Chapter 08 1

Chapter 8—Financial Reporting and Management Reporting Systems

TRUE/FALSE

1. The most common means of making entries in the general ledger is via the journal voucher.
ANS: T
2. Individuals with access authority to general ledger accounts should not prepare journal vouchers.
ANS: T
3. The journal voucher is the document that authorizes entries to be made to the general ledger.
ANS: T
4. Each account in the chart of accounts has a separate record in the general ledger master file.
ANS: T
5. The responsibility center file is primarily used by the Financial Reporting System.
ANS: F
6. Management reporting is often called discretionary reporting because it is not mandated as is financial
reporting.
ANS: T
7. Primary recipients of financial statement information are internal management.
ANS: F
8. The Management Reporting System is a nondiscretionary system.
ANS: F
9. When evaluating decision alternatives, one option is to take no action.
ANS: T
10. In most cases intangible decision criteria can be quantified.
ANS: F
11. One benefit of the Management Reporting System is that it can alert management to delays in project
implementation.
ANS: T
12. Responsibility refers to an individual's obligation to achieve desired results.
ANS: T
13. A firm with a wide span of control tends to have relatively more layers of management.
ANS: F
14. The control function entails evaluating a process against a standard and, if necessary, taking corrective
action.
ANS: T
15. Standards are the basis for evaluating actual performance.
ANS: T
16. A report is said to have information content if it eliminates uncertainty associated with a problem
facing the decision maker.
ANS: F
17. An inventory out-of-stock report is an example of a programmed, on-demand report.
ANS: T
18. A principle of responsibility accounting is that managers are responsible for controllable and
uncontrollable costs.
ANS: F

19. The manager of a cost center is responsible for cost control and revenue generation.

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Chapter 08 2

ANS: F
20. Designing an effective management reporting system does not require an understanding of the
information managers need to deal with the problems they face.
ANS: F
21. The formalization of tasks principle suggests that management should structure the firm around the
unique skills sets of key individuals.
ANS: F
22. If a manager delegates responsibility to a subordinate, he or she must also grant the subordinate
authority to make decisions.
ANS: T
23. Operational control involves motivating managers at all levels to use resources, including materials,
personnel, and financial assets, as productively as possible.
ANS: F
24. XBRL taxonomies are classification schemes that are compliant with the XBRL specifications to
accomplish a specific information exchange.
ANS: T
25. An income statement is an example of an XBRL instance document.
ANS: T

MULTIPLE CHOICE

1. Which statement is not true/

a. The journal voucher is the only source of input into the general ledger.
b. A journal voucher can be used to represent summaries of similar transactions or a single
unique transaction.
c. Journal vouchers are not used to make adjusting entries and closing entries in the
general ledger.
d. Journal vouchers offer a degree of control against unauthorized general ledger entries.

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

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

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

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

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

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from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 08 3

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

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

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

7. Which statement is not correct?

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

8. What account appears on the post closing trial balance?

a. income summary
b. machinery
c. rent expense
d. interest income

9. Financial statements are prepared from the

a. trial balance
b. adjusted trial balance
c. general ledger
d. general journal

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

11. Which situation indicates an internal control risk in the General Ledger/Financial Reporting Systems
(GL/FRS)?
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from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 08 4

a. the employee who maintains the cash journal computes depreciation expense
b. the cash receipts journal voucher is approved by the Treasurer
c. the cash receipts journal vouchers are prenumbered and stored in a locked safe
d. the employee who maintains the cash receipts journal records transactions in the
accounts receivable subsidiary ledger

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

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

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

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

15. XBRL
a. is the basic protocol that permits communication between Internet sites.
b. controls Web browsers that access the Web.
c. is the document format used to produce Web pages.
d. was designed to provide the financial community with a standardized method for
preparing
e. is a low-level encryption scheme used to secure transmissions in higher-level (HTTP)
format.

16.An XBRL taxonomy:

a. is the document format used to produce web pages.
b. is the final product (report).
c. is a classification scheme.
d. is a tag stored in each database record.
e. none of the above is true.

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

a. the MRS operates in conformity with generally accepted accounting principles
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Chapter 08 5

b. it is a legal requirement that the MRS be installed and functioning properly

c. the MRS is developed by implementing SEC requirements
d. the MRS focuses on internal decision-making information

18. Which statement is not true?

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

19. Which statement is not true? The manager's span of control

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

20. Short-range planning involves

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

21. Long-range planning involves

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

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

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

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

a. strategic planning
b. tactical planning
c. management control
d. operational control

24. All of the following are elements of operational control decisions except
a. determining the scope of the activity
b. setting operating standards

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Chapter 08 6

c. evaluating performance
d. taking corrective action when necessary

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

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

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

a. certainty
b. data
c. procedures
d. objectives

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

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

29. A fundamental principle of responsibility accounting is that

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

30. Which statement is not true? Responsibility accounting

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

31. What mechanism is used to convey to managers the standards by which their performance will be
measured?
a. the responsibility report
b. the scheduled report

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from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 08 7

c. the budget
d. all of the above

32. All of the following concepts encourage goal congruence except

a. detailed information reporting at all management levels
b. authority and responsibility
c. formalization of tasks
d. responsibility accounting

33. Which of the following statements is NOT true?

a. XML stands for eXperimental Markup Language.
b. XML is a is a meta-language for describing markup languages.
c. Unlike HTML, XML is capable of storing data in relational form.
d. Any markup language can be created using XML

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

35. All of the following are characteristics of the strategic planning process except the
a. emphasis on both the short and long run.
b. review of the attributes and behavior of the organization's competition.
c. analysis of external economic factors.
d. analysis of consumer demand.

36. Which of the following performance measures cannot result in dysfunctional behavior?
a. price variance
b. quotas
c. ROI
d. net income
e. all of the above can result in dysfunctional behavior

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

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

© 2011 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 08 8

38. Which of the following budgeting processes is least likely to motivate managers toward organizational
goals?
a. setting budget targets at attainable levels
b. participation by subordinates in the budgetary process
c. use of management by exception
d. holding subordinates accountable for the items they control
e. having top management set budget levels

© 2011 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.