Question 1

If a portfolio manager had to estimate the fair value of investments in timber,which of the following would he/she most likely identify as the level of inputs to determine this?
A) Level 1.
B) Levels 1 and 2.
C) Levels 2 or 3.
D) All levels would be applicable.

Accepted Answer

Level 1 inputs are quoted prices in active markets, which do not exist for timber investments. Level 2 inputs include market observable inputs such as benchmark yields and other pricing data, but these may not be readily available for timber investments. Level 3 inputs involve unobservable inputs such as management estimates and valuation techniques that may be used for timber investments. Therefore, Level 2 or Level 3 inputs are most likely to be used to determine the fair value of timber investments.

Question 2

Historical costs include all of the following except:
A) acquisition costs for assets
B) net realizable values for assets.
C) adjusted acquisition costs for assets.
D) initial present value for assets and liabilities

Accepted Answer

Historical costs include the actual acquisition costs for assets (A), adjusted acquisition costs for assets (C), and the initial present value for assets and liabilities (D). Net realizable values for assets (B) reflect the current market value of an asset and are not considered a historical cost.

Question 3

All of the following can be used to describe reliability of accounting information except:
A) biased.
B) credible.
C) verifiable.
D) supported by source documents.

Accepted Answer

Biased information cannot be considered reliable, as it is influenced by personal opinions or preferences. The other options - credible, verifiable, and supported by source documents - all contribute to the reliability of accounting information.

Question 4

U.S.GAAP,IFRS,and other major accounting standards are best characterized as:
A) historical accounting models.
B) current value accounting models.
C) acquisition cost accounting models.
D) mixed attribute accounting models.

Accepted Answer

U.S. GAAP, IFRS, and other major accounting standards are best characterized as mixed attribute accounting models because they allow for the use of both historical cost and fair value accounting methods depending on the nature of the asset or liability being recorded.

Question 5

What level are inputs for estimating fair values are based on inputs that are readily available via prices for identical assets or liabilities in actively traded markets such as securities exchanges?
A) Level 1.
B) Level 2.
C) Level 3.
D) None of these.

Accepted Answer

Level 1 inputs are based on inputs that are readily available via prices for identical assets or liabilities in actively traded markets such as securities exchanges.

Question 6

If a portfolio manager had to estimate the fair value of illiquid mortgage-backed securities,which of the following would he/she most likely identify as the level of inputs to determine this?
A) Level 1.
B) Level 2.
C) Level 3.
D) None of these.

Accepted Answer

Level 3 inputs are used for securities with little to no observable market data and require significant unobservable inputs to determine fair value. Illiquid mortgage-backed securities would fall under this category as their valuations would be based on assumptions and models rather than observable market prices.

Question 7

Which of the following would not represent an acquisition cost to be added to the purchase price of building:
A) Sales Tax.
B) Cost of grading the land.
C) Capital repairs to get the building ready for occupancy.
D) Renovations that would extend the life of the building.

Accepted Answer

The cost of grading the land would be considered a land improvement cost, not a building acquisition cost. The other options listed would be appropriate acquisition costs to add to the purchase price of the building.

Question 8

Reporting financial assets and liabilities at fair values also is referred to as:
A) historical cost.
B) acquisition cost.
C) mark-to-market.
D) mortgage-backed cost

Accepted Answer

Reporting financial assets and liabilities at fair values refers to marking them to market or changing their values based on the current market conditions. This method is known as mark-to-market. It is different from historical cost or acquisition cost, which refer to the original cost of acquiring an asset or liability. Mortgage-backed cost is not a recognized method of reporting financial assets and liabilities.

Question 9

Present value methods are often used with receivables and liabilities:
A) With payment schedules in excess of one year.
B) With payment schedules of less than one year.
C) When fair values can be easily determined.
D) When asset are sold in the middle of the accounting cycle.

Accepted Answer

Present value methods, such as the discounted cash flow method, are typically used to assess the value of receivables and liabilities with payment schedules that exceed one year. This is because these methods take into account the time value of money, allowing for the estimation of the present value of future cash flows. For liabilities with shorter payment schedules, the impact of time value of money may be less significant, making present value methods less necessary.

Question 10

If a portfolio manager had to estimate the fair value of real estate,which of the following would he/she most likely identify as the level of inputs to determine this?
A) Level 1.
B) Level 2.
C) Level 3.
D) None of these.

Accepted Answer

The answer of If a portfolio manager had to estimate...

Question 11

The accounting equation is represented by Assets= Liabilities + Stockholders' Equity which of the following would cause a change in the stockholders' equity accounts:
A) Sale of Land for cash and a note receivable for the balance
B) Collection of an account receivable
C) Purchased an asset for cash and 10,000 shares of preferred stock
D) Purchased inventory on account

Accepted Answer

Purchasing an asset for cash and 10,000 shares of preferred stock would cause a change in the stockholders' equity accounts. This is because the transaction affects both the asset (increased by the purchased asset) and equity (increased by the issuance of preferred stock) sides of the accounting equation. The other transactions (sale of land, collection of account receivable, and purchase of inventory on account) only affect either the asset or the liability side of the equation.

Question 12

Firms may not include all income taxes for a period on the line for income tax expense in the income statement.Other places that income tax expenses may occur include all of the following except:
A) Discontinued Operations
B) Extraordinary Items
C) Other Comprehensive Income
D) Common Stock

Accepted Answer

Income tax expenses would not be included in common stock, as common stock is a component of shareholders' equity and not related to income taxes. Income tax expenses may be included in discontinued operations, extraordinary items, or other comprehensive income, but not necessarily in every case.

Question 13

When recognizing deferred tax assets and liabilities,the income statement approach and the balance sheet approach yield identical results:
A) when enacted tax rates applicable to future periods do not change.
B) when the firm recognizes no valuation allowance on deferred tax assets.
C) Both (a)and (b)are correct.
D) None of these answers is correct.

Accepted Answer

The income statement approach and the balance sheet approach will yield the same results when there is no change in enacted tax rates applicable to future periods, and when no valuation allowance is recognized on deferred tax assets. Therefore, both (a) and (b) are correct, and the best choice is C.

Question 14

Relevant asset valuations refer to all of the following except:
A) they are timely.
B) they have the capacity to affect a user's decisions,based on the information.
C) they incorporate all available information.
D) they are always subjective.

Accepted Answer

All other options listed (timeliness, capacity to affect user decisions, incorporation of available information) are characteristics of relevant asset valuations, whereas subjectivity is not necessarily a defining feature. Valuations can be objective if based on measurable data or principles, but they may also incorporate subjective judgments or estimates.

Question 15

What level are inputs for estimating fair values are those inputs include quoted prices for similar assets or liabilities in active or inactive markets,other observable information such as yield curves and price indexes,and other observable data such as market-based correlation estimates?
A) Level 1.
B) Level 2.
C) Level 3.
D) None of these.

Accepted Answer

Inputs for estimating fair values that include quoted prices for similar assets or liabilities in active or inactive markets, other observable information such as yield curves and price indexes, and other observable data such as market-based correlation estimates are considered Level 2 inputs. Level 1 inputs are quoted prices in active markets for identical assets or liabilities, while Level 3 inputs are unobservable inputs that require significant judgment or estimation by the entity.

Question 16

If a portfolio manager had to estimate the fair value of privately placed bond issues,which of the following would he/she most likely identify as the level of inputs to determine this?
A) Level 1.
B) Level 2.
C) Level 3.
D) None of these.

Accepted Answer

The answer of If a portfolio manager had to estimate...

Question 17

If a portfolio manager had to estimate the fair value of private equity funds invested in a young,privately-held start-up company,which of the following would he/she most likely identify as the level of inputs to determine this?
A) Level 1.
B) Level 2.
C) Level 3.
D) None of these.

Accepted Answer

Level 3 inputs are used for assets with unobservable inputs, which is likely the case for private equity funds invested in a young, privately-held start-up company where market data and other observable inputs may not be available. Therefore, Level 3 inputs would be most applicable for estimating the fair value of these funds.

Question 18

Valuation methods that reflect current values or a combination of historical and current values include all of the following except:
A) fair value for assets and liabilities.
B) current replacement cost for assets.
C) net realizable value for assets.
D) adjusted acquisition costs for assets.

Accepted Answer

Adjusted acquisition costs for assets reflect historical values, but not necessarily current values. Fair value, current replacement cost, and net realizable value all reflect current or updated values for assets and liabilities.

Question 19

What level are inputs for estimating fair values based on a firm's own assumptions about the fair value of an asset or a liability,such as using various data to estimate present values?
A) Level 1.
B) Level 2.
C) Level 3.
D) None of these.

Accepted Answer

The answer of What level are inputs for estimating fair...

Question 20

The existence of subjectivity in an asset valuation does not necessarily mean the valuation will not be reliable.All of the following are examples of this except:
A) where historical cost is used for accounts receivable,fixed assets,and other assets with values that remain relatively stable.
B) where market value is used for marketable equity securities,commodities,and financial assets are traded in liquid markets
C) where historical cost is used for LIFO inventory layers where inventory has seen an inflationary increase in costs.
D) where historical cost is used for internally generated intangible asset valuations.

Accepted Answer

The answer of The existence of subjectivity in an asset...

Quiz 2: Asset and Liability Valuation and Income Recognition

If a portfolio manager had to estimate the fair value of investments in timber,which of the following would he/she most likely identify as the level of inputs to determine this?

Historical costs include all of the following except:

All of the following can be used to describe reliability of accounting information except:

U.S.GAAP,IFRS,and other major accounting standards are best characterized as:

What level are inputs for estimating fair values are based on inputs that are readily available via prices for identical assets or liabilities in actively traded markets such as securities exchanges?

If a portfolio manager had to estimate the fair value of illiquid mortgage-backed securities,which of the following would he/she most likely identify as the level of inputs to determine this?

Which of the following would not represent an acquisition cost to be added to the purchase price of building:

Reporting financial assets and liabilities at fair values also is referred to as:

Present value methods are often used with receivables and liabilities:

If a portfolio manager had to estimate the fair value of real estate,which of the following would he/she most likely identify as the level of inputs to determine this?

The accounting equation is represented by Assets= Liabilities + Stockholders' Equity which of the following would cause a change in the stockholders' equity accounts:

Firms may not include all income taxes for a period on the line for income tax expense in the income statement.Other places that income tax expenses may occur include all of the following except:

When recognizing deferred tax assets and liabilities,the income statement approach and the balance sheet approach yield identical results:

Relevant asset valuations refer to all of the following except:

What level are inputs for estimating fair values are those inputs include quoted prices for similar assets or liabilities in active or inactive markets,other observable information such as yield curves and price indexes,and other observable data such as market-based correlation estimates?

If a portfolio manager had to estimate the fair value of privately placed bond issues,which of the following would he/she most likely identify as the level of inputs to determine this?

If a portfolio manager had to estimate the fair value of private equity funds invested in a young,privately-held start-up company,which of the following would he/she most likely identify as the level of inputs to determine this?

Valuation methods that reflect current values or a combination of historical and current values include all of the following except:

What level are inputs for estimating fair values based on a firm's own assumptions about the fair value of an asset or a liability,such as using various data to estimate present values?

The existence of subjectivity in an asset valuation does not necessarily mean the valuation will not be reliable.All of the following are examples of this except: