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

1. The price of the asset on the most advantageous market is the highest among all markets for that asset.
2. The trading volume for the asset on the most advantageous market is the largest among all markets for that asset.
3. It is a hypothetical market.
4. The reporting entity should have access to that market.

Answer and Brief Explanation: A, because in an advantageous market, the reporting entity would sell the asset or transfer the liability with the price that best maximizes the amount that would be paid to transfer the liability.

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

1. Knowledgeable about the asset
2. Willing to transact
3. Independent of each other
4. All of the above

Answer and Brief Explanation: D, because market participants should be independent of the reporting entity, and knowledgeable and willing to transact instead of being forced to transact.

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

1. Level 2 inputs are mostly observable.
2. Level 3 fair-valued assets can be reclassified to level 2 fair-valued assets under some conditions.
3. Level 1 fair-valued assets have a liquid market for identical assets.
4. All of the above.

Answer and Brief Explanation: D, because level 2 inputs are difficult to value so theyre known as observable prices, level 3 can be reclassified depending on how easily they an be valued, and level 1 is a liquid market with readily available prices.

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

1. True
2. False

Answer and Brief Explanation:

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

1. Microsoft stock
2. US government treasury bonds
3. Municipal bonds issued by Suffolk County
4. Shares of a private equity fund

Answer and Brief Explanation:

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?

1. Fair value accounting enhances value relevance of accounting information.
2. Level 3 asset valuation is less reliable than level 1 or 2 asset valuation.
3. Both a) and b)

Answer and Brief Explanation:

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

1. Improve the reliability of accounting information
2. Be more subject to manipulation
3. Reduce value relevance of accounting information.
4. Both b) and c).

Answer and Brief Explanation:

8. An assets 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?

1. 0
2. $4,000
3. $10,000
4. $6,000

Answer and Brief Explanation:

9. Which of the following statements is false?

1. Companies that follow IFRS often report current asset items in the reverse order of liquidity in the statement of financial position.
2. US GAAP is more rule-based, whereas IFRS is more principle-based.
3. Under US GAAP, companies generally classify expenses by nature in the income statement.
4. IFRS uses fair value accounting more broadly than US GAAP.

Answer and Brief Explanation:

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

1. Depreciation expense
2. Salaries expense
3. Interest expense
4. Marketing expense

Answer and Brief Explanation: