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.

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

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

4. 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.
 5. Why does the payroll process lend itself to batch processing?

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

7. Outline the key steps taken in a payroll system that deals with hourly workers who are paid once each
week.