Deck 13: Acquisitionpayment Process

Question 1

The items and activities commonly associated with the acquisition / payment process can be seen in:

A)The income statement only.
B)The balance sheet only.
C)The statement of cash flows only.
D)All of the above.

Answer 1

D

Question 2

SCP Corporation purchased inventory on account from OBP Corporation. Which of the following happens immediately after the first step in OBP's acquisition / payment process?

A)The first step in SCP's sales / collection process
B)The second step in OBP's acquisition / payment process
C)The second step in SCP's sales / collection process
D)An internal audit of the transaction by OBP

Answer 2

B

Question 3

Which of the following statements about the acquisition / payment process is most true?

A)A single document can be either an input or an output, but never both.
B)Many documents from the first step can be combined into a single document in the second step.
C)Both A and B are true.
D)Neither A nor B is true.

Answer 3

B

Question 4

Which of the following can serve as the basis for completing the first step in the acquisition / payment process?

A)Information technology
B)Human judgment
C)The passage of time
D)All of the above

Question 5

As the first step in the acquisition / payment process, goods are requested based on:

A)Monitor need.
B)The amount of cash in the bank.
C)The relationship between a buyer and a seller.
D)The use of information technology.

Question 6

Which of the following statements about the acquisition / payment process is least true?

A)The same document is an output of the first step and an input to the second step.
B)The document commonly used in the second step is both an output and an input.
C)The document commonly used in the second step is never used in other steps of the acquisition / payment process.
D)Many documents from the first step can be combined into a single document in the second step.

Question 7

Bumble Beasley said: "The acquisition / payment process, which often deals with the asset inventory, creates the greatest value of all business processes." Which of the following terms, if eliminated from Bumble's statement, would make it stronger?

A)Asset
B)Inventory
C)Greatest
D)None of the above; Bumble's statement is fine the way it is.

Question 8

The acquisition / payment process helps an organization create value for its stakeholders. Which of the following authors developed a model that assists in understanding value creation?

A)Porter
B)Vroom
C)Pacioli
D)Gates

Question 9

Accounting information systems have five generic parts. Outputs of the acquisition / payment process can include:

A)Schedule of accounts payable.
B)Checks.
C)Both A and B.
D)Neither A nor B.

Question 10

SCP Corporation purchased inventory on account from OBP Corporation. Which of the following occurred first?

A)The first step in SCP's sales / collection process
B)The first step in OBP's acquisition / payment process
C)A value chain analysis of the transaction
D)Management approval of the transaction

Question 11

The acquisition / payment process:

A)Helps an organization create value for its stakeholders.
B)Can only be applied if an organization sells a product.
C)Both A and B.
D)Neither A nor B.

Question 12

Transactions involved in the acquisition / payment process include:

A)Debit inventory, credit cash
B)Debit inventory, credit accounts payable
C)Debit accounts payable, credit cash
D)All of the above

Question 13

Which of the following balance sheet items is least likely to be associated with the acquisition / payment process?

A)Cash
B)Accounts payable
C)Raw materials
D)Treasury stock

Question 14

The acquisition / payment process helps an organization create value for its stakeholders, which can include:

A)Vendors.
B)Stockholders.
C)Employees.
D)All of the above.

Question 15

The primary purpose of the acquisition / payment process is to:

A)Obtain the resources the organization needs.
B)Pay for the resources the organization needs.
C)Both A and B.
D)Neither A nor B.

Question 16

The acquisition / payment process includes all of the following steps except:

A)Authorize a purchase.
B)Prepare adjusting journal entries.
C)Receive goods and services.
D)Disburse cash.

Question 17

The second step in the acquisition / payment process promotes strong internal control through:

A)Properly labeled documents.
B)Separation of duties.
C)Both A and B.
D)Neither A nor B.

Question 18

The fifth step in the acquisition / payment process promotes strong internal control through:

A)Bank reconciliations.
B)Separation of duties.
C)Both A and B.
D)Neither A nor B.

Question 19

Which of the following balance sheet items are commonly associated with the acquisition / payment process?

A)Inventory and accounts payable
B)Purchases and accounts receivable
C)Cash paid to vendors
D)Cash received from the sale of inventory

Question 20

Which of the following statements best explains the relationship between the acquisition / payment process and the sales / collection process?

A)The same transaction can be considered part of both processes.
B)All organizations that have a sales / collection process also have an inventory acquisition / payment process.
C)Both A and B.
D)Neither A nor B.

Question 21

BSP Corporation purchased inventory from RSR Corporation on account, $1,000. BSP also paid $100 freight to reimburse RSR for its payment to the common carrier that transported the merchandise. The $100 freight charge is likely to be found on:

A)The bill of lading.
B)RSR Corporation's invoice.
C)Both A and B.
D)Either A or B, but not both.

Question 22

As part of an inventory purchase, BSP Corporation paid a freight bill. The proper treatment of the freight cost in BSP's accounting information system is:

A)Capitalize to inventory.
B)Capitalize to cash.
C)Expense to inventory.
D)Expense to cash.

Question 23

Consider the following short case as you respond to the next question: Abruzzi's Italian Kitchen is a small family restaurant with an administrative staff of four people. Giuseppi Abruzzi is the chief executive officer; his wife Maria is the chief financial officer. Their son Antonio is responsible for all transactions dealing with kitchen supplies, including the raw materials for menu items; their son Carlo is responsible for all transactions dealing with dining room supplies, such as eating utensils. The restaurant's administrative practices have developed over the ten years of its existence with minimal reliance on information technology and formal procedures and a stronger emphasis on interpersonal relationships with a few reliable vendors. Once a month, Antonio places orders for kitchen supplies with one of four vendors based on price; the supplies are usually received within ten calendar days. On receipt of the supplies, Antonio pays the vendor with a company check. Carlo follows a similar process for dining room supplies, but works with a set of three vendors, none of which sell kitchen supplies.Which of the following statements about internal control at Abruzzi's Italian Kitchen is most true?

A)It has adequate separation of duties because Giuseppi is CEO and Maria is CFO.
B)It has adequate separation of duties because Antonio orders kitchen supplies and Carlo orders dining room supplies.
C)It does not need to separate duties because it is a family-owned business.
D)None of the above statements is true.

Question 24

Accounting information systems have five generic elements. Which of the following pairs includes examples of two different elements within the context of the acquisition / payment process?

A)Purchase requisition and schedule of accounts payable
B)Journal entry that debits inventory and credits cash
C)Separation of duties and a blind copy of the receiving report
D)All of the above

Question 25

Which of the following items associated with the acquisition / payment process is likely to expose an organization to one or more forms of operational risk?

A)Purchase order prepared by hand
B)Schedule of accounts payable prepared with Excel
C)Both A and B
D)Neither A nor B

Question 26

One output of the accounting information system is the balance sheet. Transactions commonly associated with an organization's acquisition / payment process are most likely to be reflected in which sections of balance sheet?

A)Current assets and current liabilities
B)Current assets and long-term liabilities
C)Long-term assets and current liabilities
D)Long-term assets and long-term liabilities

Question 27

Internal controls associated with the acquisition / payment process include:

A)Separation of duties.
B)Adequate documentation.
C)Both A and B.
D)Neither A nor B.

Question 28

Which of the following documents associated with the acquisition / payment process is most likely to lead to a journal entry that debits inventory and credits accounts payable?

A)Purchase requisition, purchase order and receiving report
B)Purchase order, receiving report and invoice
C)Purchase requisition, receiving report and invoice
D)None of the above

Question 29

The journal entry to record the purchase of inventory on account is:

A)Debit inventory, credit accounts payable.
B)Debit accounts payable, credit inventory.
C)Debit inventory, credit cash.
D)Debit accounts payable, credit cash.

Question 30

Consider the following short case as you respond to the next question: Abruzzi's Italian Kitchen is a small family restaurant with an administrative staff of four people. Giuseppi Abruzzi is the chief executive officer; his wife Maria is the chief financial officer. Their son Antonio is responsible for all transactions dealing with kitchen supplies, including the raw materials for menu items; their son Carlo is responsible for all transactions dealing with dining room supplies, such as eating utensils. The restaurant's administrative practices have developed over the ten years of its existence with minimal reliance on information technology and formal procedures and a stronger emphasis on interpersonal relationships with a few reliable vendors. Once a month, Antonio places orders for kitchen supplies with one of four vendors based on price; the supplies are usually received within ten calendar days. On receipt of the supplies, Antonio pays the vendor with a company check. Carlo follows a similar process for dining room supplies, but works with a set of three vendors, none of which sell kitchen supplies.Abruzzi's Italian Kitchen is exposed to:

A)Systems risk and human error risk.
B)Human error risk and liquidity risk.
C)Liquidity risk and systems risk.
D)Human error risk, systems risk and liquidity risk.

Question 31

Which of the following serve as examples of strong separation of duties within the context of the acquisition / payment process?

A)Establishing a purchasing department
B)Requiring all purchases over $500 to be approved by a manager
C)Both A and B
D)Neither A nor B

Question 32

Internal controls in the acquisition / payment process should address which of the following forms of risk?

A)Liquidity risk
B)Human error risk
C)Both A and B
D)Neither A nor B

Question 33

Which of the following can serve as both an input to and an output of the acquisition / payment process?

A)Check
B)Purchase order
C)Both A and B
D)Neither A nor B

Question 34

As a form of internal control within the acquisition / payment process, internal auditors are most likely to:

A)Prevent or detect a problem.
B)Prevent or correct a problem.
C)Detect or correct a problem.
D)None of the above; internal auditors are not a form of internal control for the acquisition / payment process.

Question 35

As a form of internal control, separation of duties can be applied to which steps in the acquisition / payment process?

A)Second step
B)Fourth step
C)Fifth step
D)All of the above

Question 36

Accounting information systems have five generic elements. Which of the following pairs includes two examples of the same element within the context of the acquisition / payment process?

A)Purchase order and schedule of accounts payable
B)Purchase order and adequate documentation
C)Schedule of accounts payable and adequate documentation
D)All of the above

Question 37

One output of the accounting information system is the statement of cash flows. Transactions commonly associated with an organization's acquisition / payment process are most likely to be reflected in which section of the statement of cash flows?

A)Operating
B)Investing
C)Financing
D)Non-cash investing and financing

Question 38

BSP Corporation wrote a check to RSR Corporation, one of its vendors. On the remittance advice, BSP indicated which invoices it was paying. Which of the following statements is most true?

A)BSP Corporation uses the open invoice method.
B)RSR Corporation uses the open invoice method.
C)BSP Corporation uses the balance forward method.
D)If RSR uses the open invoice method, BSP must also use the open invoice method.

Question 39

Journal entries commonly processed as part of the acquisition / payment process can include:

A)Debits to inventory.
B)Credits to accounts payable.
C)Credits to cash.
D)All of the above.

Question 40

BSP Corporation purchased inventory from RSR Corporation on account, $1,000. BSP also paid $100 freight to reimburse RSR for its payment to the common carrier that transported the merchandise. If RSR offered credit terms of 2 / 10, n / 30 and BSP paid within the discount period, the total cash disbursed to RSR was:

A)$1,080.
B)$1,078.
C)$980.
D)Some other amount.

Question 41

Consider the following short case as you respond to the next question: Abruzzi's Italian Kitchen is a small family restaurant with an administrative staff of four people. Giuseppi Abruzzi is the chief executive officer; his wife Maria is the chief financial officer. Their son Antonio is responsible for all transactions dealing with kitchen supplies, including the raw materials for menu items; their son Carlo is responsible for all transactions dealing with dining room supplies, such as eating utensils. The restaurant's administrative practices have developed over the ten years of its existence with minimal reliance on information technology and formal procedures and a stronger emphasis on interpersonal relationships with a few reliable vendors. Once a month, Antonio places orders for kitchen supplies with one of four vendors based on price; the supplies are usually received within ten calendar days. On receipt of the supplies, Antonio pays the vendor with a company check. Carlo follows a similar process for dining room supplies, but works with a set of three vendors, none of which sell kitchen supplies.Internal control would be strengthened at Abruzzi's Italian Kitchen if:

A)Kitchen supplies were ordered more than once a month.
B)Non-family members were hired in key positions.
C)Both A and B.
D)Neither A nor B.

Question 42

Consider the following systems flowchart as you respond to the next question: In the flowchart, the vendor:

A)Is outside the system boundary and therefore should be omitted.
B)Should be omitted because it has too few symbols in its column.
C)Is exposed to credit risk.
D)Should not ship goods before generating an invoice.

Question 43

List, in order, the steps in the acquisition / payment process discussed in the text.

Question 44

Several journal entries common to the acquisition / payment process are listed below. For each, explain what transaction the entry is recording.

Question 45

Consider the flowcharting symbols shown below and the flowchart depicted above as you answer the next question: Symbol D could be appropriately included in which column(s) of the flowchart?

A)General manager only
B)Inventory manager only
C)Both A and B
D)Neither A nor B

Question 46

Consider the flowcharting symbols shown below and the flowchart depicted above as you answer the next question: The symbol labeled "approve purchase order" would be appropriately replaced in the flowchart with which of the following:

A)Symbol A
B)Symbol B
C)Symbol C
D)Symbol D

Question 47

Consider the following systems flowchart as you respond to the next question: Based on the flowchart, which of the following statements is most true?

A)The company does not use any form of information technology in the process depicted.
B)At least three tasks are completed manually.
C)Both A and B are true.
D)Neither A nor B is true.

Question 48

Consider the following systems flowchart as you respond to the next question: Assuming the actual process works exactly as depicted in the flowchart, ___ is in a position to steal from the company.

A)The inventory manager only.
B)The accounting manager only.
C)Either the inventory manager or the accounting manager.
D)Neither the inventory manager nor the accounting manager.

Question 49

Consider the following short case as you respond to the next question: Abruzzi's Italian Kitchen is a small family restaurant with an administrative staff of four people. Giuseppi Abruzzi is the chief executive officer; his wife Maria is the chief financial officer. Their son Antonio is responsible for all transactions dealing with kitchen supplies, including the raw materials for menu items; their son Carlo is responsible for all transactions dealing with dining room supplies, such as eating utensils. The restaurant's administrative practices have developed over the ten years of its existence with minimal reliance on information technology and formal procedures and a stronger emphasis on interpersonal relationships with a few reliable vendors. Once a month, Antonio places orders for kitchen supplies with one of four vendors based on price; the supplies are usually received within ten calendar days. On receipt of the supplies, Antonio pays the vendor with a company check. Carlo follows a similar process for dining room supplies, but works with a set of three vendors, none of which sell kitchen supplies.Internal control would be strengthened at Abruzzi's Italian Kitchen if:

A)The company broadened its pool of vendors for kitchen and dining room supplies.
B)Maria took over the responsibility of paying vendors.
C)Both A and B.
D)Neither A nor B.

Question 50

Create all necessary database specifications (table names and field names) for PTW Corporation's acquisition / payment process based on the following narrative. Indicate primary keys by underlining and foreign keys with brackets. PTW Corporation sells computer peripherals and related devices, such as printers, ink, flash drives and cables. PTW has a staff of three purchasing agents, each of whom is in charge of a specific set of inventory items. Each purchasing agent uses his / her discretion in making decisions about when to order inventory, how much inventory to order and which vendor to purchase from. When ordered inventory arrives at PTW, one of two receiving clerks matches the items, quantities and vendors against a copy of the purchase order, then either stocks the merchandise on the shelves or puts it in the storeroom. PTW's accountant receives a copy of the invoice from the vendor, as well as an e-mail from one of the receiving clerks indicating that merchandise has been received. The e-mail also includes the relevant purchase order number. The accountant files the invoice by date in a filing cabinet; once a week, the accountant removes invoices from the filing cabinet and pays them by check. To cut down on clutter in the office, the accountant shreds the vendor invoice after the check has been paid by the bank. The accountant also completes a bank reconciliation within two weeks of receiving the bank statement in the mail.

Question 51

Consider the following systems flowchart as you respond to the next question: Consider the following systems flowchart as you respond to the next question:

A)The company has adequate separation of duties.
B)The company uses all documents commonly associated with the process depicted.
C)Both A and B are true.
D)Neither A nor B is true.

Question 52

Several symbols that might be used in a systems flowchart of the acquisition / payment process are listed below. Indicate which symbol should be used to depict each of the following. Some symbols may be used more than once; others may not be used at all. a. Bill of lading b. Electronic vendor file c. End d. File manually by due date e. Manually count inventory f. Move to next page g. Prepare check h. Purchase requisition i. Sufficient inventory on hand? j. To vendor

Question 53

OTA Corporation completed the following events as part of its acquisition / payment process. For each event, indicate the document(s) OTA would use. (Some events may require more than one document; other transactions may require no documents.)
A. Received request to order 300 units of inventory with an expected cost of $1,400.
B. Purchased inventory on account, $1,500. Terms: 2 / 10, n / 30.
C. Paid freight bill on inbound inventory, $300.
D. Received previously ordered inventory.
E. Returned previously purchased merchandise to supplier, $200.
F. Paid vendor total amount owed on the 15th day after purchase.

Question 54

Analyze the following narrative. Identify five risk exposures PTW faces in its acquisition / payment process; for each exposure, recommend two internal controls. PTW Corporation sells computer peripherals and related devices, such as printers, ink, flash drives and cables. PTW has a staff of three purchasing agents, each of whom is in charge of a specific set of inventory items. Each purchasing agent uses his / her discretion in making decisions about when to order inventory, how much inventory to order and which vendor to purchase from. When ordered inventory arrives at PTW, one of two receiving clerks matches the items, quantities and vendors against a copy of the purchase order, then either stocks the merchandise on the shelves or puts it in the storeroom. PTW's accountant receives a copy of the invoice from the vendor, as well as an e-mail from one of the receiving clerks indicating that merchandise has been received. The e-mail also includes the relevant purchase order number. The accountant files the invoice by date in a filing cabinet; once a week, the accountant removes invoices from the filing cabinet and pays them by check. To cut down on clutter in the office, the accountant shreds the vendor invoice after the check has been paid by the bank. The accountant also completes a bank reconciliation within two weeks of receiving the bank statement in the mail.

Question 55

OTA Corporation completed the following events as part of its acquisition / payment process. Record each one in general journal format; if an event does not require a journal entry, write "not applicable."
A. Received request to order 300 units of inventory with an expected cost of $1,400.
B. Purchased inventory on account, $1,500. Terms: 2 / 10, n / 30.
C. Paid freight bill on inbound inventory, $300.
D. Received previously ordered inventory.
E. Returned previously purchased merchandise to supplier, $200.
F. Paid vendor total amount owed on the 15th day after purchase.

Question 56

Accounting information systems have five generic elements. Which one applies to each item listed below within the context of the acquisition / payment process?
A. Adequate documentation of the process
b. Check, from the viewpoint of the buyer
c. Inventory status report
d. Purchase order, from the viewpoint of the purchasing department
e. Purchase requisition, from the viewpoint of the purchasing department
f. Purchases / inventory junction file
g. Recording journal entries to purchase inventory
h. Separation of duties
i. Steps in the acquisition / payment process
j. Vendor master file

Question 57

Consider the following systems flowchart as you respond to the next question: The flowchart comes closest to representing:

A)Porter's value chain.
B)The acquisition / payment process.
C)Both A and B.
D)Neither A nor B.

Question 58

In a format indicated by your instructor, document the acquisition / payment process described below. If the specified format is a data flow diagram, prepare the Level Zero diagram only. PTW Corporation sells computer peripherals and related devices, such as printers, ink, flash drives and cables. PTW has a staff of three purchasing agents, each of whom is in charge of a specific set of inventory items. Each purchasing agent uses his / her discretion in making decisions about when to order inventory, how much inventory to order and which vendor to purchase from. When ordered inventory arrives at PTW, one of two receiving clerks matches the items, quantities and vendors against a copy of the purchase order, then either stocks the merchandise on the shelves or puts it in the storeroom. PTW's accountant receives a copy of the invoice from the vendor, as well as an e-mail from one of the receiving clerks indicating that merchandise has been received. The e-mail also includes the relevant purchase order number. The accountant files the invoice by date in a filing cabinet; once a week, the accountant removes invoices from the filing cabinet and pays them by check. To cut down on clutter in the office, the accountant shreds the vendor invoice after the check has been paid by the bank. The accountant also completes a bank reconciliation within two weeks of receiving the bank statement in the mail.

Question 59

Consider the following systems flowchart as you respond to the next question: Which of the following statements about documents in the flowchart is most true?

A)"Purchase order" and "approved purchase order" should not be shown separately since they refer to the same document.
B)The flowchart should include at least two more document symbols.
C)Both A and B are true.
D)Neither A nor B is true.

Question 60

Homemade Crafts Company (HCC) sells collectible items such as dolls, jewelry, drink coasters and table linens. The company, which has five full-time employees, obtains its merchandise from independent contractors throughout the United States; they then mark up the products and sell them at craft stores and other outlets. Two of the five employees interact with the independent contractors, arranging inventory purchases based on demand for HCC's products and their own personal preferences. Those same employees use their personal vehicles to transport the inventory from HCC's main office to the retail locations where they will be sold. A third employee serves as the company's receptionist, while the fourth manages all aspects of the accounting information system. The company president is the fifth employee, and is in charge of administrative affairs such as hiring, performance evaluation and publicity. HCC purchases its entire inventory on account from the independent contractors, some of whom offer cash discount terms for early payment. The company accountant records purchases in Quickbooks using invoices submitted by the two employees in charge of purchasing. Quickbooks is set up to remind the accountant to pay invoices three days before their due date. At that time, the accountant prepares a check and uses a rubber stamp of the president's signature to sign the check before mailing it to the appropriate vendor. The receptionist, who also deposits cash receipts in the bank, reconciles the bank statement once a month. Identify three risk exposures for HCC's acquisition / payment process. For each risk exposure, indicate how it would be classified in Brown's risk taxonomy. Also suggest, for each risk exposure, two internal controls. Do not use the same internal control more than once.

Question 61

Using the format illustrated in the text, create a risk / control matrix for PTW Corporation's acquisition / payment process. The matrix should have three entries.PTW Corporation sells computer peripherals and related devices, such as printers, ink, flash drives and cables. PTW has a staff of three purchasing agents, each of whom is in charge of a specific set of inventory items. Each purchasing agent uses his / her discretion in making decisions about when to order inventory, how much inventory to order and which vendor to purchase from. When ordered inventory arrives at PTW, one of two receiving clerks matches the items, quantities and vendors against a copy of the purchase order, then either stocks the merchandise on the shelves or puts it in the storeroom. PTW's accountant receives a copy of the invoice from the vendor, as well as an e-mail from one of the receiving clerks indicating that merchandise has been received. The e-mail also includes the relevant purchase order number. The accountant files the invoice by date in a filing cabinet; once a week, the accountant removes invoices from the filing cabinet and pays them by check. To cut down on clutter in the office, the accountant shreds the vendor invoice after the check has been paid by the bank. The accountant also completes a bank reconciliation within two weeks of receiving the bank statement in the mail.

Question 62

Accounting information systems have five generic elements. Identify and describe two examples of each element in the acquisition / payment process of PTW Corporation based on the following narrative:
PTW Corporation sells computer peripherals and related devices, such as printers, ink, flash drives and cables. PTW has a staff of three purchasing agents, each of whom is in charge of a specific set of inventory items. Each purchasing agent uses his / her discretion in making decisions about when to order inventory, how much inventory to order and which vendor to purchase from. When ordered inventory arrives at PTW, one of two receiving clerks matches the items, quantities and vendors against a copy of the purchase order, then either stocks the merchandise on the shelves or puts it in the storeroom. PTW's accountant receives a copy of the invoice from the vendor, as well as an e-mail from one of the receiving clerks indicating that merchandise has been received. The e-mail also includes the relevant purchase order number. The accountant files the invoice by date in a filing cabinet; once a week, the accountant removes invoices from the filing cabinet and pays them by check. To cut down on clutter in the office, the accountant shreds the vendor invoice after the check has been paid by the bank. The accountant also completes a bank reconciliation within two weeks of receiving the bank statement in the mail.

Question 63

Consider the flowchart below (Figure TB13-4). Use the generalized model of business process management discussed in the text to recommend improvements to the acquisition / payment process depicted. As a reminder, the steps in the generalized model of business process management are: (1) Select the process and define its boundaries. (2) Observe, document and map the process steps and flow. (3) Collect process-related data. (4) Analyze the collected data. (5) Identify and prioritize potential process improvements. (6) Optimize the process. (7) Implement and monitor process improvements.

Question 64

In your own words, explain the role and purpose of the acquisition / payment process. Do not list the steps in the process as part of your response.