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Assignment1.ACC580.Spring2022

1. Which of the following statements about the most advantageous market for an asset is correct?

a) The price of the asset on the most advantageous market is the highest among all markets for that asset.

b) The trading volume for the asset on the most advantageous market is the largest among all markets for that asset.

c) It is a hypothetical market.

d) The reporting entity should have access to that market.

2. Market participants in the definition of fair value should have the following characteristics.

a) Knowledgeable about the asset

b) Willing to transact

c) Independent of each other

d) All of the above

3. Which of the following statements about fair value hierarchy is correct?

a) Level 2 inputs are mostly observable.

b) Level 3 fair-valued assets can be reclassified to level 2 fair-valued assets under some conditions.

c) Level 1 fair-valued assets have a liquid market for identical assets.

d) All of the above.

4. Future cash flows in the present value models can be either nominal cash flows or real cash flows. True or false?

a) True

b) False

5. Which of the following investments is likely to be level 2 fair-valued asset?

a) Microsoft stock

b) US government treasury bonds

c) Municipal bonds issued by Suffolk County

d) Shares of a private equity fund

6. One paper finds that the stock market values each dollar of level 1, 2, and 3 assets at $0.98, $0.97, and $0.68, respectively. Which of the following statement is supported by this finding?

a) Fair value accounting enhances value relevance of accounting information.

b) Level 3 asset valuation is less reliable than level 1 or 2 asset valuation.

c) Both a) and b)

7. Compared with historical cost accounting, fair value accounting may

a) Improve the reliability of accounting information

b) Be more subject to manipulation

c) Reduce value relevance of accounting information.

d) Both b) and c).

8. An asset’s carrying amount is $25,000. Its fair value less costs of disposal is $15,000, and its value in use is $19,000. What is the impairment loss under IFRS?

a) 0

b) $4,000

c) $10,000

d) $6,000

9. Which of the following statements is false?

a) Companies that follow IFRS often report current asset items in the reverse order of liquidity in the statement of financial position.

b) US GAAP is more rule-based, whereas IFRS is more principle-based.

c) Under US GAAP, companies generally classify expenses by nature in the income statement.

d) IFRS uses fair value accounting more broadly than US GAAP.

10. Which of the following would not be a line item of a company that report costs by nature in the income statement?

a) Depreciation expense

b) Salaries expense

c) Interest expense

d) Marketing expense

11. On September 30, 2016, a company issued bonds with par value of $100,000 for $103,000. Which of the following statement is not correct?

a) Under IFRS, the company should record bond payable of $103,000.

b) Under US GAAP, the company should record bond payable of $100,000.

c) Under IFRS, the company should record an equity component of $3,000. 

12. How often should goodwill acquired in a business combination be tested for impairment under US GAAP?

a) Whenever there are external indications of impairment

b) Every year

c) Whenever there are internal indications of impairment

13. Under IFRS, if a company classifies dividend paid in the financing section in the statement of cash flows, it cannot classify interest paid in the operating cash flows. True or false?

a) True

b) False

14. Which of the following statements is correct?

a) Revaluation of PPE assets is through earnings under US GAAP but through comprehensive income under IFRS.

b) Reversals of inventory write-downs are prohibited under IFRS.

c) IFRS require reporting entities to review useful lives of PPE assets on a regular basis but US GAAP does not have a similar requirement.

d) All of the above statements are incorrect.

15. On December 31, 2015, a company acquires land for $1,000,000. The land is revalued at $1,030,000 on December 31, 2016 and $960,000 on December 31, 2017. The company’s fiscal year-end is December 31. It follows IFRS and uses the revaluation model in relation to land. The correct accounting treatment of each revaluation in 2016 and 2017 is as follows:

a) 2016 Other comprehensive income $30,000

2017 Negative other comprehensive income $30,000; Expense $40,000

b) 2016 Other comprehensive income $30,000

2017 Negative other comprehensive income $70,000

c) 2016 Other comprehensive income $30,000

2017 Expense $70,000

d) 2016 Income $30,000

2017 Expense $70,000

16. Which of the following statements is correct?

a) Both IFRS and US GAAP permit revaluation of property, plant, and equipment and intangible assets (except for goodwill).

b) IFRS permits revaluation of property, plant, and equipment and intangible assets (except for goodwill).

c) Both IFRS and GAAP permit revaluation of property, plant, and equipment but not intangible assets.

d) GAAP permits revaluation of property, plant, and equipment and intangible assets (except for goodwill).

17. Which of the statements is true?

a) All others being equal, companies that follow GAAP may expense the cost of a major overhaul sooner than companies that follow IFRS.

b) All others being equal, companies that follow GAAP may expense advertising costs sooner than companies that follow IFRS.

c) Neither a) nor b) is true.

18. On May 1 2016, a company issued convertible bonds for $420,000. The value of the equity component is $20,000 and the value of the debt component is $400,000. Which of the following statements is correct?

a) Under US GAAP, the company should credit liability of $400,000 upon the issuance of convertible bonds.

b) Under IFRS, the company should credit liability of $420,000 upon the issuance of convertible bonds.

c) Under IFRS, the company should credit equity $20,000 upon the issuance of convertible bonds.

d) Under US GAAP, the company should debit equity $20,000 upon the issuance of convertible bonds.

19. Which of the following statements regarding equity investment under US GAAP is false?

a) Equity investment are generally measured at fair value through other comprehensive income.

b) Reporting entities can use net asset value to measure the fair value of investments in certain funds.

c) Reporting entities can elect the “measurement alternatives” upon the acquisition of an equity instrument.

d) All of the above statements are true.

20. Bank overdrafts are generally regarded as a component of an entity’s cash and cash equivalent under IFRS. True or false?

a) True

b) Fales