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Chapter 19

Financial Accounting (University of Houston-Victoria)

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Accounting Information Systems, 15e (Romney)


Chapter 19 Database Design Using the REA Data Model

1 Describe the process for producing various managerial reports, the threats to that process, and
how tools like responsibility accounting and the balanced scorecard can help mitigate those
threats.

1) Which of the following statements about REA modeling and REA diagrams is false?
A) REA is an acronym for Resources, Entities, and Agents.
B) REA data modeling does not include traditional accounting elements such as ledgers, chart of
accounts, debits and credits.
C) REA data modeling could be referred to as an events-based model.
D) REA diagrams must include at least two activities, which together represent a give-get
economic exchange.
Answer: A
Concept: Database design process
Objective: Learning Objective 1
Difficulty: Moderate
AACSB: Analytical Thinking

2) The REA data model approach facilitates efficient operations by all the following except
A) standardizing source document format.
B) identifying non-value-added activities.
C) storing financial and nonfinancial data in the same database.
D) organizing data to simplify data retrieval and analysis.
Answer: A
Concept: Database design process
Objective: Learning Objective 1
Difficulty: Moderate
AACSB: Analytical Thinking

3) The process of defining a database so that it faithfully represents all aspects of the
organization including its interactions with the external environment is called
A) data modeling.
B) data designing.
C) data development.
D) data definition.
Answer: A
Concept: Database design process
Objective: Learning Objective 1
Difficulty: Easy
AACSB: Analytical Thinking

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4) In which stage(s) of the database design process does data modeling occur?
A) During the systems analysis stage.
B) During the design stage.
C) During both the systems analysis and design stages.
D) After the design stage.
Answer: C
Concept: Database design process
Objective: Learning Objective 1
Difficulty: Easy
AACSB: Analytical Thinking

5) Data modeling is an element of


A) systems analysis.
B) conceptual design.
C) system analysis and conceptual design.
D) system analysis and physical design.
Answer: C
Concept: Database design process
Objective: Learning Objective 1
Difficulty: Easy
AACSB: Analytical Thinking

6) ________ consists of translating the internal-level schema into the actual database structures
that will be
implemented in the new system.
A) Systems analysis
B) Conceptual design
C) Physical design
D) Implementation and conversion
Answer: C
Concept: Database design process
Objective: Learning Objective 1
Difficulty: Moderate
AACSB: Analytical Thinking

7) ________ includes all the activities associated with transferring data from existing systems to
the new database AIS, testing the new system, and training employees how to use it.
A) Systems analysis
B) Conceptual design
C) Physical design
D) Implementation and conversion
Answer: D
Concept: Database design process
Objective: Learning Objective 1
Difficulty: Moderate
AACSB: Analytical Thinking

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8) ________ includes carefully monitoring system performance and user satisfaction to


determine the need for making system enhancements and modifications.
A) Operation and maintenance
B) Conceptual design
C) Physical design
D) Implementation and conversion
Answer: A
Concept: Database design process
Objective: Learning Objective 1
Difficulty: Moderate
AACSB: Analytical Thinking

9) Describe data modeling.


Answer: Data modeling is the process of defining a database so that it faithfully represents all
aspects of the organization, including its interaction with the external environment.
Concept: Database design process
Objective: Learning Objective 1
Difficulty: Easy
AACSB: Analytical Thinking

10) Explain specifically what is meant by the following statement: "Accountants can and should
participate in all stages of the database design process."
Answer: Accountants are in a unique position within a business organization. They are
intimately acquainted with the many business transactions that occur in an organization and they
are knowledgeable about the policies and practices of the business itself as well as the
environment within which it operates. The knowledge base and skill set of the accountant should
be put to good use in the development of database design to the fullest extent possible (although
some accountants may not possess AIS coding and development skill sets). Consider that during
the planning stage accountants provide some of the information used to evaluate the feasibility of
the proposed project and they participate in making the decision itself. Accountants can identify
user information needs and develop logical schema during the requirement analysis and design
stages. Accountants can also help test the accuracy of the new database and application programs
during the implementation stage of development. Accountants can also act as "subject matter
experts" since they are knowledgeable users of the new system. They can also serve as managers
of the system once it is up and running.
Concept: Database design process
Objective: Learning Objective 1
Difficulty: Moderate
AACSB: Analytical Thinking

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11) In which stage(s) of the database design process is the completed data model used?
A) only in the systems analysis stage
B) only in the conceptual design stage
C) in both the systems analysis and design stages
D) neither the systems analysis nor the design stages
Answer: D
Concept: Database design process
Objective: Learning Objective 1
Difficulty: Moderate
AACSB: Analytical Thinking

12) In which stage(s) of the database design process should accountants participate?
A) the systems analysis stage
B) the conceptual design stage
C) the implementation and conversion stage
D) in all of the stages above
Answer: D
Concept: Database design process
Objective: Learning Objective 1
Difficulty: Easy
AACSB: Analytical Thinking

13) With regards to the database design process, accountants may provide the greatest value to
their organization by participating in
A) implementation and conversion.
B) data modeling.
C) database operation and maintenance.
D) system auditing.
Answer: B
Concept: Database design process
Objective: Learning Objective 1
Difficulty: Challenging
AACSB: Analytical Thinking

2 Explain the nature and use of Entity-Relationship (E-R) diagrams.

1) A(n) ________ diagram graphically depicts a database's contents by showing entities and
relationships.
A) data flow
B) flowchart
C) entity-relationship
D) REA
Answer: C
Concept: Entity-relationship diagrams
Objective: Learning Objective 2
Difficulty: Moderate
AACSB: Analytical Thinking
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2) In creating an entity-relationship diagram, ________ is anything about which an organization


wants to collect and store information.
A) a data model
B) an entity
C) a schema
D) a tuple
Answer: B
Concept: Entity-relationship diagrams
Objective: Learning Objective 2
Difficulty: Easy
AACSB: Analytical Thinking

3) An entity-relationship diagram represents entities as ________ and the relationships between


them as lines and ________.
A) circles; squares
B) squares; diamonds
C) rectangles; diamonds
D) rectangles; circles
Answer: C
Concept: Entity-relationship diagrams
Objective: Learning Objective 2
Difficulty: Easy
AACSB: Analytical Thinking

4) An entity-relationship diagram
A) can represent the contents of any database.
B) is only used in conjunction with REA models.
C) can show a limited number of entities and relationships.
D) is used only to design new databases.
Answer: A
Concept: Entity-relationship diagrams
Objective: Learning Objective 2
Difficulty: Easy
AACSB: Analytical Thinking

5) Besides modeling entities as rectangles, there are no industry standards for entity-relationship
diagrams.
Answer: TRUE
Concept: Entity-relationship diagrams
Objective: Learning Objective 2
Difficulty: Easy
AACSB: Analytical Thinking

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6) It is industry standard to model entities as rectangles on entity-relationship diagrams.


Answer: TRUE
Concept: Entity-relationship diagrams
Objective: Learning Objective 2
Difficulty: Easy
AACSB: Analytical Thinking

7) It is industry standard to model relationships as ________ in entity-relationship diagrams.


A) rectangles
B) ovals
C) diamonds
D) There is no industry standard.
Answer: D
Concept: Entity-relationship diagrams
Objective: Learning Objective 2
Difficulty: Moderate
AACSB: Analytical Thinking

8) It is industry standard to model attributes as ________ in entity-relationship diagrams.


A) rectangles
B) ovals
C) diamonds
D) There is no industry standard.
Answer: D
Concept: Entity-relationship diagrams
Objective: Learning Objective 2
Difficulty: Moderate
AACSB: Analytical Thinking

9) A graphical depiction of a database's contents showing the various entities being modeled and
the important relationships among them is called a(n)
A) REA diagram.
B) data diagram.
C) ERP diagram.
D) ER diagram.
Answer: D
Concept: Entity-relationship diagrams
Objective: Learning Objective 2
Difficulty: Moderate
AACSB: Analytical Thinking

10) E-R diagrams can be used to represent the contents of any kind of database.
Answer: TRUE
Concept: Entity-relationship diagrams
Objective: Learning Objective 2
Difficulty: Easy
AACSB: Analytical Thinking
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11) Describe what is an E-R diagram and provide an example.


Answer: An entity-relationship (E-R) diagram is a graphical technique for portraying a database
schema. It is called an E-R diagram because it shows the various entities being modeled and the
important relationships among them. Students' answer may vary depending on the example they
use.
Concept: Entity-relationship diagrams
Objective: Learning Objective 2
Difficulty: Moderate
AACSB: Reflective Thinking

3 Explain the content and purpose of the REA data model.

1) The REA data model


A) is used in many areas of business and science.
B) was developed specifically for use in designing accounting information systems.
C) classifies data into relationships, entities and accounts.
D) is a graphical technique for portraying a database schema.
Answer: B
Concept: The REA data model
Objective: Learning Objective 3
Difficulty: Moderate
AACSB: Analytical Thinking

2) Which of the following is not one of the rules in creating an REA data model?
A) Each event is linked to at least one resource that it affects.
B) Each event is linked to at least one other event.
C) Each event is linked to at least two participating agents.
D) All of the above are important rules.
Answer: D
Concept: The REA data model
Objective: Learning Objective 3
Difficulty: Easy
AACSB: Analytical Thinking

3) Which is a true statement about the REA data model?


A) The REA data model classifies entities into three distinct categories.
B) The term REA is an acronym that stands for resources, entities, and agents.
C) Using an REA data model is not helpful when creating an R-E diagram.
D) The term REA is an acronym that stands for resources, entities, and activities.
Answer: A
Concept: The REA data model
Objective: Learning Objective 3
Difficulty: Easy
AACSB: Analytical Thinking

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4) Relationships that affect the quantity of a resource are sometimes referred to as ________
relationships.
A) commitment
B) exchange
C) stockflow
D) duality
Answer: C
Concept: The REA data model
Objective: Learning Objective 3
Difficulty: Moderate
AACSB: Analytical Thinking

5) The "give" event represents an activity which


A) includes a promise to engage in future economic exchanges.
B) increases the organization's stock of an economic resource.
C) reduces the organization's stock of a resource that has economic value.
D) reduces the organization's liabilities.
Answer: C
Concept: The REA data model
Objective: Learning Objective 3
Difficulty: Easy
AACSB: Analytical Thinking

6) The "get" event represents an activity which


A) includes a promise to engage in future economic exchanges.
B) increases the organization's stock of an economic resource.
C) reduces the organization's stock of a resource that has economic value.
D) increases the organization's liabilities.
Answer: B
Concept: The REA data model
Objective: Learning Objective 3
Difficulty: Easy
AACSB: Analytical Thinking

7) Describe an REA data model.


Answer: The REA data model is a conceptual modeling tool specifically designed to provide
structure for designing an AIS database. The REA data model identifies what entities should be
included in the AIS database and prescribes how to structure relationships among the entities in
the AIS database. REA stands for resources, events, and agents. Resources are defined as those
things that have economic value to the organization. Events are the various business activities
about which management wants to collect information for planning and control purposes. Agents
are the people and organizations that participate in events and about which information is desired
for planning, control, and evaluation purposes.
Concept: The REA data model
Objective: Learning Objective 3
Difficulty: Moderate
AACSB: Analytical Thinking
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8) REA models are usually depicted in which diagramming form?


A) Entity-relationship diagrams.
B) Economics-relationship diagrams.
C) Entity-resource diagrams.
D) Stock-flow diagrams.
Answer: A
Concept: The REA data model
Objective: Learning Objective 3
Difficulty: Moderate
AACSB: Analytical Thinking

9) Identify the item below that would be classified as a resource by the REA data model.
A) An IOU from a customer.
B) The customer.
C) A customer sale.
D) A loan from a vendor.
Answer: A
Concept: The REA data model
Objective: Learning Objective 3
Difficulty: Moderate
AACSB: Analytical Thinking

10) Identify the item below that would be classified as an event by the REA data model.
A) An IOU from a customer.
B) The customer.
C) A customer sale.
D) A loan from a vendor.
Answer: C
Concept: The REA data model
Objective: Learning Objective 3
Difficulty: Moderate
AACSB: Analytical Thinking

11) Identify the item below that would be classified as an agent by the REA data model.
A) An IOU from a customer.
B) The customer.
C) A customer sale.
D) A loan from a vendor.
Answer: B
Concept: The REA data model
Objective: Learning Objective 3
Difficulty: Moderate
AACSB: Analytical Thinking

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12) What is the minimum number of agents that must participate in each REA event?
A) 0
B) 2
C) 1
D) 3
Answer: C
Concept: The REA data model
Objective: Learning Objective 3
Difficulty: Moderate
AACSB: Analytical Thinking

13) What is the minimum number of external agents that must participate in each REA event?
A) 0
B) 2
C) 1
D) 3
Answer: A
Concept: The REA data model
Objective: Learning Objective 3
Difficulty: Moderate
AACSB: Analytical Thinking

14) Assume that you are looking at a REA diagram that depicts only one event. Which of the
following must be on the REA diagram?
A) An external agent.
B) An internal agent.
C) both A and B
D) neither A nor B
Answer: B
Concept: The REA data model
Objective: Learning Objective 3
Difficulty: Challenging
AACSB: Analytical Thinking

4 Use the REA data model to design an AIS database.

1) Identify the notation often used to represent cardinality information.


A) Dotted lines.
B) Greek characters.
C) Crow's feet.
D) Color coding.
Answer: C
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Challenging
AACSB: Analytical Thinking

10
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2) Identify the notation below that is not used to represent cardinality information.
A) UML.
B) (Min, Max).
C) DFD.
D) Maximums only.
Answer: C
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Challenging
AACSB: Analytical Thinking

3) Every citizen in the United States has one social security number, but no two citizens have the
same social security number. Thus, the cardinality that exists between social security numbers
and citizens is
A) one-to-one.
B) one-to-many.
C) many-to-many.
D) many-to-none.
Answer: A
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Reflective Thinking

4) Every person in the world has a birthdate, but no person has more than one birthdate. Thus,
the cardinality that exists between birthdate and people is
A) one-to-one.
B) one-to-many.
C) many-to-many.
D) many-to-none.
Answer: B
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Reflective Thinking

5) Every person in the world can have more than one friend, and each person in the world can be
a friend to more than one person. Thus, the cardinality that exists between friends and people is
A) one-to-one.
B) one-to-many.
C) many-to-many.
D) many-to-none.
Answer: C
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Reflective Thinking
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6) Every company can have more than one banking relationships, and each bank can have a
business relationship with more than one company. Thus, the cardinality that exists between
company and bank is
A) one-to-one.
B) one-to-many.
C) many-to-many.
D) many-to-none.
Answer: C
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Reflective Thinking

7) An REA diagram must link every event to at least one ________ and two ________.
A) resource; agents
B) agent; resources
C) transaction; entities
D) resource; relationships
Answer: A
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Easy
AACSB: Analytical Thinking

8) What is the standard cardinality pattern for a relationship between an event and an agent?
A) 1:1.
B) 0:1.
C) 0:N.
D) 1:N.
Answer: D
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Challenging
AACSB: Reflective Thinking

9) Each event in an REA model will in most cases have at least one ________ agent and one
________ agent involved with the event.
A) internal; resource
B) external; entity
C) internal; employee
D) internal; external
Answer: D
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Easy
AACSB: Analytical Thinking
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10) Which of the following statements is true about the development of an REA model?
A) Events that pertain to the entry of data are included in the REA model.
B) The objective is to model basic value-chain activities.
C) REA diagrams model individual transactions and data collections.
D) Information retrieval events are modeled as events in the REA model.
Answer: B
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Analytical Thinking

11) The first step in developing an REA diagram for a specific transaction cycle begins with
identifying
A) relevant events.
B) agents involved.
C) resources affected.
D) relationship cardinalities.
Answer: A
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Easy
AACSB: Analytical Thinking

12) Identify the statement below that is false with respect to cardinalities.
A) Cardinalities describe the nature of the relationship between two entities.
B) No universal standard exists for representing information about cardinalities in REA
diagrams.
C) The minimum cardinality can be zero or one.
D) The maximum cardinality can be zero, one, or many.
Answer: D
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Analytical Thinking

13) Identify the minimum cardinality of any REA diagram relationship.


A) 0 or 1.
B) 0 or N.
C) 1 or N.
D) None of the above.
Answer: A
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Easy
AACSB: Analytical Thinking

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14) The maximum cardinality of any REA diagram relationship is


A) zero or one.
B) one or many.
C) zero or many.
D) many or none.
Answer: B
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Easy
AACSB: Analytical Thinking

15) How many types of relationships are possible between entities?


A) One.
B) Two.
C) Three.
D) Four.
Answer: C
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Easy
AACSB: Analytical Thinking

16) Identify the most likely relationship where cardinalities have zero minimums and N
maximums.
A) Agent-event relationship.
B) Resource-event relationship.
C) Event-event relationship.
D) Agent-agent relationship.
Answer: B
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Reflective Thinking

17) Which of the following statements is false regarding REA diagrams?


A) Each organization will have its own unique REA diagram.
B) An REA diagram for a given organization will change over time.
C) Data modeling and REA diagram development involve complex and repetitive processes.
D) Redrawing an REA diagram several times during development is uncommon.
Answer: D
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Easy
AACSB: Analytical Thinking

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18) What are Cardinalities?


Answer: Cardinalities describe the nature of the relationship between two entities by indicating
how many instances of one entity can be linked to each specific instance of another entity.
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Analytical Thinking

19) Which of the following graphical symbols represents a minimum cardinality of zero and a
maximum cardinality of one?
A)

B)

C)

D)

Answer: A
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Analytical Thinking

20) Which of the following graphical symbols represents a minimum cardinality of zero and a
maximum cardinality of many?
A)

B)

C)

D)

Answer: C
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Analytical Thinking

15
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21) Which of the following graphical symbols represents a minimum cardinality of one and a
maximum cardinality of one?
A)

B)

C)

D)

Answer: B
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Analytical Thinking

22) Which of the following graphical symbols represents a minimum cardinality of one and a
maximum cardinality of many?
A)

B)

C)

D)

Answer: D
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Analytical Thinking

16
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23) A relationship is diagrammed below using the [Min, Max] notation. Which of the diagrams
below represents the same relationship using the "crow's feet" notation?

A)

B)

C)

D)

Answer: D
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Challenging
AACSB: Analytical Thinking

17
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24) Helge Autoparts sells new and refurbished auto parts exclusively to auto dealers. Helge
purchases inventory from distributors at trade conventions. Each time Helge makes a purchase,
the company records the suppliers name, address, date, specific items purchased, price paid for
each, and the total amount spent. Helge later researches the inventory items to set the customer
price. The company assigns an inventory number to each item purchased and records the
customer price for each item. Helge buys price tags and display supplies from Alwin
Incorporated, a company that sells them at all trade conventions. All inventory and supplies
purchases are immediately paid for with cash or with checks from a bank account in Helge's
name. All cash received from sales are also deposited to the same bank account. Several times a
year Helge rents display space at dealer conventions. A deposit is always required, and the entire
fee is due the day the convention starts. Helge records the deposit and final payment, along with
the convention's name and address, in the same worksheet on which purchases of inventory and
supplies are recorded.

Consider Helge's processes regarding the purchasing inventory and supplies, renting display
space, and paying for purchased items. A well-designed REA diagram would
A) include eight unique entities.
B) include nine unique entities.
C) include seven unique entities.
D) include ten unique entities.
Answer: A
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Challenging
AACSB: Reflective Thinking

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25) Helge Autoparts sells new and refurbished auto parts exclusively to auto dealers. Helge
purchases inventory from distributors at trade conventions. Each time Helge makes a purchase,
the company records the suppliers name, address, date, specific items purchased, price paid for
each, and the total amount spent. Helge later researches the inventory items to set the customer
price. The company assigns an inventory number to each item purchased and records the
customer price for each item. Helge buys price tags and display supplies from Alwin
Incorporated, a company that sells them at all trade conventions. All inventory and supplies
purchases are immediately paid for with cash or with checks from a bank account in Helge's
name. All cash received from sales are also deposited to the same bank account. Several times a
year Helge rents display space at dealer conventions. A deposit is always required, and the entire
fee is due the day the convention starts. Helge records the deposit and final payment, along with
the convention's name and address, in the same worksheet on which purchases of inventory and
supplies are recorded.

Consider Helge's processes regarding the purchasing inventory and supplies, renting display
space, and paying for purchased items. A well-designed REA diagram would
A) reflect nine 1:N relationships.
B) reflect two M:N relationships.
C) reflect ten 1:N relationships.
D) include two 1:1 relationships.
Answer: A
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Challenging
AACSB: Reflective Thinking

19
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26) Helge Autoparts sells new and refurbished auto parts exclusively to auto dealers. Helge
purchases inventory from distributors at trade conventions. Each time Helge makes a purchase,
the company records the suppliers name, address, date, specific items purchased, price paid for
each, and the total amount spent. Helge later researches the inventory items to set the customer
price. The company assigns an inventory number to each item purchased and records the
customer price for each item. Helge buys price tags and display supplies from Alwin
Incorporated, a company that sells them at all trade conventions. All inventory and supplies
purchases are immediately paid for with cash or with checks from a bank account in Helge's
name. All cash received from sales are also deposited to the same bank account. Several times a
year Helge rents display space at dealer conventions. A deposit is always required, and the entire
fee is due the day the convention starts. Helge records the deposit and final payment, along with
the convention's name and address, in the same worksheet on which purchases of inventory and
supplies are recorded.

Consider Helge's processes regarding the purchasing inventory and supplies, renting display
space, and paying for purchased items. A well-designed REA diagram would
A) reflect minimum cardinalities of 1 for the relationship between Vendor and Cash
Disbursement entities.
B) reflect the same number of 0 and 1 minimum cardinalities.
C) reflect more maximum cardinalities of M than of 1.
D) reflect maximum cardinalities of M for the relationship between Inventory and Purchase
entities.
Answer: A
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Challenging
AACSB: Reflective Thinking

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27) Helge Autoparts sells new and refurbished auto parts exclusively to auto dealers. Helge
purchases inventory from distributors at trade conventions. Each time Helge makes a purchase,
the company records the suppliers name, address, date, specific items purchased, price paid for
each, and the total amount spent. Helge later researches the inventory items to set the customer
price. The company assigns an inventory number to each item purchased and records the
customer price for each item. Helge buys price tags and display supplies from Alwin
Incorporated, a company that sells them at all trade conventions. All inventory and supplies
purchases are immediately paid for with cash or with checks from a bank account in Helge's
name. All cash received from sales are also deposited to the same bank account. Several times a
year Helge rents display space at dealer conventions. A deposit is always required, and the entire
fee is due the day the convention starts. Helge records the deposit and final payment, along with
the convention's name and address, in the same worksheet on which purchases of inventory and
supplies are recorded.

Consider Helge's processes regarding the purchasing inventory and supplies, renting display
space, and paying for purchased items. In a well-designed REA diagram, what entities would
reflect economic duality?
A) Purchases and Cash Disbursements
B) Display Space Rental and Cash Disbursements
C) Inventory and Purchases
D) Cash and Cash Disbursements
Answer: A
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Challenging
AACSB: Reflective Thinking

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28) Prescott Dolls sells porcelain dolls exclusively at antique shows. Prescott Dolls purchases
inventory from individuals at garage sales, flea markets, antique malls, and estate sales. Each
time Dahlia Prescott (the owner) makes a purchase, she records the person's name, address, date,
specific items purchased and price paid, and total amount spent. Later at home, Dahlia cleans,
researches and prices the inventory for sale to customers. She assigns an inventory number to
each item and records the "asking" price. Dahlia buys price tags and display supplies from a
company that sells at flea market and antique shows. All inventory and supplies purchases are
immediately paid for using cash or with company checks from a bank account in Prescott Dolls'
name. Cash received from customer sales are also deposited in this account. Three times a year,
Dahlia rents a booth at antique shows. A deposit is always required, with the balance due at the
start of the show. Dahlia records the deposit and final payment, along with the show organizer's
name and address, in the same worksheet on which purchases of inventory and supplies are
recorded.

Draw an REA diagram for Prescott Dolls, related to purchasing inventory and supplies, renting
booths, and paying for all items.
Answer:

Concept: Developing an REA diagram


Objective: Learning Objective 4
Difficulty: Challenging
AACSB: Reflective Thinking

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29) Define cardinality.


Answer: The cardinality of the relationship indicates how many occurrences of the entity on the
other side of the relationship can be linked to a single occurrence of the entity on this side of the
relationship. In relational database terms, cardinality provides information about how many rows
in the other table can be linked to each row in this table.
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Analytical Thinking

30) Describe the three basic rules that apply to the REA model pattern.
Answer: Each event is linked to at least one resource that it affects. Each event is linked to at
least one other event. Each event is linked to at least two participating agents.
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Easy
AACSB: Analytical Thinking

31) Describe the steps in developing an REA diagram.


Answer: Developing an REA diagram involves three steps. First, identify the basic events of
interest (any activity about which management wants to collect information in order to plan,
control, and evaluate performance). Second, identify the resources affected by and the agents
who participate in those events. Third, use knowledge about the organization's business practices
to add relationship cardinality information to the diagram.
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Analytical Thinking

32) Explain how an AIS system can be viewed as a set of "give-to-get" exchanges.
Answer: An AIS system can be viewed as a set of "give-to-get" exchanges because such
exchanges reflect the nature of the five transaction cycles: revenue, expenditure, human
resources, production, and financing. In each cycle the organization "gives" some resource in
exchange for another resource (the "get" part of the transaction). The goal is that the "give" part
of the exchange is of lesser value than the "get" portion, thus generating a profit for the
organization. The AIS should capture, record, and organize information relating to any
transaction that occurs within a cycle.
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Analytical Thinking

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33) Define minimum and maximum cardinalities.


Answer: A minimum cardinality indicates the number of instances of that entity that must be
associated with at least one instance of the other entity. Minimum cardinalities can be 0 or 1. A
maximum cardinality indicates the number of instances of that entity that can be linked to at
most one instance of the other entity. Maximum cardinalities can be 1 or N (many).
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Analytical Thinking

34) Describe the possible relationships between entities, in terms of cardinalities.


Answer: There are three types or relationships possible between entities depending upon
maximum cardinality. These are: A one-to-one relationship exists when the maximum cardinality
of each entity is 1. A one-to-many relationship exists when the maximum cardinality on one
entity is 1 and maximum cardinality of the other entity is N. A many-to-many relationship exists
when the maximum cardinality of both entities is N.
Concept: Developing an REA diagram
Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Analytical Thinking

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35) A dental office employs three dentists and five dental hygienists. One of the dentists is a very
recent dental school graduate and can't yet see patients on her own until she passes boards and
obtains a license. Dentists perform all procedures personally, except for regular cleaning and x-
rays, which are performed exclusively by dental hygienists. Three of the five dental hygienists
perform only regular cleaning and x-rays. The other two hygienists each assist a specific dentist
during procedures, as well as performing regular cleaning and x-rays. One of the hygienists will
be assigned to the new dentist when she begins seeing patients. Hygienists usually 'shadow' other
hygienists and dentists for two weeks prior to seeing patients.

Patients schedule appointments directly with dentists and hygienists, depending on the type of
dental service needed. Patients do not have to choose a dentist until they need service other than
routine cleaning or x-rays. Patients are assigned to a specific dental hygienist when they schedule
their first appointment. The customer master file has 549 records. Diagram the agents described,
relationships between agents, and the cardinality pairs for each relationship.
Answer:

Concept: Developing an REA diagram


Objective: Learning Objective 4
Difficulty: Moderate
AACSB: Reflective Thinking

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5 Read an REA diagram and explain what it reveals about the business activities and policies of
the organization being modeled.

1) Which of the following transactions is represented by the diagram below?

A) A junkyard holds weekly sales where it sells its entire inventory.


B) A shoe store sells products to consumers.
C) A stay-at-home mom creates furniture for doll houses. When one piece is finished, she sells it
on Amazon.com.
D) Netflix sells movies to consumers through its online downloading service.
Answer: B
Concept: REA diagram and the organization
Objective: Learning Objective 5
Difficulty: Challenging
AACSB: Reflective Thinking

2) Which of the following transactions is represented by the diagram below?

A) A junkyard holds weekly sales where it sells its entire inventory.


B) A shoe store sells products to consumers.
C) A stay-at-home mom creates furniture for doll houses. When one piece is finished, she sells it
on Amazon.com.
D) Netflix sells movies to consumers through its online downloading service.
Answer: A
Concept: REA diagram and the organization
Objective: Learning Objective 5
Difficulty: Challenging
AACSB: Reflective Thinking

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3) Which of the following transactions is represented by the diagram below?

A) A junkyard holds weekly sales where it sells its entire inventory.


B) A shoe store sells products to consumers.
C) A stay-at-home mom creates furniture for doll houses. When one piece is finished, she sells it
on Amazon.com.
D) Netflix sells movies to consumers through its online downloading service.
Answer: C
Concept: REA diagram and the organization
Objective: Learning Objective 5
Difficulty: Challenging
AACSB: Reflective Thinking

4) Which of the following transactions is represented by the diagram below?

A) A junkyard holds weekly sales where it sells its entire inventory.


B) A shoe store sells products to consumers.
C) A stay-at-home mom creates furniture for doll houses. When one piece is finished, she sells it
on Amazon.com.
D) Netflix sells movies to consumers through its online downloading service.
Answer: D
Concept: REA diagram and the organization
Objective: Learning Objective 5
Difficulty: Challenging
AACSB: Reflective Thinking

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5) Which of the following transactions is represented by the diagram below?

A) A lumber yard where customers may pay with cash for all purchases.
B) A buy-here-pay-here auto dealer where a car buyer sends monthly cash payments to the
dealer.
C) A consulting firm that offers a variety of consulting services to other businesses.
D) A department store that allows customers to carry a balance and to make installment
payments, if they choose.
Answer: A
Concept: REA diagram and the organization
Objective: Learning Objective 5
Difficulty: Challenging
AACSB: Reflective Thinking

6) Which of the following transactions is represented by the diagram below?

A) A lumber yard where customers may pay with cash for all purchases.
B) A buy-here-pay-here auto dealer where a car buyer sends monthly cash payments to the
dealer.
C) A consulting firm that offers a variety of consulting services to other businesses.
D) A department store that allows customers to carry a balance and to make installment
payments, if they choose.
Answer: B
Concept: REA diagram and the organization
Objective: Learning Objective 5
Difficulty: Challenging
AACSB: Reflective Thinking

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7) Which of the following transactions is represented by the diagram below?

A) A lumber yard where customers may pay with cash for all purchases.
B) A buy-here-pay-here auto dealer where a car buyer sends monthly cash payments to the
dealer.
C) A consulting firm that offers a variety of consulting services to other businesses.
D) A department store that allows customers to carry a balance and to make installment
payments, if they choose.
Answer: C
Concept: REA diagram and the organization
Objective: Learning Objective 5
Difficulty: Challenging
AACSB: Reflective Thinking

8) Which of the following transactions is represented by the diagram below?

A) A lumber yard where customers may pay with cash for all purchases.
B) A buy-here-pay-here auto dealer where a car buyer sends monthly cash payments to the
dealer.
C) A consulting firm that offers a variety of consulting services to other businesses.
D) A department store that allows customers to carry a balance and to make installment
payments, if they choose.
Answer: D
Concept: REA diagram and the organization
Objective: Learning Objective 5
Difficulty: Challenging
AACSB: Reflective Thinking

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9) Which of the following transactions is represented by the diagram below?

A) Vendors send a bill for each inventory item purchased which is payable on receipt.
B) A single purchase of inventory is paid for with multiple payments.
C) Inventory vendors send a monthly bill for merchandise delivered. The seller does not accept
or allow installment payments.
D) Some inventory purchases are paid for with multiple payments and some payments may apply
to multiple purchases.
Answer: B
Concept: REA diagram and the organization
Objective: Learning Objective 5
Difficulty: Challenging
AACSB: Reflective Thinking

10) Which of the following transactions is represented by the diagram below?

A) Vendors send a bill for each inventory item purchased which is payable on receipt.
B) A single purchase of inventory is paid for with multiple payments.
C) Inventory vendors send a monthly bill for merchandise delivered. The seller does not accept
or allow installment payments.
D) Some inventory purchases are paid for with multiple payments and some payments may apply
to multiple purchases.
Answer: C
Concept: REA diagram and the organization
Objective: Learning Objective 5
Difficulty: Challenging
AACSB: Reflective Thinking

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11) Which of the following transactions is represented by the diagram below?

A) Vendors send a bill for each inventory item purchased which is payable on receipt.
B) A single purchase of inventory is paid for with multiple payments.
C) Inventory vendors send a monthly bill for merchandise delivered. The seller does not accept
or allow installment payments.
D) Some inventory purchases are paid for with multiple payments and some payments may apply
to multiple purchases.
Answer: D
Concept: REA diagram and the organization
Objective: Learning Objective 5
Difficulty: Challenging
AACSB: Reflective Thinking

12) Which of the following transactions is represented by the diagram below?

A) Each sale is associated with a single order, and there is a time lag between the time an order is
taken and delivery of the product.
B) Each sale can be comprised of multiple orders, and each order can be associated with multiple
sales or no sales.
C) Each sale can be comprised of multiple orders, and each order can be associated with one or
more multiple sales.
D) Each sale is associated with a single order and, there is no time lag between the time an order
is taken and delivery of the product.
Answer: A
Concept: REA diagram and the organization
Objective: Learning Objective 5
Difficulty: Challenging
AACSB: Reflective Thinking

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13) Which of the following transactions is represented by the diagram below?

A) Each sale is associated with a single order, and there is a time lag between the time an order is
taken and delivery of the product.
B) Each sale can be comprised of multiple orders, and each order can be associated with multiple
sales or no sales.
C) Each sale can be comprised of multiple orders, and each order can be associated with one or
more sales.
D) Each sale is associated with a single order, and there is no time lag between the time an order
is taken and delivery of the product.
Answer: B
Concept: REA diagram and the organization
Objective: Learning Objective 5
Difficulty: Challenging
AACSB: Reflective Thinking

14) Which of the following transactions is represented by the diagram below?

A) Each sale is associated with a single order, and there is a time lag between the time an order is
taken and delivery of the product.
B) Each sale can be comprised of multiple orders, and each order can be associated with multiple
sales or no sales.
C) Each sale can be comprised of multiple orders, and each order can be associated with one or
more sales.
D) Each sale is associated with a single order, and there is no time lag between the time an order
is taken and delivery of the product.
Answer: C
Concept: REA diagram and the organization
Objective: Learning Objective 5
Difficulty: Challenging
AACSB: Reflective Thinking

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15) Which of the following transactions is represented by the diagram below?

A) Each sale is associated with a single order, and there is a time lag between the time an order is
taken and delivery of the product.
B) Each sale can be comprised of multiple orders, and each order can be associated with multiple
sales or no sales.
C) Each sale can be comprised of multiple orders, and each order can be associated with one or
more sales.
D) Each sale is associated with a single order, and there is no time lag between the time an order
is taken and delivery of the product.
Answer: D
Concept: REA diagram and the organization
Objective: Learning Objective 5
Difficulty: Challenging
AACSB: Reflective Thinking

16) The choice of cardinalities is often arbitrary to reflect facts about the organization being
modeled and its business practices.
Answer: FALSE
Concept: REA diagram and the organization
Objective: Learning Objective 5
Difficulty: Easy
AACSB: Analytical Thinking

17) Explain why users should participate in data modeling.


Answer: Data modeling is not an easy task. The same term meant different things to different
people. For example, a company accounting department may use the term orders to refer to the
total dollar amount of orders per time period, whereas the sales department may use the term to
refer to individual customer orders. To solve these problems, different user groups should
actively participate in the data modeling process. The first step was to convince all users of the
need for and benefits of creating a data model for their function. Then it was necessary to
carefully define the scope of the modeling effort. The key step is in getting the different user
groups to actively participate in the data modeling process. Otherwise, the resulting data model
would not have been as accurate or widely accepted.
Concept: REA diagram and the organization
Objective: Learning Objective 5
Difficulty: Moderate
AACSB: Analytical Thinking

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