To Achieve Effective Internal Accounting Control Over Fixed Asset Additions

question 97

Multiple Choice

To achieve effective internal accounting control over fixed asset additions, a company should establish procedures that require:

• A) authorization and approval of major fixed asset additions.
• B) capitalization of the cost of fixed asset additions in excess of a specific dollar amount.
• C) classification, as investments, of those fixed asset additions that are not used in the business.
• D) performance of recurring fixed asset maintenance work solely by maintenance department employees.

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Definitions:

Base Rate Fallacy

A cognitive error where individuals ignore general statistical information (base rates) in favor of specific anecdotal information.

Representativeness Heuristic

A mental shortcut used to make decisions or judgments by comparing information to our mental prototypes and stereotypes.

Anchoring and Adjustment Heuristic

A cognitive bias where an individual relies too heavily on an initial piece of information (anchor) when making decisions, with insufficient adjustments made thereafter.

Gambler's Fallacy

The erroneous belief that if something happens more frequently than normal during a given period, it will happen less frequently in the future, or vice versa.