CHAPTER 1: the general model for AIS are to collect data

1. Which of the following is NOT a financial that are

transaction? a. relevant and redundant.

a. purchase of products b. efficient and objective.

b. cash receipts c. efficient and redundant.

c. update valid vendor file d. efficient and relevant.

d. sale of inventory 5. Which of the following is NOT a characteristic

2. The following are subsystems of the of effective information?

Accounting
a. relevance
Information System, EXCEPT
b. accuracy
a. Transaction Processing System.
c. summarization
b. Human Resources System.

c. General Ledger/Financial Reporting System.

6. Which of the following is NOT a database
d. Management Reporting System.
management task?
3. Which of the following is NOT a purpose of
a. retrieval
the Transaction Processing System?
b. storage d. precision
a. managing and reporting on the status of
c. summarization
financial investments
d. deletion
b. converting economic events into financial
Multiple-Choice Questions
transactions
40 Chapter 1 The Information System: An
c. distributing essential information to Accountant’s Perspective
operations
7. When viewed from the highest to most
personnel to support their daily operations elemental

d. recording financial transactions in the level, the data hierarchy is

accounting records a. attribute, record, file.

4. The objectives of the data collection activity b. record, attribute, key.

of
c. file, record, attribute. d. purchasing, receiving, and storage

d. file, record, key. e. purchasing, storage, and distribution

e. key, record, file. 11. Which of the following best describes the
activities of the production function?
8. Which is NOT an accountant’s primary role in
a. maintenance, inventory control, and
information systems? production planning
a. system user b. production planning, quality control,
b. system auditor manufacturing, and cost accounting
c. system designer c. quality control, production planning,
d. system programmer manufacturing, and payroll
9. Which of the following is NOT an objective of d. maintenance, production planning, storage,
all information systems? and quality control
a. support for the stewardship function of e. manufacturing, quality control, and
management maintenance
b. support for management decision making 12. Which of the following best describes the
c. support for the day-to-day operations of activities of the accounting function?
the firm a. inventory control, accounts payable, fixed
d. all of the above are objectives assets, and payroll
10. Which of the following best describes the b. fixed assets, accounts payable, cash
activities of the materials management disbursements, and cost accounting

function? c. purchasing, cash receipts, accounts payable,

a. purchasing, receiving, and inventory cash disbursements, and payroll

control d. inventory control, cash receipts, accounts

b. receiving, sales, distribution, and purchasing payable, cash disbursements, and payroll

c. receiving, storage, purchasing, and accounts e. inventory control, cost accounting, accounts

payable payable, cash disbursements, and payroll

13. Which statement best describes the issue of

distributed data processing (DDP)? increased.

a. The centralized and DDP approaches are c. The potential for hardware and software

mutually exclusive; an organization must incompatibility across the organization is

choose one approach or the other. increased.

b. The philosophy and objective of the d. The time between project request and
organization’s management will determine the
completion is increased.
extent of DDP in the firm.
e. All of the above are disadvantages.
c. In a minimum DDP arrangement, only data

input and output are distributed, leaving

Classify the following users of information as
the tasks of data control, data conversion,
either:
database management, and data processing
a. Internal Revenue Service- S
to be centrally managed.
b. Inventory control manager- I
d. The greatest disadvantage of a totally
c. Board of directors- S
distributed environment is that the distributed

IPU locations are unable to communicate d. Customers- T

e. Lending institutions- S
and coordinate their activities.

e. Although hardware (such as computers, f. Securities and Exchange Commission- S

g. Stockholders- S
database storage, and input/output terminals)

can be effectively distributed, the systems h. Chief executive officer- I

development and maintenance tasks must i. Suppliers- T
remain
j. Bondholders- S
centralized for better control and efficiency.

14. Which of the following is a disadvantage of

Classify the following items as either:
distributed data processing?
a. Variance reports
a. End-user involvement in systems operation
b. Sales order capture
is decreased.
c. Balance sheet
b. Disruptions due to mainframe failures are
d. Budgets
e. Purchase order preparation
f. Tax returns
g. Sales summary by product line
h. Cash disbursements preparation
i. Annual report preparation
j. Invoice preparation
k. Cost-volume-profit analysis
a. MRS b. TPS c. FRS d. MRS e. TPS f. FRS g.
MRS h. TPS i. FRS j. TPS k. MRS
CHAPTER 2:
1. Which statement is not true?
a. Business activities begin with the acquisition
of materials, property, and labor in exchange for
cash.
b. The conversion cycle includes the task of
determining raw materials requirements.
c. Manufacturing firms have a conversion
cycle but retail firms do not.
d. A payroll check is an example of a product
document of the payroll system.
e. A journal voucher is actually a special source
document.
2. A documentation tool that depicts the
physical flow of information relating to a
particular
transaction through an organization is a
a. document flowchart.
b. program flowchart.
c. decision table.
d. work distribution analysis.
e. systems survey.
3. Sequential file processing will not permit
a. data to be edited on a separate computer
run.
b. the use of a database structure.
c. data to be edited in an offline mode.
d. batch processing to be initiated from a
terminal.
e. data to be edited on a real-time basis.
4. The production subsystem of the conversion
cycle includes all of the following EXCEPT
a. determining raw materials requirements.
b. make or buy decisions on component parts.
c. release of raw materials into production.
d. scheduling the goods to be produced.
5. Which of the following files is a temporary
file?
a. transaction file
b. master file
c. reference file
d. none of the above
6. A documentation tool used to represent the
logical elements of a system is a(n) efficiently.

a. programming flowchart. c. Indexed random files are efficient when

processing a large portion of a file at one time.
b. entity relationship diagram.
d. Indexed random files are easy to maintain
c. document flowchart.
in terms of adding records.
d. data flow diagram.
10. Which statement is NOT correct? The
7. Which of the following is NOT an advantage indexed
of real-time processing files over batch
sequential access method
processing?
a. is used for very large files that need both
a. shorter transaction processing time
direct access and batch processing.
b. reduction of inventory stocks
b. may use an overflow area for records.
c. improved customer service
c. provides an exact physical address for each
d. all are advantages
record.
8. Which statement is NOT correct?
d. is appropriate for files that require few
a. Legacy systems may process financially
significant transactions. insertions or deletions.

b. Some legacy systems use database 11. Which statement is true about a hashing

technology. structure?

c. Mainframes are exclusive to legacy systems, a. The same address could be calculated for

while modern systems use only the clientserver two records.

model.
b. Storage space is used efficiently.
d. All the above are true.
c. Records cannot be accessed rapidly.
9. Which statement is NOT correct?
d. A separate index is required.
a. Indexed random files are dispersed
12. In a hashing structure
throughout the storage device without regard
for physical proximity with related a. two records can be stored at the same

address.
records.

b. Indexed random files use disk storage space b. pointers are used to indicate the location of
all records.
c. pointers are used to indicate location of a
record with the same address as another
record.
d. all locations on the disk are used for record
storage.
13. An advantage of a physical address pointer
is
that
a. it points directly to the actual disk storage
location.
b. it is easily recovered if it is inadvertently
lost.
c. it remains unchanged when disks are
reorganized.
d. all of the above are advantages of the
physical address pointer.
14. Which of the following is NOT true of a
turnaround document?
a. They may reduce the number of errors
made by external parties.
b. They are commonly used by utility
companies (gas, power, water).
c. They are documents used by internal parties
only.
d. They are both input and output documents.
15. Which of the following is NOT a true
statement?
a. Transactions are recorded on source
documents and are posted to journals.
b. Transactions are recorded in journals and
are posted to ledgers.
c. Infrequent transactions are recorded in the
general journal.
d. Frequent transactions are recorded in special
journals.
16. Which of the following is true of the
relationship between subsidiary ledgers and
general
ledger accounts?
a. The two contain different and unrelated data.
b. All general ledger accounts have subsidiaries.
c. The relationship between the two provides
an audit trail from the financial statements
to the source documents.
d. The total of subsidiary ledger accounts
usually exceeds the total in the related general
ledger account.
17. Real-time systems might be appropriate for
all
of the following EXCEPT
a. airline reservations.
b. payroll.
c. point-of-sale transactions.
d. air traffic control systems.
e. all of these applications typically utilize
real-time processing. REVENUE CYCLE:
1. Which document is NOT prepared by the
18. is the document flowchart symbol for: sales

a. on-page connector. department?

b. off-page connector. a. packing slip

c. home base. b. shipping notice

d. manual operation. c. bill of lading

e. document. d. stock release

2. Which document triggers the update of the

Categorize each of the following activities inventory subsidiary ledger?

into the expenditure, conversion, or revenue a. bill of lading

cycles and identify the applicable subsystem. b. stock release

a. preparing the weekly payroll for c. sales order

manufacturing personnel
d. shipping notice
b. releasing raw materials for use in the
manufacturing cycle 3. Which function should the billing
department
c. recording the receipt of payment for goods
NOT perform?
sold
a. record the sales in the sales journal
d. recording the order placed by a customer
b. send the ledger copy of the sales order to
e. ordering raw materials
accounts receivable
f. determining the amount of raw materials
c. send the stock release document and the
to order
shipping notice to the billing department as
a. Expenditure cycle-payroll subsystem.
b. Conversion cycle-production system proof of shipment
subsystem.
c. Revenue cycle-cash receipts subsystem d. send the stock release document to
. d. Revenue cycle-sales order processing inventory control
subsystem.
e. Expenditure cycle-purchases subsystem. 4. When will a credit check approval most likely
f. Conversion cycle-production subsystem.
require specific authorization by the credit
department? 7. Which function or department below records

a. when verifying that the current transaction the decrease in inventory due to a sale?

does not exceed the customer’s credit limit a. warehouse

b. when verifying that the current transaction b. sales department

is with a valid customer c. billing department

c. when a valid customer places a materially d. inventory control

large order 8. Which situation indicates a weak internal

control structure?
d. when a valid customer returns goods
a. the AR clerk authorizes the write off of bad
5. Which type of control is considered a
compensating control? debts

a. segregation of duties b. the record-keeping clerk maintains both AR

b. access control and AP subsidiary ledgers

c. supervision c. the inventory control clerk authorizes

d. accounting records inventory purchases

6. Which of the following is NOT an d. the AR clerk prepares customer statements

independent verification control?
every month
a. The shipping department verifies that the
9. The bill of lading is prepared by the
goods sent from the warehouse are correct
a. sales clerk.
in type and quantity.
b. warehouse clerk.
b. General ledger clerks reconcile journal
c. shipping clerk.
vouchers that were independently prepared
d. billing clerk.
in various departments.
10. Which of following functions should be
c. The use of prenumbered sales orders.
segregated?
d. The billing department reconciles the
shipping notice with the sales invoice to ensure a. opening the mail and recording cash
receipts
that customers are billed for only the quantities
shipped. in the journal
b. authorizing credit and determining reorder
quantities
c. shipping goods and preparing the bill of
lading
d. providing information on inventory levels
and reconciling the bank statement
EXPENDITURE CYCLE PART 1:
1. Which document helps to ensure that the
receiving clerks actually count the number of
goods received?
a. packing list
b. blind copy of purchase order
c. shipping notice
d. invoice
2. When the goods are received and the
receiving
report has been prepared, which ledger may be
updated?
a. standard cost inventory ledger
b. inventory subsidiary ledger
c. general ledger
d. AP subsidiary ledger
3. Which statement is NOT correct for an
expenditure system with proper internal
controls?
a. Cash disbursements maintain the check
register.
b. AP maintains the AP subsidiary ledger.
c. AP is responsible for paying invoices.
d. AP is responsible for authorizing invoices.
4. Which duties should be segregated?
a. matching purchase requisitions, receiving
reports, and invoices and authorizing
payment
b. authorizing payment and maintaining the
check register
c. writing checks and maintaining the check
register
d. authorizing payment and maintaining the
AP subsidiary ledger
5. Which documents would an auditor most
likely
choose to examine closely to ascertain that all
expenditures incurred during the accounting
period have been recorded as a liability?
a. invoices
b. purchase orders
c. purchase requisitions
d. receiving reports
6. Which task must still require human
intervention in an automated purchases/cash
disbursements system?
a. determination of inventory requirements
b. preparation of a purchase order b. Cash disbursements is an independent

c. preparation of a receiving report accounting function.

d. preparation of a check register c. Cash disbursements is a treasury function.

7. Which one of the following departments d. The cash disbursement function is part of
does
the general ledger department.
not have a copy of the purchase order?

a. the purchasing department

Indicate which department—accounts payable,
b. the receiving department cash disbursements, data processing,

c. accounts payable purchasing, inventory, or receiving—has

ownership over the following files and
d. general ledger registers:
8. Which document typically triggers the a. open purchase order file- P
process
b. purchase requisition file- I
of recording a liability?
c. open purchase requisition file- I
a. purchase requisition
d. closed purchase requisition file- I
b. purchase order
e. inventory- I
c. receiving report
f. closed purchase order file- P
d. supplier’s invoice
g. valid vendor file- AP
9. Which of the following tasks should the cash
h. voucher register- AP
disbursement clerk NOT perform?
i. open vouchers payable file- AP
a. review the supporting documents for
completeness and accuracy j. receiving report file- R

b. prepare checks k. closed voucher file- AP

c. approve the liability l. check register (cash disbursements journal)-

CD
d. mark the supporting documents paid

10. Which of the following is true?

a. The cash disbursement function is part of

accounts payable.
 time cards

EXPENDITURE CYCLE PART 2:
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.
312 Chapter 6 The Expenditure Cycle Part II:
Payroll Processing and Fixed Asset Procedures
b. paychecks are distributed by an independent
paymaster
c. the AP department verifies the accuracy of
the payroll register before transferring payroll
funds to the general checking account

c. personnel action form. d. the general ledger department reconciles the

d. labor distribution form. labor distribution summary and the payroll

2. An important reconciliation in the payroll disbursement voucher

system is when 4. The department responsible for approving
a. the general ledger department compares pay

the labor distribution summary from cost rate changes is

accounting to the disbursement voucher a. payroll

from AP. b. treasurer

b. the personnel department compares the c. personnel

number of employees authorized to receive a d. cash disbursements
paycheck to the number of paychecks prepared.
5. Which function should distribute paychecks?
c. the production department compares the
a. personnel
number of hours reported on job tickets to
b. timekeeping
the number of hours reported on time cards.
c. paymaster
d. the payroll department compares the labor
d. payroll
distribution summary to the hours reported
6. Which transaction is not processed in the
on time cards. fixed
3. Which internal control is not an important asset system?
part of the payroll system? a. purchase of building
a. supervisors verify the accuracy of employee
b. repair of equipment include

c. purchase of raw materials a. authorizing the acquisition of fixed assets.

d. sale of company van b. recording depreciation expense.

7. Depreciation c. computing gain and/or loss on the disposal

a. is calculated by the department that uses of fixed assets.

the fixed asset. d. maintaining a record of the fair market

b. allocates the cost of the asset over its useful value of all fixed assets.

life. 11. Which of the following is NOT a

c. is recorded weekly.
d. results in book value approximating fair
market value.
8. Depreciation records include all of the
following information about fixed assets EXCEPT
the
a. economic benefit of purchasing the asset.
b. cost of the asset.
c. depreciation method being used.
d. location of the asset.
9. Which control is not a part of the fixed asset
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

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

10. Objectives of the fixed asset system do NOT

CONVERSION CYCLE economically feasible. However, each time an

1. Which of the following is not an order is placed, the company incurs total costs
advantageous
of $300—$240 of which is fixed and $60 is
reason to reduce inventories?
variable. Determine the company’s EOQ.
a. Inventories provide a competitive
a. 8
advantage.
b. 16
b. Inventories can invite overproduction.
c. 18
c. Inventories are expensive to maintain.
d. 56
d. Inventories may conceal problems.
e. 62
e. All of these are good reasons to reduce
Questions 4 though 6 are based on the diagram
inventories.
above, which represents the EOQ model.
2. The fundamental EOQ model
4. Which line segment represents the reorder
a. provides for fluctuating lead times during lead

reorder cycles. time?

b. is relatively insensitive to errors in demand, a. AB

procurement costs, and carrying costs. b. AE

c. focuses on the trade-off between c. AF

production costs and carrying costs.
d. BC
d. is stochastic in nature.
e. AC
e. is best used in conjunction with a periodic
5. Which line segment identifies the quantity of
inventory system.
safety stock maintained?
3. Refer to the equation for the EOQ in the text.
a. AB
Car Country, a local Ford dealer, sells 1,280
b. AE
small SUVs each year. Keeping a car on the
c. AC
lot costs Car Country $200 per month, so the
d. BC
company prefers to order as few SUVs as is
e. EF
6. Which line segment represents the length of c. Variance analysis may yield insignificant

time to consume the total quantity of materials values.

ordered? d. The overhead component in a manufacturing

company is usually very large.
a. DE
e. All of these are problems associated with
b. BC
traditional accounting information.
c. AC
9. Which of the following is NOT a problem
d. AE
associated with standard cost accounting?
e. AD
a. Standard costing motivates management to
7. Which of the following is NOT a principle of
produce large batches of products and build
lean manufacturing?
inventory.
a. Products are pushed from the production
b. Applying standard costing leads to product
end to the customer.
cost distortions in a lean environment.
b. All activities that do not add value and
c. Standard costing data are associated
maximize the use of scarce resources must
with excessive time lags that reduce its
be eliminated.
usefulness.
c. Achieve high inventory turnover rate.
d. The financial orientation of standard costing
d. A lean manufacturing firm must have
established and cooperative relationships with may promote bad decisions.

vendors. e. All of the above are problems with standard

e. All of the above are lean manufacturing costing.

principles. 10. Which one of the following statements is

true?
8. All of the following are problems with
traditional accounting information EXCEPT: a. ERP evolved directly from MRP.

a. Managers in a JIT setting require immediate b. ERP evolved into MRP and MRP evolved
information.
into MRP II.
b. The measurement principle tends to ignore
c. MRP II evolved from MRP and MRP II
standards other than money.
evolved into ERP.
d. None of the above is true.
FRS:
1. Sequential access means that
a. data are stored on magnetic tape.
b. the address of the location of data is found
through the use of either an algorithm or an
index.
c. to read any record on the file, all of the
preceding records must first be read.
d. each record can be accessed in the same
amount of time.
2. A chart of accounts would best be coded
using
a(n) coding scheme.
a. alphabetic
b. mnemonic
Multiple-Choice Questions
416 Chapter 8 Financial Reporting and
Management Reporting Systems
c. block
d. sequential
3. Which of the following statements is NOT
true?
a. Sorting records that are coded alphabetically
tends to be more difficult for users
than sorting numeric sequences.
b. Mnemonic coding requires the user to
memorize codes.
c. Sequential codes carry no information
content beyond their order in the sequence.
d. Mnemonic codes are limited in their ability
to represent items within a class.
4. 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
5. Which of the following statements is true?
a. Journal vouchers detailing transaction
activity flow from various operational
departments into the GLS, where they are
independently reconciled and posted to the
journal voucher history file.
b. Journal vouchers summarizing transaction
activity flow from the accounting department
into the GLS, where they are independently
reconciled and posted to the general
ledger accounts.
c. Journal vouchers summarizing transaction
activity flow from various operational
departments into the GLS, where they are
independently reconciled and posted to the exposure of the FRS?

general ledger accounts. a. a defective audit trail

d. Journal vouchers summarizing transaction b. general ledger accounts that are out of
activity flow from various operational balance with subsidiary accounts

departments into the GLS, where they are c. unauthorized access to the check register

independently reconciled and posted to the d. unauthorized access to the general ledger

journal voucher history file. 9. Which task should the general ledger
perform?
6. Which of the following statements best
describes a computer-based GL/FRS? a. update the general ledger

a. Most firms derive little additional benefit b. prepare journal vouchers

from a real-time FRS. c. have custody of physical assets

b. Batch processing is typically not appropriate d. have record-keeping responsibility for special
for transaction processing of GLS. journals of subsidiary ledgers

c. The sequential file approach is an inefficient 10. The Ozment corporation uses a performance

use of technology. reporting system that shows one line of data

d. A batch system with direct access files for each subordinate who reports to a
recreates the entire database each time the file supervisor. The data presented show the actual
costs
is updated.
incurred during the period, the budgeted costs,
7. A coding scheme in the form of acronyms
and and all variances from budget for that
subordinate’s department. The name of this
other combinations that convey meaning is system of
a(n) reporting is
a. sequential code. a. contribution accounting.
b. block code. b. responsibility accounting.
c. alphabetic code. c. flexible budgeting.
d. mnemonic code. d. program budgeting.
8. Which of the following is NOT a potential e. cost-benefit accounting.
11. Which of the following is not a characteristic
of the strategic planning process?
a. emphasis on both the short and long run
b. analysis of external economic factors
Part II Transaction Cycles and Business
Processes 417
c. review of the attributes and behavior of the
organization’s competition
d. analysis and review of departmental process
e. analysis of consumer demand
12. The following are all output reports of the
financial reporting system, EXCEPT
a. variance analysis report.
b. statement of cash flows.
c. tax return.
d. comparative balance sheet.
13. 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
14. Which of the following would normally be
considered in a strategic plan?
a. setting a target of 12 percent return on
sales
b. maintaining the image of the company as
the industry leader
c. setting a market price per share of stock
outstanding
d. distributing monthly reports for
departmental variance analysis
e. tightening credit terms for customers to
2/10, n/30
15. At what level of management is the long-
range
planning function most important?
a. at top management levels
b. at middle management levels
c. at lower management levels
d. for staff functions
e. for line functions
16. Which of the following is the basic purpose
of
a responsibility accounting?
a. variance analysis
b. motivation
c. authority
d. budgeting
e. pricing supply.

17. Which statement below best describes a b. The authority to make decisions affecting
profit
the major determinants of profit, including
center?
the power to choose its markets and sources
a. The authority to make decisions affecting
of supply, and significant control over the
the major determinants of profit, including
amount of invested capital.
the power to choose its markets and sources
c. The authority to make decisions over the
of supply.
most significant costs of operations, including
b. The authority to make decisions affecting
the power to choose the sources of supply.
the major determinants of profit, including
d. The authority to provide specialized support
the power to choose its markets, sources to other units within the organization.

of supply, and significant control over the e. The responsibility for developing markets for

amount of invested capital. and selling of the output of the organization.

c. The authority to make decisions over the

most significant costs of operations, including

the power to choose the sources of

supply.

d. The authority to provide specialized support

to other units within the organization.

e. The responsibility for combining the raw

materials, direct labor, and other factors of

production into a final product.

18. Which statement below best describes an

investment center?

a. The authority to make decisions affecting

the major determinants of profit, including the

power to choose its markets and sources of

2. Financial Reporting Process

The following contains the various steps of the

financial reporting process. Place these steps

in the proper order and indicate whether each

step is a function of the TPS, GLS, or FRS.

• Record transaction in special journal 2

• Make adjusting entries 6

• Capture the transaction 1

• Prepare the post-closing trial balance 11

• Prepare the adjusted trial balance 8

• Prepare the financial statements 9

• Journalize and post the adjusting entries 7

• Post to the subsidiary ledger 3

• Post to the general ledger 4

• Journalize and post the closing entries 10

• Prepare the unadjusted trial balance 5