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CHAPTER 8
FINANCIAL REPORTING AND MANAGEMENT
REPORTING SYSTEMS
REVIEW QUESTIONS
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1.
A journal voucher is used to make entries into the general ledger accounts. The
information may be a summary of many transactions or a single, unique transaction.
2.
3.
The general ledger master file is ordered by the chart of accounts. The account
number, the account description, the asset class, the normal balance, beginning
balance, total debits and total credits for the period, and the current balance are the
typical pieces of information found in each record of a general ledger master file.
4.
5.
The responsibility center file is used to collect data regarding the revenues,
expenditures and relevant resources of each responsibility center. Managers of
responsibility centers are held accountable for the operations of their centers and the
information found in these files helps to assess performance.
6.
The primary users of financial statement information are external users such as
stockholders, creditors, and government agencies such as the IRS and the SEC.
These users need information that allow them to assess performance over time and
to compare performance with other organizations. The IRS needs financial
information to determine whether the corporation is paying the appropriate amount
of taxes, while the SEC requires the information of publicly traded organizations to
ensure that the market place is fair to the average investor.
7.
1.
2
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8.
The financial statements are prepared based upon the assumption that the users of
financial reports understand the conventions and accounting principles that are
applied, and that the financial statements have information content that is useful.
9.
Adjusting entries are made after the regular accounting entries have been made and
posted to the general ledger and any corresponding subsidiary ledgers. After an
unadjusted trial balance of the general ledger has been prepared, the adjusting
entries are made to correct any errors and to record any unrecorded transactions
(i.e. accruals) during the period. The vouchers are prepared after the adjusting
entries have been identified and made to the worksheet.
10.
The general ledger clerks should not: 1. have record keeping responsibility for
special journals or subsidiary ledgers, 2. prepare journal vouchers, or have custody
of physical assets.
11.
12.
A close examination of the journal voucher listing should help to uncover any journal
voucher in error, either incorrect or unauthorized.
13.
14.
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18.
19.
20.
Span of control refers to the number of subordinates directly under the managers
control. A firm with a wide span of control tends to have many subordinates reporting
to each manager. A firm with a narrow span of control tends to have fewer
subordinates reporting to each manager. Firms with a narrow span of control tend to
have more levels of managers. Tasks which are routine and structured tend to have
managers with a wide span of control, such as the supervisor of an assembly line,
where each employee is performing basically the same tasks. Tasks which are less
structured typically require more levels of management, such as the managers of
audit teams where each audit is different in some way from any other audit being
conducted.
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21.
22.
23.
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24.
The three elements are data, procedures, and objectives. When all three elements
are known with certainty, the problem is considered to be structured. Cash
disbursements to each vendor is an example of a structured problem. The open
accounts payable is searched for due dates, the supporting documentation is
checked, and if appropriate, the check is written or the funds transferred.
Transaction processing systems are examples of structured problems. An example
of an unstructured problem would be whether to expand sales to a foreign market.
The three elements become uncertain, and the answer is not clear.
25.
The problems faced by lower management levels are more likely to be structured
problems. As the management level increases, the problems tend to become more
unstructured. Top management deal with strategic planning issues that are typically
unstructured in nature.
26.
a.
decision maker
b.
27.
decision.
2. Summarizationreports should be summarized to meet the users needs.
3. Exception orientationreports identify activities at risk of going out of control.
4. Accuracyinformation in reports should be free from material error.
5. Completenessno important information should be missing from the report.
6. Timelinessinformation needs to be available in time to support the decision.
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29.
a.
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30.
31.
Goal congruence means that when lower level managers pursue their own
objectives, they also make a contribution to the objectives of their superiors.
32.
Data mining is the process of selecting, exploring, and modeling large amounts of
data to uncover relationships and global patterns that exist in large databases but
are hidden among the vast amount of facts.
33.
34.
35.
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36.
Ad hoc reports allow managers to retrieve information for situations that were not
anticipated. These reports allow the managers to retrieve the information very
quickly, thus allowing the managers to respond to the situation much quicker and
more effectively. An example would be a situation in which an accounting manager
realizes that an incorrect tax rate has been applied to all customer invoices for
goods shipped to the state of New York. The manager can then retrieve a report
which lists all invoices for shipments to New York. This information can be used to
either send an invoice correction, or at least to update the state taxes payable
account.
37.
Exception reports will be useful to help flag customers who have unpaid bills. This
information is important for future credit decisions. Also, when another report
indicates a customer is purchasing far more than normal, the credit manager may
wish to determine if this abnormal purchasing is suspicious.
38.
direct labor, raw materials, overhead and, production level variances. The variances
quantify efficiency and/or spending deviations and facilitate management by
exception.
39.
Managers of profit centers have responsibility for both cost control and revenue
generation while managers of cost centers only have responsibility for costs.
Managers of investment centers have responsibility for
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DISCUSSION QUESTIONS
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1.
Since general ledger clerks have access to the general ledger, they should not have
access to the journal vouchers in the source departments. If these journal vouchers
are acquired by the general ledger clerks, or anyone else with authorization to enter
the general ledger, these vouchers may be used to make unauthorized entries.
Prenumbering and logging these documents at their source provides a means of
accountability.
2.
The data comes from the various transaction processing departments. Specifically,
the cash receipts journal, sales journal, purchases journal, and any another
miscellaneous transactions are the various sources of data which are input into the
system. Once this data is input into the system, the general ledger, as well as
subsidiary ledgers, are updated. After inspection of a trial balance of the general
ledger accounts, any necessary adjustments and error corrections are made. Finally,
the financial statements are prepared and distributed to the appropriate user groups.
3.
If journal vouchers are missing, or are fabricated, or are erroneous, and information
is misrepresented in the financial statements, then any decisions made by investors
and governmental agencies is based upon bad data. If an investor provides capital
to a firm based upon its financial statements and these financial statements are
incorrect, if the investor loses money once the corrections are made, the external
user which suffered a loss may claim the firm was either fraudulent or negligent and
sue for the lost amount. Governmental agencies, such as the IRS, may impose
severe penalties for inaccurate reporting of data.
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4.
Ultimately, the purpose is to be able to take any account on the financial statement
and trace back to the source documents which comprise the number. However, the
audit trail must also be examined from the other direction to ensure that all
transactions end up being reflected in the financial statements. In other words, if the
financial statement balance for an account is traced back to the originating
documents, then accuracy and verifiability is present, but completeness is not
necessarily present. Tracing a sample of source documents through to their effect on
the financial statements allows the property of completeness to be verified.
5.
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6.
7.
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9.
Much of the data used for middle and higher level decision making must come from
data sources outside of the traditional information systems. Examples of such data
would be marketing data collected by the marketing department, new product design
specifications generated by research and development, demographic information
from government sources, competitor information from new sources, exchange rates
from the financial press, union requirements from union representatives, etc.
10.
Both types of reports are very important. The scheduled reports are important for
controlling the day-to-day operations. The on-demand reports are very important and
helpful in sudden situations that arise and demand immediate attention. The ability
to retrieve information in a crisis situation is crucial.
11.
Scheduled reports are prepared according to an established time frame. The reports
contain information in a pre-formatted manner. The multiple users become
accustomed to the reports and are able to focus on the information which is
necessary to make a specific type of decision. These reports are designed this way
for processing and printing efficiency. If the reports contain too much information,
however, the trade-off is inefficient processing by the user due to information
overload.
12.
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13.
Downward flows represent goals for managers such as budget goals. The goals are
used to direct and motivate managers. Upward flows report performance
measurements, and these are used to evaluate management performance. The
upward and downward goals are related. The performance measurements (upward
flows) are compared to the goals (downward flows).
14.
The verification model uses a drill-down technique to either verify or reject a users
hypothesis. The discovery model uses data mining to discover previously unknown
but important information that is hidden within the data. This type of system employs
inductive learning to infer information from detailed data by searching for recurring
patterns, trends, and generalizations. This approach is fundamentally different from
the verification model in that the data are searched with no specific hypothesis
driving the process.
15.
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16.
The production department is held accountable for controllable costs which relate to
the production demand. Profit centers are not appropriate since they include noncontrollable items and measure the performance by the profit centers contribution
(including revenue) after non-controllable costs. The production department has no
control over the activities of the sales and marketing department, thus, a cost center
is more appropriate since it holds the production department responsible for
measures they can control.
17.
18.
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19.
Too much information can cause the user to spend unproductive and unnecessary
time weeding through reports to get to the relevant components. Also, information
overload can result and may cause the user to bypass or misinterpret the relevant
information when it is hidden in a deluge of other data.
MULTIPLE CHOICE
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
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PROBLEMS
1.
2.
2
TPS
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3.
FRS
TPS
FRS
FRS
FRS
GLS
TPS
GLS
GLS
FRS
a.
1.
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2.
internal use.
3.
If Leslie is preparing the journal vouchers and/or posting to the subsidiary ledgers,
she should not be entering the information into the general ledger. Performing these
two functions is not in conformance with segregation of functions. A separate general
ledger clerk should post the entries to the general ledger and reconcile the control
accounts in the general ledger to the corresponding subsidiary ledger.
Having source documents, such as journal vouchers, without preassigned numbers
is very risky. If a separate general ledger clerk did exist as mentioned above, this
person could visit Leslies office and inconspicuously take a couple of journal
vouchers without anyone knowing (since the forms are not numbered). The general
ledger clerk could then enter unauthorized entries into the general ledger. Further,
the possibility that Leslie makes an error in recording journal voucher numbers
incorrectly is highly possible.
5. See drawing on the following page. The only change made is that the
daily sales transactions are used to immediately update the sales file.
The daily applications create cumulative totals of each days
transactions on disk. The totals are merged with the other applications
totals prior to updating the general ledger and other database files.
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6.
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7.
The journal voucher listing and general ledger change reports allow the transactions
to be analyzed for accuracy and completeness. Any errors noted can be changed
and input into the system prior to preparing the financial statements. For Figure 810, the update general ledger procedure would include a listing of the journal
voucher listing and general ledger change report. Again, any noted errors can be
corrected prior to the generation of financial statements.
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8.
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9.
10.
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1.
advantages include:
a hierarchy and unity of command.
a limited span of control providing greater centralized decision making.
more available opportunities for promotions to supervision or
management.
The disadvantages include:
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1.
The factors that Roland Ford and Martha Sanderson should consider
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12. a.
1.
Jenkins include:
lack of flexibility/creativity.
1.
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The factors that Donald Jenkins and Beverly Kiner should consider when
determining the appropriate span of control include the:
13.
a.
Mechanistic MCC
1. Emphasis on rules and procedures. Narrow job definitions. Centralized
decision making.
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formal
rules
or
guidelines.
Greater
individual
autonomy.
1.
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14. a.
b. A major expansion of Star Papers plant was completed in April 1990. This
expansion included additions to the production-line machinery and the
replacement of obsolete and fully depreciated equipment. As a result, the value
of the divisions asset base increased considerably. While productivity
undoubtedly increased during the first year in the expanded plant, the increase
was not immediate nor sufficient to offset the increase in the asset base as there
is likely to be a catch-up period.
c.
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The feedback from Fortner was insufficient. Fortner indicated that she
would get back to Harris about his questions concerning ROA but she
did not do so.
1.
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Responsibility
accounting
affords
management
performance
evaluation criteria.
3. The advantages of responsibility accounting to the managers of a firm
include the following:
b.
1.
The managers are only responsible for costs that are directly under
their control; arbitrary allocations have been avoided.
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16. a.
1.
b.
1.
attention is focused only on those items that deviate significantly from the
standard. The assumption is that, foregoing a thorough, detailed analysis
of all items, the manager has more time to concentrate on other
managerial activities.
2. The behavioral implications of management by exception include both
positive and negative implications.
On the positive side, this technique increases management efficiency
by concentrating only on material variances, allowing time for the
manager to concentrate on other activities.
On the negative side, managers tend only to focus on the negative
variances rather than positive ones limiting their employee interactions
to negative reinforcement or punishment. This technique may not
indicate detrimental trends at an early stage and fragmentation of
efforts can occur from dealing only with the specific problems rather
than global issues.
c.
17. a.
1.
Departmental
income
statements
are
considered
form
of
volume indicators that provided the basis for the budget such as
projected membership.