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Homework answers / question archive / American University BUSINESS A 101 Chapter 6-The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures TRUE/FALSE 1)Time cards are used by cost accounting to allocate direct labor charges to work in process

American University BUSINESS A 101 Chapter 6-The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures TRUE/FALSE 1)Time cards are used by cost accounting to allocate direct labor charges to work in process

Business

American University

BUSINESS A 101

Chapter 6-The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures

TRUE/FALSE

1)Time cards are used by cost accounting to allocate direct labor charges to work in process.

 

 

 

  1. The personnel department authorizes changes in employee pay rates.

 

 

 

  1. Most payroll systems for mid-size firms use real-time data processing.

 

 

 

  1. To improve internal control, paychecks should be distributed by the employee's supervisor.

 

 

 

  1. Employee paychecks should be drawn against a special checking account.

 

 

 

  1. Because a time clock is used, no supervision is required when employees enter and leave the work place.

 

 

 

  1. Inventory control performs the formal record keeping function for fixed assets.

 

 

 

  1. The depreciation schedule shows when assets are fully depreciated.

 

 

 

  1. Authorization to dispose of fixed assets should be issued by the user of the asset.

 

 

 

  1. Work-in-process records are updated by payroll personnel.

 

 

 

  1. Ideally, payroll checks are written on a special bank account used only for payroll.

 

 

 

  1. The supervisor is the best person to determine the existence of a “phantom employee” and should distribute paychecks.

 

 

 

  1. Payroll processing can be automated easily because accounting for payroll is very simple.

 

 

 

  1. Timekeeping is part of the personnel function.

 

 

 

  1. Fixed asset accounting systems include cost allocation and matching procedures that are not part of routine expenditure systems.

 

 

 

  1. Asset maintenance involves only the recording of depreciation charges. Physical improvements are always expensed.

 

 

 

  1. Fixed Asset Systems must keep track of the physical location of each asset to promote accountability.

 

 

 

  1. Time cards capture the total time an individual worker spends on each production job.

 

 

 

  1. Accounting conventions and IRS rules sometime specify the depreciation parameters to be used.

 

 

 

  1. The fixed asset disposal report authorizes the user department to dispose of a fixed asset.

 

 

 

MULTIPLE CHOICE

 

  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

c.

personnel action form

d.

labor distribution form

 

 

  1. An important reconciliation in the payroll system is

a.

general ledger compares the labor distribution summary from cost accounting to the

disbursement voucher from accounts payable

b.

personnel compares the number of employees authorized to receive a paycheck to the

number of paychecks prepared

 

c.

production compares the number of hours reported on job tickets to the number of hours

reported on time cards

d.

payroll compares the labor distribution summary to the hours reported on time cards

 

 

 

  1. Which internal control is not an important part of the payroll system?

a.

Supervisors verify the accuracy of employee time cards.

b.

Paychecks are distributed by an independent paymaster.

c.

Accounts payable verifies the accuracy of the payroll register before transferring payroll

funds to the general checking accounting.

d.

General ledger reconciles the labor distribution summary and the payroll disbursement

voucher.

 

 

  1. Which transaction is not processed in the Fixed Asset System?

a.

purchase of building

b.

improvement of equipment

c.

purchase of raw materials

d.

sale of company van

 

 

  1. Depreciation

a.

is calculated by the department that uses the fixed asset

b.

allocates the cost of the asset over its useful life

c.

is recorded weekly

d.

results in book value approximating fair market value

 

 

  1. Depreciation records include all of the following information about fixed assets except

a.

the economic benefit of purchasing the asset

b.

the cost of the asset

c.

the depreciation method being used

d.

the location of the asset

 

 

  1. Which control is not a part of the Fixed Asset 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

 

 

  1. Objectives of the Fixed Asset System do not include

a.

authorizing the acquisition of fixed assets

b.

recording depreciation expense

c.

computing gain and/or loss on disposal of fixed assets

d.

maintaining a record of the fair market value of all fixed assets

 

 

  1. Which of the following is not a 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.

 

 

  1. In the payroll subsystem, which function should distribute paychecks?

a.

personnel

b.

timekeeping

c.

paymaster

d.

payroll

 

 

  1. Where does the responsibility lie for reconciling the labor distribution summary and the payroll disbursement voucher?

a.

cash disbursements

b.

cost accounting

c.

personnel

d.

general ledger

 

 

  1. Which of the following statements is not true?

a.

Routine payroll processing begins with the submission of time cards.

b.

Payroll clerks must verify the hours reported on the time cards.

c.

Payroll reconciles personnel action forms with time cards and prepares paychecks.

d.

Cash disbursements signs paychecks and forwards them to the paymaster for distribution.

 

 

  1. In a manufacturing firm, employees use time cards and job tickets. Which of the following statements is not correct?

a.

Job tickets are prepared by employees for each job worked on, so an employee may have

more that one job ticket on a given day.

b.

An individual employee will have only one time card.

c.

The time reported on job tickets should reconcile with the time reported on time cards.

d.

Paychecks should be prepared from the job tickets.

 

 

  1. Which department is responsible for approving changes in pay rates for employees?

a.

payroll

b.

treasurer

c.

personnel

d.

cash disbursements

 

 

  1. Which of the following situations represents a serious control weakness?

a.

Timekeeping is independent of the payroll department.

b.

Paychecks are distributed by the employees immediate supervisor.

c.

Time cards are reconciled with job tickets.

 

d.

Personnel is responsible for updating employee records, including creation of records for

new hires.

 

 

 

  1. Why would an organization require the paymaster to deliver all unclaimed paychecks to the internal audit department?

a.

to detect a “phantom employee” for whom a check was produced

b.

to prevent an absent employee’s check from being lost

c.

to avoid paying absent employees for payday

d.

to prevent the paymaster from cashing unclaimed checks

 

 

  1. Which of the following is not a reasonable control for fixed assets?

a.

Proper authorization is required for acquisition and disposal of fixed assets.

b.

Fixed asset records show the location of each asset.

c.

Fully depreciated assets are immediately disposed of.

d.

Depreciation policies are in writing.

 

 

  1. Cost accounting updates work-in-process accounts from

a.

time cards

b.

the labor distribution summary

c.

job tickets

d.

personnel action forms

 

 

  1. Payroll uses time card data to do all of the following except

a.

prepare the payroll register

b.

update employee payroll records

c.

prepare the labor distribution summary

d.

prepare paychecks

 

 

  1. Payroll checks are typically drawn on

a.

the regular checking account

b.

a payroll imprest account

c.

a wages payable account

d.

petty cash

 

 

  1. The personnel action form provides authorization control by

a.

preventing paychecks for terminated employees

b.

verifying pay rates for employees

c.

informing payroll of new hires

d.

all of the above

 

 

  1. Accounting records that provide the audit trail for payroll include all of the following except

a.

time cards

 

b.

job tickets

c.

payroll register

d.

accounts payable register

 

 

 

  1. Personnel actions forms are used to do all of the following except

a.

activate new employees

b.

terminate employees

c.

record hours worked

d.

change pay rates

 

 

  1. The payroll department performs all of the following except

a.

prepares the payroll register

b.

distributes paychecks

c.

updates employee payroll records

d.

prepares paychecks

 

 

  1. The document that records the total amount of time spent on a production job is the

a.

time card

b.

job ticket

c.

labor distribution summary

d.

personnel action form

 

 

  1. A control technique that can reduce the risk of a terminated employee being paid is

a.

a security camera viewing the time clock

b.

the supervisor taking role during the shift

c.

paychecks being distributed by an independent paymaster

d.

reconciliation of time cards and job tickets

 

 

  1. Accounts payable

a.

signs paychecks

b.

prepares the payroll voucher

c.

reconciles time cards and employee records

d.

distributes paychecks to employees

 

 

  1. All of the following are processed by the Fixed Asset System except

a.

sale of unneeded equipment

b.

purchase of raw materials

c.

repair of production equipment

d.

purchase of a new plant

 

 

  1. The Fixed Asset System performs all of the following except

a.

determines the need for new assets

 

b.

maintains depreciation records

c.

records retirement and disposal of assets

d.

tracks the physical location of fixed assets

 

 

 

  1. The payroll department performs all of the following except

a.

prepares paychecks

b.

transfers adequate funds to the payroll imprest account

c.

updates employee payroll records

d.

prepares the payroll register

 

 

  1. Depreciation

a.

assures that assets are reported at fair market value

b.

is discretionary for many firms

c.

allocates the cost of an asset over its useful life

d.

is the responsibility of the department using the asset

 

 

  1. The Fixed Asset System is similar to the expenditure cycle except

a.

fixed asset transactions are non-routine and require special authorization and controls

b.

fixed assets are capitalized, not expensed

c.

both a and b

d.

none of the above

 

 

  1. Asset maintenance involves

a.

the recording of periodic depreciation

b.

adjusting the asset records to reflect the cost of physical improvements

c.

keeping track of the physical location of the assets

d.

all of the above

 

 

  1. The Fixed Asset Systems does all of the following except

a.

records acquisition of assets

b.

records improvements to assets

c.

estimates the fair market value of assets in service

d.

records the disposal of assets

 

 

  1. Asset disposal

a.

occurs as soon as an asset is fully depreciated

b.

requires no special authorization

c.

automatically initiates the purchase of a replacement asset

d.

must follow formal authorization procedures

 

 

SHORT ANSWER

 

  1. Describe an internal control procedure that would prevent an employee from punching the time clock for another, absent employee.

 

 

  1. Why should the employee’s supervisor not distribute paychecks?

 

 

  1. Describe an internal control procedure that would prevent a supervisor from stealing the unclaimed paychecks of employees who have been terminated.

 

 

  1. Why should employee paychecks be drawn against a special checking account?

 

 

  1. Why should employees clocking on and off the job be supervised.

 

 

  1. What is a personnel action form?

 

 

  1. In a manufacturing firm, employees typically fill out two different documents regarding their time worked. What are they? Why are there two?

 

 

  1. List two types of authorization required in the Fixed Asset System.

 

 

  1. List four types of data that appear on a depreciation schedule.

 

 

  1. Which documents prompt the fixed asset department to create a fixed asset record?

 

 

  1. Describe an internal control that would prevent an employee from stealing a computer and then reporting it as scrapped.

 

 

  1. Describe an internal control that would prevent the payment of insurance premiums on an automobile that is no longer owned by the company.

 

 

  1. Describe an internal control that would prevent the charging of depreciation expense to the maintenance department for a sweeper that is now located in and used by the engineering department.

 

 

 

  1. Describe an internal control that would prevent the acquisition of office equipment which is not needed by the firm.

 

 

  1. What negative consequences result when fixed asset records include assets that are no longer owned by the firm?

 

 

  1. Explain the purpose of each of the following documents used in the payroll system: the personnel action form, the job ticket, the time card.

.

 

  1. How do fixed asset systems differ from the expenditure cycle?

 

 

  1. What is recorded by the asset maintenance part of the Fixed Asset System?

 

 

  1. How are the following carried out in the Fixed Asset System: authorization, supervision, independent verification?

 

 

  1. Which department authorizes changes to employee pay rates?

 

 

ESSAY

 

  1. The Golf Club Company makes custom golf clubs. The manufacturing supervisor interviews people who have specialized manufacturing skills, and he informs payroll when an employee is hired. The employees use a time clock to record the hours they work. The employees are also required to keep a record of the time they spend working on each order. The supervisor approves all time cards.

 

The accountant analyzes the job tickets and prepares a labor distribution summary. Payroll prepares the payroll register and paychecks. The supervisor distributes the paychecks to the employees. Payroll informs cash disbursement of the funds required to cover the entire payroll amount. The cash disbursements clerk ensures that there are adequate funds in the company's regular checking account to cover the payroll.

 

Describe at least three internal control weaknesses; for each weakness suggest an improvement to internal control.

 

 

  1. Describe how the Fixed Asset System differs from the expenditure cycle.

 

 

  1. Three major tasks are handled by the Fixed Asset System. What is the purpose of each? What special control issues affect each?

 

 

 

  1. The Baccus Corp. manufactures medical equipment. This is a capital intensive industry and investments in fixed assets exceed $5 million a year. The minimum cost for production equipment is

$75,000. When supervisors want new production machinery, they contact the plant manager. The plant manager approves or denies the request based on discussions with the production supervisor, the repair and maintenance supervisor, and the quality control supervisor.

 

A purchase order is prepared by the purchasing department and sent to one of the three major suppliers of production machinery for medical equipment. The equipment is delivered immediately to the production floor and put into service. At the end of the month, the production supervisor informs the general ledger clerk about the receipt of the machinery. The general ledger clerk establishes an asset record for the machine. At the end of the year, the general ledger clerk computes straight-line depreciation based on a 10-year life with a 10 percent salvage value. Depreciation expense is recorded as a direct reduction of the asset cost.

 

The repair department performs routine maintenance on all of the production equipment. Occasionally the repair department rebuilds a machine to extend its useful life. All of the costs associated with the repair department are charged to manufacturing overhead. When a machine becomes obsolete, production employees move it to a corner of the factory floor and break it down so that parts can be used in other machines. Production employees routinely remove parts for personal use. Some smaller machines have disappeared completely from the factory floor.

 

The general ledger clerk takes a physical inventory every three years. About 75 percent of the fixed assets can be located and identified. Other assets have serial numbers that are inaccessible, so the item cannot be matched to a fixed asset record. Some fixed asset records cannot be traced to an actual item. Several machines that have been scrapped and are being used for spare parts were matched to fixed asset records. At the last inventory, the general ledger clerk did not make any adjustments to the fixed asset records explaining that 75 percent accuracy in the fixed asset physical inventory was excellent.

Describe five internal control weaknesses and explain how to correct them.

 

  1. Why does the payroll process lend itself to batch processing?

 

 

  1. Discuss the fundamental risk and control issues associated with fixed assets that are different from raw materials and finished goods.

 

 

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