked by an employee for a specific payroll period is reported on a document called: A Time ticket B Time sheet C Salary document D Wage report 62 Which of the following would be a correct way to compute the gross pay for an employee? A Hours Worked times Authorized Pay Rate B Hours Worked times Authorized Pay Rate minus Withholding Taxes C Net Pay minus Authorized Deductions D Net Pay times Withholding Taxes 63 Which of the following would be a correct way to compute the net pay for an employee? A Hours Worked times Authorized Pay Rate B Gross Pay minus Withholding Taxes C Gross Pay minus Authorized Deductions D Hours Worked times Withholding Tax Rate 64 This record, prepared by the payroll department, is a complete listing of salary or wage detail for all employees for a given time A Payroll journal B General ledger C Employee record D Payroll register To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 65 When accounting software is used to prepare the periodic payroll, which of the following items is necessary to input for each employee? A Employee Name B Hours Worked C Pay Rate D Social Security Number 66 This document authorizes the transfer of cash from the company’s main operating account into the payroll cash account A Payroll register B Payroll disbursements journal C Payroll voucher D Paycheck 67 This record, prepared by the cash disbursements department, provides a listing of al paychecks written, in check-number sequence, with the total supporting the amount of payroll funds to transfer to the payroll bank account A Payroll Disbursements Journal B Payroll Register C Payroll Journal D Cash Disbursements Journal 68 This A B C D individual is responsible for distributing the signed paychecks on the designated pay day Human Resources Director Department Supervisor Payroll Department Manager Paymaster 69 Types of fraud that may occur in the payroll function include all of the following, except: A Overstated hours B Incorrectly computed tax withholdings C False claims of sick leave D Pay claims made by ghost employees 70 Which of the following correctly states a reconciliation process to be completed related to payroll? A Time sheets reconciled to the payroll register B Payroll register to the general ledger C Time sheets to the production reports D Production reports to the general ledger 71 The internal control activity requiring that the manager approves payroll prior to signing paycheck is intended to minimize the risk of: A Omitted paychecks B Incorrect amounts C Fictitious employee D Stolen paychecks To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 72 The of: A B C D internal control process of requiring an independent paymaster will help to minimize the risk Fictitious employees Incorrect amounts Omitted paychecks Timing issues 73 The internal control process of requiring the payroll register to be reconciled with the time sheets will help to minimize the risk of: A Invalid payroll transactions B Omitted paychecks C Duplicate paychecks D Fictitious employees 74 Internal control activities within the payroll process, identified as adequate records and documents, would include which of the following? A Manager approval of payroll prior to signing checks B Independent paymaster C Physical controls in areas where cash and paychecks are held D Paychecks are prepared on prenumbered checks 75 Internal control activities within the payroll process, identified as authorization, would include which of the following? A Preparation of a bank reconciliation B Independent paymaster C Manager approval of payroll prior to signing checks D Physical controls in areas where cash and paychecks are held 76 Internal control activities within the payroll process, identified as segregation of duties, would include which of the following? A Payroll preparation, authorization of new hiring and pay rates, information systems, and general accounting should all be performed by different departments and / or different people B IT controls over computer records and physical controls in records storage areas C The payroll register is checked for mathematical accuracy and agreement with authorized pay rates and deductions D Supervisor approval of time sheets prior to preparation of payroll documents 77 Internal control activities within the payroll process, identified as independent checks and reconciliations, would include which of the following? A IT controls over computer records and physical controls in records storage area B Time sheets reconciled with the payroll register C The payroll register is checked for mathematical accuracy and agreement with authorized pay rates and deductions D Supervisor approves time sheets prior to preparation of payroll documents To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 78 When payroll is processed using batch processing, which of the following would not be part of the payroll process? A Human resources department would be responsible for keying employee information into the master file B The timekeeper will accumulate all time sheets and enter them into the computer system in batches C The timekeeper should prepare control totals and hash totals in order to check the system before the paychecks are generated D Human resources should prepare control totals and has totals in order to check the system before the paychecks are generated 79 An electronic payroll time keeping device that collects time and attendance data when employees enter their time sheets is called: A Timekeeper B Paymaster C Electronic time clock D Badge readers 80 An electronic payroll time keeping device that collects data when employee identification badges are swiped through an electronic reader are called: A Timekeeper B Badge reader C Paymaster D Electronic time clock 81 In order to smooth out the payroll process and avoid the heavy workload that falls at the end of the payroll period, many companies will use this type of system – one that integrates their human resources and payroll functions This system makes real-time personnel data available and the general ledger and production system can be automatically updated at the end of the payroll period A Online Software Systems B Batch Processing C Electronic Timekeeping D Outsourcing of Payroll Services 82 Many companies use independent, internet-based service providers to handle their payroll processing These payroll providers specialize in offering solutions and constant access to payroll information A Online Software Systems B Batch Processing C Electronic Timekeeping D Outsourcing of Payroll Services To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 83 There are many uses of electronic funds transfer related to the payroll process Which of the following is not one of those uses? A Payments to the employees B Payments to the federal taxing agencies C Transfers to the payroll checking account D All of the above are uses of electronic funds transfer 84 Assets to be included in the fixed asset pool would include all of the following, except: A Vehicles B Furniture C Office Supplies D Real Estate 85 The A B C D fixed assets owned by a company are considered to be long-term because: The high cost of the fixed assets demands that they not be considered short term They are purchased with the intent of benefitting the company for a long period of time The assets will last for a long period of time All of the above are reasons the fixed assets are considered to be long-term 86 The three phases of fixed assets processes, that span the entire useful life of the assets, include all of the following, except: A Depreciation B Acquisition C Disposal D Continuance 87 Notable differences between the acquisition of fixed assets and the acquisition of inventory include: A The placement of the acquired assets - user department for fixed assets, warehouse for inventory B The inclusion of a fixed asset department instead of the inventory control department C Both of the above D None of the above 88 This document is a financial plan detailing all of the company’s investments in fixed assets and other investments A Investment Analysis B Feasibility Study C Operating Budget D Capital Budget 89 A detailed listing of the company’s fixed assets, divided into categories consistent with the general ledger accounts is called a: A Fixed Asset Journal B Fixed Asset Subsidiary Ledger C Fixed Asset Schedule D Fixed Asset Budget To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 90 This phase of the fixed asset processes relates to those required to maintain accurate and upto-date records regarding all fixed assets throughout their useful lives A Depreciation B Acquisition C Disposal D Continuance 91 Activities involved with the fixed assets continuance phase of the fixed assets processes include all of the following, except: A Updating depreciation prior to the disposal of fixed assets B Updating cost data for improvements to assets C Adjusting for periodic depreciation D Keeping track of the physical location of the assets 92 The record detailing the amounts and timing of depreciation for all fixed asset categories, except land, is called: A Fixed asset subsidiary ledger B Capital budget C Depreciation schedule D Depreciation method 93 This phase of the fixed asset processes relates to discarding fixed assets when they become old, outdated, inefficient, or damaged A Depreciation B Acquisition C Disposal D Continuance 94 Activities involved with the fixed assets disposal phase of the fixed assets processes include all of the following, except: A Adjusting periodic depreciation B Disposed assets are removed from the fixed asset subsidiary ledger C Gains or losses resulting from disposal are computed D The depreciation amounts related to the disposed assets are removed from the depreciation schedule and the fixed asset subsidiary ledger 95 Disposing of a fixed asset could include all of the following methods, except: A Throwing it away B Sending it to another department C Exchanging it for another asset D Donating it to another party 96 When high-dollar fixed assets are purchased, there should be a strict approval process which would include three formal steps Which of the following is not one of those steps? A Review of the proposal and specific approval by the appropriate level of management B Investment analysis C Comparison with the capital budget D Feasibility study To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 97 The first part of the strict approval process for high-dollar fixed assets is the investment analysis Which of the following is part of that analysis? A Capital budget comparison B Review of the proposal C Financial justification D Written requisition 98 Which of the following is a correct statement related to segregation of duties related to fixed assets? A Custody of fixed assets is to be separate from the related record keeping B Custody of fixed assets need not be separate from the purchasing of fixed assets C The IT function of programming need not be separated from the accounting for fixed assets D All of the above are correct statements related to the segregation of duties 99 The security of assets and documents would include all of the following, except: A Supervisors need to make certain that the assets are being used for their intended purpose B Designated members of management should be assigned responsibility for the disposal of any assets C Maintaining adequate insurance coverage D Electronic controls are needed to control access to automated records 100 Which of the following independent checks would be part of the internal controls for fixed assets? A Comparing actual fixed asset expenditures with the capital budget B Periodic counts of fixed assets should be made by someone not otherwise responsible for fixed asset related activities C Physical counts should be reconciled with the accounting records D Book value of the assets should be compared to the insurance records 101 The internal control process of requiring management approval of fixed asset changes prior to recording the transaction will help to minimize the risk of: A Incorrect amounts B Lost or stolen assets C Duplicate transactions D Omitted transactions 102 The internal control process of requiring physical controls in place in areas where fixed assets are held will help to minimize the risk of: A Incorrect amounts B Lost or stolen assets C Duplicate transactions D Omitted transactions To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 103 The internal control process of requiring the check of the fixed asset subsidiary ledger and depreciation schedule for mathematical accuracy and agreement with authorized documentation will help to minimize the risk of: A Incorrect amounts B Lost or stolen assets C Duplicate transactions D Omitted transactions 104 Factors that indicate the need for internal controls over fixed assets processes include all of the following, except: A General nature of fixed assets makes the susceptible to theft because they are distributed throughout the business and are in the hands of many B Large quantities of fixed assets C High likelihood of obsolescence due to technological changes D The high cost of assets 105 Most companies can justify the use of specialized asset management software programs instead of the spreadsheets or traditional manual systems for all of the following reasons, except: A The abundance of fixed asset data B The time-consuming and tedious requirements for tracking changes C The number of different methods of accounting for depreciation D The intricacy of the tax laws 106 The A B C D shortcomings of a spreadsheet-based system include all of the following, except: The design of spreadsheets is very time consuming The abundance of fixed asset data It is difficult to apply varying depreciation policies within spreadsheets It is difficult to establish an audit trail with spreadsheets 107 The control environment related to the fixed asset processes can be enhanced through the implementation of various access controls, such as: A Passwords B Number of employees who have access to the system C Limits on the number of computer workstations where information may be entered D All of the above 108 An entity who receives a paycheck, but who does not actually work for the company is called: A Ghost employee B Shell employee C Abundant employee D Absent employee 109 There are a number of ways that frauds may be carried out to try to receive excess compensation Which of the following is not one of those methods? A Exaggeration of hours worked B Falsification of overtime or holiday time worked, payable at a higher rate C Understatement of job related expenses D Falsification of sales in order to increase commission payouts To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 110 Clues that a ghost employee may exist in the company would include all of the following, except: A Payroll register identifies paychecks without adequate tax withholdings B The personnel file contains no duplicate addresses C Payroll expenses are over budget D Paychecks were not claimed when the paymaster distributed them ANSWERS TO TEST BANK – CHAPTER 10 – MULTIPLE CHOICE: 49 50 51 52 53 54 55 56 57 58 59 60 61 A D B C A B C D B A C D B 62 63 64 65 66 67 68 69 70 71 72 73 74 A C D B C A D B D C A B D 75 76 77 78 79 80 81 82 83 84 85 86 87 C A B D C B A D D C B A C 88 89 90 91 92 93 94 95 96 97 98 99 100 D B D A C C A B D C A B D 101 102 103 104 105 106 107 108 109 110 C B A D C B D A C B TEST BANK – CHAPTER 10 – END OF CHAPTER QUESTIONS: 111 Which of the following statements about payroll and fixed asset processes is true? A Both have only routine processes B Both have only non-routine processes C Both have routine and non-routine processes D Payroll has only routine processes, while fixed assets has only non-routine processes 112 For a given pay period, the complete listing of paychecks for the pay period is a: A Payroll register B Payroll ledger C Payroll journal D Paymaster 113 A payroll voucher A Authorizes an employee paycheck to be written B Authorizes the transfer of cash from a main operating account to a payroll account C authorizes the transfer of cash from a payroll account to a main operating account D Authorizes the paymaster to distribute paychecks To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 114 For proper segregation of duties, the department that should authorize new employees for payroll would be: A Payroll B Human resources C Cash disbursements D General ledger 115 Which of the following is not an independent check within payroll processes? A Time sheets are reconciled with production records B Time sheets are reconciled with the payroll register C Paychecks are prepared on prenumbered checks D The payroll register is reconciled with the general ledger 116 An integrated IT system of payroll and human resources may have extra risks above those of a manual system Passwords and access logs are controls that should be used in these integrated systems to lessen the risk of: A Hardware failures B Erroneous data input C Payroll data that does not reconcile to time cards D Unauthorized access to payroll data 117 Internal control problems would be likely to result if a company’s payroll department supervisor was also responsible for: A Reviewing authorization forms for new employees B Comparing the payroll register with the batch transmittal C Authorizing changes in employee pay rates D Hiring subordinates to work in the payroll department 118 Which of the following procedures would be most useful in determining the effectiveness of a company’s internal controls regarding the existence or occurrence of payroll transactions? A Observe the segregation of duties concerning personnel responsibilities and payroll disbursement B Inspect evidence of accounting for prenumbered payroll checks C Recompute the payroll deductions for employee fringe benefits D Verify the preparation of the monthly payroll account bank reconciliation 119 In meeting the control objective of safeguarding of assets, which department should be responsible for distribution of paychecks ad custody of unclaimed paychecks, respectively? A B C D Distribution of Paychecks Treasurer Payroll Treasurer Payroll Custody of Unclaimed Paychecks Treasurer Treasurer Payroll Payroll To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 120 A company’s internal controls policies may mandate the distribution of paychecks by an independent paymaster in order to determine that: A Payroll deductions are properly authorized and computed B Pay rates are properly authorized and separate from the operating functions C Each employee’s paycheck is supported by an approved time sheet D Employees included in the period’s payroll register actually exist and are currently employed 121 The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the: A Authorization of transactions from the custody of related assets B Operational responsibility from the record keeping responsibility C Human resources function from the controllership function D Administrative controls from the internal accounting controls 122 Which of the following departments or positions most likely would approve changes in pay rates and deductions from employee salaries? A Personnel B Treasurer C Controller D Payroll 123 The purchaser of fixed assets is likely to require different authorization processes than the purchase of inventory Which of the following is not likely to be part of the authorization of fixed assets? A Specific authorization B Inclusion in the capital budget C An investment analysis or feasibility analysis of the purchase D Approval of the depreciation schedule 124 Which of the following is not a part of “adequate documents and records” for fixed assets? A Fixed asset journal B Fixed asset subsidiary ledger C Purchase order D Fixed asset tags 125 Which of the following questions would be least likely to appear on an internal control questionnaire regarding the initiation and execution of new property, plant, and equipment purchases? A Are requests for repairs approved by someone higher than the department initiating the request? B Are prenumbered purchase orders used and accounted for? C Are purchase requisitions reviewed for consideration of soliciting competitive bids? D Is access to the assets restricted and monitored? To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 126 Which of the following reviews would be most likely to indicate that a company’s property, plant, and equipment accounts are not understated? A Review of the company’s repairs and maintenance expense accounts B Review of supporting documentation for recent equipment purchases C Review and recompilation of the company’s depreciation expense accounts D Review of the company’s miscellaneous revenue account 127 Which of the following is not an advantage of fixed asset software systems when compared with spreadsheets? A Better ability to handle non-financial data such as asset location B Easier to apply different depreciation policies to different assets C Manual processes to link to the general ledger D Expanded opportunities for customized reporting 128 The A B C D term “ghost employee” means that: Hours worked has been exaggerated by an employee False sales have been claimed to boost commission earned Overtime hours have been inflated Someone who does not work for the company receives a paycheck ANSWERS TO TEST BANK – CHAPTER 10 – END OF CHAPTER QUESTIONS 111 112 113 114 C A B B 115 116 117 118 C D C A 119 120 121 122 A D A A 123 124 125 126 D A D A 127 C 128 D TEST BANK – CHAPTER 10 – SHORT ANSWER QUESTIONS 129 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? Answer: The major difference is the frequency of occurrence As stated in the question, sales and purchases are often undertaken daily Payroll occurs on a fixed schedule such as every week, biweekly, or at month-end Payroll transaction volume might be large, but only at these time intervals Some payroll events occur only when employees are hired or fired Fixed asset processes occur on an “as needed” basis The volume of fixed asset transactions is relatively small compared to sales or purchase transaction volume Depreciation of fixed assets occurs on a fixed interval, such as at year-end 130 Even though payroll and fixed asset processes may not be as routine as revenue processes, why are they just as important? Answer: They are important because payroll and fixed asset transactions are related to two very critical resources An organization must have employees and facilities (fixed assets) to operate To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 131 Why you think management should specifically approve all employees hired? Answer: It is a nonroutine process, and therefore, the volume of hiring is usually small enough to allow specific approval of each hire Specific approval is important because hiring the right people is one of the most important keys to success in an organization Also, hiring unethical people, or people with criminal backgrounds can be very detrimental to the company 132 Why is it important that the human resources department maintain records authorizing the various deductions from an employee’s paycheck? Answer: 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 133 Explain why an employee’s individual record is accessed frequently, but changed relatively infrequently Answer: Typically, an employee’s basic information does not change frequently For example, name, birth date, SSN, either never change, or rarely change Other employee information such as address, pay rate, or deductions change infrequently However, some of this information, such as pay rate and deductions must be accessed every time payroll checks are prepared 134 Explain two things that should occur to ensure that hours worked on a time card are accurate and complete Answer: Each employee should update their time card daily and a supervisor should check the time card and sign or initial it before it is forwarded to payroll for processing If an employee does not update it daily, they are more likely to put inaccurate information on it simply because it will be harder to remember the specific start and end times of work The supervisory approval serves as an independent check of the accuracy of the time card 135 Explain the reasons that an organization would have a separate bank account established for payroll Answer: A separate bank account for payroll makes it easier to account for payroll transactions and to distinguish these transactions from other cash disbursements 136 What is the purpose of supervisory review of employee time cards? Answer: The supervisory approval serves as an independent check of the accuracy of the time card 137 Why is it important to use an independent paymaster to distribute paychecks? Answer: It is the best segregation of duties to have a separate paymaster to distribute any paper checks A separate paymaster segregates the custody from authorization, preparation, and recording of paychecks If these duties were combined, a person could commit payroll fraud such as creating a fictitious employee A separate paymaster helps ensure only active employees receive paychecks 138 Why payroll processes result in sensitive information and what is the sensitive information? Answer: The amount of salary or wages is sensitive, as well as the types and amounts of deductions Also, personal information such as SSN, dependents, addresses and phone numbers are sensitive To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 139 Why is batch processing well-suited to payroll processes? Answer: Because it involves transactions that can be grouped and processed at a particular time For example, all hourly workers might be required to turn in all time cards on Friday afternoon and be paid the next Tuesday All of these time cards can be processed as a group on Monday 140 What are the advantages of automated time keeping such as bar code readers or ID badges that are swiped through a reader? Answer: Using these automated methods eliminates human steps that are error prone Thus, timekeeping becomes more efficient and more accurate 141 What are the advantages of outsourcing payroll? Answer: Outsourcing payroll provides increased convenience, confidentiality, and protection from risk of liability for failure to submit tax withholdings and reports 142 Fixed assets are purchased and retired frequently Given this frequent change, why are clear accounting records of fixed assets necessary? Answer: Not only must the cost and resale value be accounted for properly, but depreciation can only be calculated accurately with proper records, and any gain or loss on sale is computed based on accurate records 143 Why is it important to conduct an investment analysis prior to the purchase of fixed assets? Answer: Since the dollar investment can be large, and there is usually a limited capital budget, there must be an orderly process to determine the best use of capital funds 144 Explain why categorizing fixed asset expenditures as expenses or capital assets are important Answer: Miscategorization can have a dramatic impact on financial statements and therefore, can mislead users of these statements These amounts are usually large and therefore, have a larger impact than would other transactions such as sales or inventory purchases If a fixed asset expenditure is classified as an expense, it will understate the balances sheet assets and understate net income 145 What are some of the practical characteristics of fixed assets that complicate the calculation of depreciation? Answer: For many companies, there is a large number and type of fixed assets These different asset types may have different service lives and different methods of depreciation In addition, there are offer additions or retirements of fixed assets Finally, the tax methods of depreciation for fixed assets may require two different sets of asset and depreciation records; one for financial statement purposes, and one for tax purposes 146 What is different about the nature of fixed asset purchasing that makes authorization controls important? Answer: Fixed asset purchases can be very large amounts of money and in addition, choosing the right fixed assets is very important Management should be purchasing the fixed assets that have a good return on investment For these reasons, fixed asset authorization usually requires a higher level of management approval, and usually requires an investment analysis such as net present value To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 147 Explain the necessity of supervision over fixed assets Answer: Fixed assets must be located throughout the company where employees have direct access to them Employees could not their jobs without these fixed assets Since fixed assets are readily accessible to many employees, supervision is necessary to ensure that the assets are used for their intended purpose, and that they are not stolen 148 Why are some fixed assets susceptible to theft? Answer: 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 149 Explain why a real-time update of fixed asset records might be preferable to batch processing of fixed asset changes Answer: Often, fixed asset changes are non-routine transactions Since the volume of these transactions could be small, and any one transaction might affect only a single asset record, realtime updates may be more appropriate 150 Why is the beginning of a fiscal year the best time to implement a fixed asset software system? Answer: Because it eliminates any mid-year adjustments for depreciation that would be necessary 151 What negative things might occur if fixed asset software systems lack appropriate access controls? Answer: It would be much easier for an employee to steal a fixed asset and alter the records to hide this theft 152 Why might a supervisor collude with an employee to falsify time cards? Answer: In some cases, the supervisor might agree to the fraud so as to share in the extra money that results from the fraudulent pay 153 How does the misclassification of fixed asset expenditures result in misstatement of financial statements? Answer: If something should have been recorded as a fixed asset gets recorded as expenditure, it will understate assets and understate income The opposite is true if an expenditure is misclassified as a capital asset Assets are overstated and income is overstated TEST BANK – CHAPTER 10 – SHORT ESSAY 154 Describe the type of information that a human resources department should maintain for each employee Answer: They should maintain personnel records that include employee application, contract, resume, recommendation letters, interview reports, wage authorization, and background investigation report The records should also include employee address, SSN, employment history, information about authorized deductions, vacation and sick time accrued, attendance and performance evaluation records, work schedule, and promotion or termination records To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 155 The calculation of gross and net pay can be a complicated process Explain the items that complicate payroll calculations Answer: Each employee’s deductions are likely to be different In addition, the payroll formulas must be applied to every employee in the company, one at a time The process is further complicated the fact that the inputs tend to change constantly Each payroll period will include some changes in the number of hours worked, pay rates or withholdings 156 Explain how duties are segregated in payroll Specifically, who or which departments conduct the authorization, timekeeping, recording, and custody functions? Answer: Authorizing, timekeeping, record keeping, and custody of the paychecks should all be separated Namely, the human resources department, which is responsible for authorizing new employee hiring and maintaining personnel files, should be separate from the payroll time reporting and record keeping functions, performed primarily by the payroll, cash disbursements, and general ledger departments In addition, employees in each of these departments should not have check-signing authority and should not have access to the signed checks or cash account The person, who distributes paychecks to employees, often referred to as a paymaster, should not have responsibility for any of the related payroll accounting functions and should not have custody of cash The paymaster should also be independent of the departmental supervision responsibilities, so that it can be determined that paychecks are being distributed to active employees Finally, information systems operations and programming related to the payroll processing should be separate from those responsible for custody of payroll cash and record keeping for these processes 157 Explain the various reconciliation procedures that should occur in payroll Answer: The number of hours reported on time sheets should be reconciled to the payroll register, and time sheets should be reconciled with production reports Each of these reconciliations should be performed before paychecks are signed in order to ensure the accuracy of the underlying payroll information In addition, the payroll register should be reconciled to the general ledger on a regular basis Someone separate from the payroll processing functions should reconcile the bank statement for the payroll cash account on a monthly basis 158 Explain the ways in which electronic transfer of funds can improve payroll processes Answer: EFT can be used to directly deposit pay to employee bank accounts This eliminates the printing and distribution of pay checks The company can also use EFT to deposit taxes withheld and other employee withholdings Finally, wage attachments that result from court proceedings can be transmitted via EFT All of these EFT processes are faster and more efficient than the use of printed checks and mailing of checks 159 Explain the kinds of information that must be maintained in fixed asset records during the asset continuance phase Answer: 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 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 160 The authorization to purchase fixed assets should include investment analysis Explain the two parts of investment analysis Answer: The first part is financial justification using a model such as net present value, payback period, or internal rate of return The use of these models requires that dollar estimates be determined for costs and benefits of the fixed asset The second part would be a written narrative of the benefits; especially any benefits that are difficult to quantify in dollars A written narrative of the need for investment can help justify the expenditure when financial benefits not immediately exceed costs 161 Explain the types of unethical behavior that may occur in the fixed assets area Answer: The use of estimates for useful lives and salvage values are an area that unethical managers can use to manipulate income statement or balance sheet amounts Showing lower depreciation amounts can increase income and asset values above what they should be In addition, misclassification of expenses as fixed asset expenditures can be used to show higher income and asset values TEST BANK – CHAPTER 10 – PROBLEMS 162 Question not available 163 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 employees and a total of the three employees The last worksheet contains federal tax withholding tables to calculate federal tax to withhold You will calculate gross pay and deductions for all three employees See the excel file payroll_problem_solution.xls After students have completed the spreadsheet exercise, it might be a good discussion question to ask how a payroll software program would improve the efficiency and accuracy of the payroll process 164 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 the office a multifunction printer/fax/copier from Brereton Office Supplies for $2,000 The machine has no salvage value and a four year life Add a new ledger record for this machine and calculate and record the 2008 depreciation expense for all fixed assets Brazos uses straight-line depreciation with a half-year convention See the Excel file fixed_asset_solution.xls After students have completed the spreadsheet exercise, it might be a good discussion question to ask how a fixed asset software program would improve the efficiency and accuracy of the fixed asset processes To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 165 Explain the process of approval of purchases for fixed assets How does this process differ from that of purchasing raw materials? Answer: 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 benefits and costs, as well as any benefits and costs that are not easily quantifiable There should also be an established capital budget and any fixed asset purchase request should be analyzed in comparison to other requests within that budget, and a determination made of the best use of the limited capital budget funds Since fixed asset expenditures can involve large dollar amounts, there should also be specific authorization by a manager for the purchase The company should have an established policy that identifies the level of managerial approval needed for various levels of expenditure 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 requests for fixed asset purchases would come from various managers of operating units within the enterprise The other processes of the purchase, such as POs, document matching, and cash disbursements are similar to those processes for raw material purchases 166 Using an Internet search engine, search for the phrase “biometric time recording” (be sure to include the quotation marks) Based on your search results, describe a biometric time recording system and its advantages Answer: A biometric time recording 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 characteristic is the finger print In a biometric time recording system, a company installs a scanner that reads the fingerprint and records the arrival and departure times The advantage to the employee is the ease of use The employee does not need to record times on a time card and does not have to use or keep track of an employee ID badge The employer sees many advantages Time keeping is more accurate and complete, payroll accuracy is increased, employees are identified with certainty and building security is increased In addition, it eliminates “buddy punching” where one employee “punches” the time clock for his buddy who is actually absent To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 167 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 Answer: One software vendor (http://www.realassetmgt.com/rsd/asset_accounting/fixed_asset_management.htm) lists the following benefits: Easily access a complete audit trail with history/actions performed by all users 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) Conduct full and partial asset disposals, transfers, relifes, revaluations and splits Generate Section 179 charges and bonus depreciation for applicable assets Upload asset images for identification purposes Adapt quickly to the familiar Windows® inspired interface Comply with corporate governance regulations such as Sarbanes-Oxley (SOX), GAAP, US Tax and GASB 34 Utilize seamless links to Project4000, RAMI’s project cost control module Take advantage of fixed asset tracking capabilities available with Track4000 Directly import raw data, in a range of formats, using the Data Import Wizard Employ Asset4000i for remote access to your fixed asset register Login with a valid username and password combination prior to 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 updates in the asset register A powerful, built-in report engine that provides more than 100 standard reports and thousands of customizable reports A full audit history for events including disposals, transfers, asset splits, relifes and revaluations can be accessed in seconds The ability to physically and financially move an asset from one cost center to another without rekeying information The software can display asset images and associated documents such as emails, invoices, purchase orders and contracts To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 168 Read the article at this link: http://www.fixedassetinfo.com/articles/adventures1.asp Describe why the scenario described is unethical Also, list controls or other steps that management could have taken to prevent or detect this scenario Answer: Yes, it is unethical Even if the company had no specific policy about the use of cars by family members, the employee should have known this is unethical There are many reasons for the use by a family member to be unethical First, the asset is not being used for a business related purpose Second, this forces the company to 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 There are very few controls that would be effective in this situation This is true because the asset (car) is not located on company property and therefore, proper supervision cannot be applied to ensure the asset is not misused The best controls are setting good policies and enforcing those policies Two important policies would be a specific policy limiting company car use to employees only, and a good code of ethics for employees These policies alone cannot prevent such misuse, but may make employees less likely to try such misuse There is one new technology solution the company could consider A GPS unit could be installed in each car and this unit could be monitored to track the location, speed, and stops of each car Since this would be an expensive system, the company would have to determine whether it is cost effective 169 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 Answer: Patti Dale was a 20 year employee of the University of North Texas who organized a payroll fraud scheme that resulted in the theft of $255,185 from UNT She allowed students and friends of her son to falsify payroll time sheets She issued paychecks for work not done and received a kickback from these students She also fraudulently hired friends of her son and paid them for work they did not It appears the most important internal control missing is segregation of duties No single person should authorize hiring and approve time cards It appears her supervisor, the Dean, should have been approving time cards An automated system of time keeping such as ID badge swiping or biometric record keeping systems would have reduced the falsified time records Ms Dale also had submitted over $65,000 in falsified travel expenditures  ... 88 89 90 91 92 93 94 95 96 97 98 99 100 D B D A C C A B D C A B D 101 102 103 104 105 106 107 108 109 110 C B A D C B D A C B TEST BANK – CHAPTER 10 – END OF CHAPTER QUESTIONS: 111 Which of the... TEST BANK – CHAPTER 10 – END OF CHAPTER QUESTIONS 111 112 113 114 C A B B 115 116 117 118 C D C A 119 120 121 122 A D A A 123 124 125 126 D A D A 127 C 128 D TEST BANK – CHAPTER 10 – SHORT ANSWER... expenditure processes, help to enhance corporate governance structure ANSWERS TO TEST BANK – CHAPTER 10 – TRUE / FALSE: 10 T F F T F F T F F F 11 12 13 14 15 16 17 18 19 20 T T F T T F F T F T 21