MULTIPLE-CHOICE QUESTIONS
1. Which of the following is not an activity associated with the acquisition and payment cycle?
a. Receive a customer purchase order.
b. Purchase of goods and services.
c. Receipt of, and accounting for, goods and services.
d. Approval of items for payment.

2. An automated purchasing system will perform which of the following tasks?
a. Apply preloaded specifications and materials lists to the system to start the process.
b. Automatically flag invoices that do not reconcile with purchase orders.
c. Create change orders and analyze variances from purchase orders.
d. All of the above.

3. Which of the following is an inherent risk relating to inventory?
a. Inventory is easily transportable.
b. Inventory may become obsolete because of technological advances even though there are no visible signs of wear.
c. Inventory is often returned by customers, so care must be taken to separately identify returned merchandise, check it for quality, and record it at net realizable value.
d. All of the above.

4. Which of the following is not an inherent risk relating to inventory?
a. Sales contracts may contain unusual terms, and revenue recognition is often complex.
b. Inventory accounts typically experience a high volume of activity.
c. Inventory accounts may be valued according to various accounting valuation methods.
d. Identifying obsolete inventory and applying the lower of cost or market principle to determine valuation are difficult.

5. Which of the following is an example of fraud in the acquisition and payment cycle?
a. Theft of inventory by an employee.
b. Employee schemes involving fictitious vendors as means to transfer payments to themselves.
c. Executives recording fictious inventory or inappropriately recording higher values for existing inventory.
d. All of the above.

6. Refer to Exhibit, and identify the possible inventory or cost of goods sold manipulation that might occur when inventory is sold.
a. Overstate returns.
b. Overcount inventory.
c. Not record cost of goods sold nor reduce inventory.
d. Under-record purchases.

7. Refer to Exhibit, and identify which of the following is a typical control associated with the requisition process for inventory purchases in a just-in-time manufacturing process.
a. The store manager's ability to issue a purchase order may be subject to overall corporate limits, usually specified in dollars.
b. An agreement is signed with the supplier whereby the supplier agrees to ship merchandise according to the production schedule set by the manufacturer.
c. Overall authorization to purchase product lines is delegated to individual buyers by the marketing manager.
d. The limits for individual goods can be exceeded only on specific approval by the marketing manager.

8. Which of the following is a legitimate rationale for centralizing the purchasing function in a separate purchasing department?
a. It promotes efficiency and effectiveness.
b. It eliminates potential favoritism that could take place if individual department heads were allowed to place orders.
c. It decentralizes control across functions.
d. a. & c.
e. a. & b.