BUS-A 355 Topics in Accounting
BUS-A 355 – TOPICS IN ACCOUNTING | EXAM QUESTIONS AND
CORRECT ANSWERS | VERIFIED ACCOUNTING LATEST VERSION
BUS-A 355 Topics in Accounting
1. According to the FASB Conceptual Framework, the two fundamental
qualitative characteristics of useful financial information are:
A. Relevance and faithful representation
B. Timeliness and understandability
C. Consistency and conservatism
D. Comparability and verifiability
CORRECT ANSWER : A. Relevance and faithful representation
Relevance and faithful representation are the fundamental characteristics;
the others either enhance usefulness or are not part of the framework.
2. Which set of attributes makes financial information relevant?
A. Consistency, prudence, and objectivity
B. Predictive value, confirmatory value, and materiality
C. Completeness, neutrality, and freedom from error
D. Comparability, timeliness, and verifiability
CORRECT ANSWER : B. Predictive value, confirmatory value, and
materiality
Relevant information can make a difference in decisions through
predictive or confirmatory value, and materiality is an entity-specific
aspect of relevance.
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, BUS-A 355 Topics in Accounting
3. Faithful representation is achieved when information is:
A. Complete, neutral, and free from error
B. Verifiable, consistent, and conservative
C. Timely, comparable, and understandable
D. Material, predictive, and confirmatory
CORRECT ANSWER : A. Complete, neutral, and free from error
The three ingredients of faithful representation are completeness,
neutrality, and freedom from error.
4. Which of the following is classified as an enhancing qualitative
characteristic?
A. Neutrality
B. Materiality
C. Completeness
D. Verifiability
CORRECT ANSWER : D. Verifiability
Comparability, verifiability, timeliness, and understandability enhance
information that is already relevant and faithfully represented.
5. Under ASC 820, fair value is best described as:
A. The historical cost of an asset adjusted for general inflation
B. The price paid to acquire an asset in an arm's-length transaction
C. The price received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date
D. The present value of the entity's own expected cash flows from an
asset
CORRECT ANSWER : C. The price received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date
Fair value is a market-based exit price, not an entry price or an entity-
specific value.
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, BUS-A 355 Topics in Accounting
6. Quoted prices in active markets for identical assets that the entity
can access at the measurement date are classified as:
A. Unobservable inputs
B. Level 3 inputs
C. Level 1 inputs
D. Level 2 inputs
CORRECT ANSWER : C. Level 1 inputs
Level 1 inputs are the most reliable evidence of fair value and are used
without adjustment whenever available.
7. A company values its investment in a privately held start-up using a
discounted cash flow model built on management's own growth
projections. These inputs are:
A. Level 1 inputs
B. Level 2 inputs
C. Not permitted under ASC 820
D. Level 3 inputs
CORRECT ANSWER : D. Level 3 inputs
Inputs based on the entity's own assumptions that are not observable in
the market fall into Level 3.
8. When measuring fair value, an entity assumes the transaction occurs
in the principal market, which is defined as the market:
A. With the greatest volume and level of activity for the asset or liability
B. In which the entity has historically sold the asset
C. Located closest to the entity's headquarters
D. That provides the highest selling price after transaction costs
CORRECT ANSWER : A. With the greatest volume and level of activity
for the asset or liability
The principal market is determined by volume and activity; the most
advantageous market is used only when there is no principal market.
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, BUS-A 355 Topics in Accounting
9. The highest and best use concept in fair value measurement applies
to:
A. Financial assets only
B. The entity's own equity instruments
C. Nonfinancial assets
D. Financial liabilities
CORRECT ANSWER : C. Nonfinancial assets
Highest and best use considers the use by market participants that
maximizes value and is relevant only for nonfinancial assets.
10. When a company elects the fair value option for an eligible financial
asset, subsequent changes in fair value are reported in:
A. Other comprehensive income
B. Additional paid-in capital
C. Retained earnings directly
D. Net income
CORRECT ANSWER : D. Net income
Under the fair value option, unrealized gains and losses on the asset flow
through earnings each period.
11. An asset trades in its principal market at $100. Selling would cost
$5 in transaction costs and $3 to transport the asset to that market.
The fair value of the asset is:
A. $92
B. $95
C. $97
D. $100
CORRECT ANSWER : C. $97
Transportation costs adjust the price because location is a characteristic
of the asset, but transaction costs do not; $100 minus $3 equals $97.
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BUS-A 355 – TOPICS IN ACCOUNTING | EXAM QUESTIONS AND
CORRECT ANSWERS | VERIFIED ACCOUNTING LATEST VERSION
BUS-A 355 Topics in Accounting
1. According to the FASB Conceptual Framework, the two fundamental
qualitative characteristics of useful financial information are:
A. Relevance and faithful representation
B. Timeliness and understandability
C. Consistency and conservatism
D. Comparability and verifiability
CORRECT ANSWER : A. Relevance and faithful representation
Relevance and faithful representation are the fundamental characteristics;
the others either enhance usefulness or are not part of the framework.
2. Which set of attributes makes financial information relevant?
A. Consistency, prudence, and objectivity
B. Predictive value, confirmatory value, and materiality
C. Completeness, neutrality, and freedom from error
D. Comparability, timeliness, and verifiability
CORRECT ANSWER : B. Predictive value, confirmatory value, and
materiality
Relevant information can make a difference in decisions through
predictive or confirmatory value, and materiality is an entity-specific
aspect of relevance.
Page 1 of 66
, BUS-A 355 Topics in Accounting
3. Faithful representation is achieved when information is:
A. Complete, neutral, and free from error
B. Verifiable, consistent, and conservative
C. Timely, comparable, and understandable
D. Material, predictive, and confirmatory
CORRECT ANSWER : A. Complete, neutral, and free from error
The three ingredients of faithful representation are completeness,
neutrality, and freedom from error.
4. Which of the following is classified as an enhancing qualitative
characteristic?
A. Neutrality
B. Materiality
C. Completeness
D. Verifiability
CORRECT ANSWER : D. Verifiability
Comparability, verifiability, timeliness, and understandability enhance
information that is already relevant and faithfully represented.
5. Under ASC 820, fair value is best described as:
A. The historical cost of an asset adjusted for general inflation
B. The price paid to acquire an asset in an arm's-length transaction
C. The price received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date
D. The present value of the entity's own expected cash flows from an
asset
CORRECT ANSWER : C. The price received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date
Fair value is a market-based exit price, not an entry price or an entity-
specific value.
Page 2 of 66
, BUS-A 355 Topics in Accounting
6. Quoted prices in active markets for identical assets that the entity
can access at the measurement date are classified as:
A. Unobservable inputs
B. Level 3 inputs
C. Level 1 inputs
D. Level 2 inputs
CORRECT ANSWER : C. Level 1 inputs
Level 1 inputs are the most reliable evidence of fair value and are used
without adjustment whenever available.
7. A company values its investment in a privately held start-up using a
discounted cash flow model built on management's own growth
projections. These inputs are:
A. Level 1 inputs
B. Level 2 inputs
C. Not permitted under ASC 820
D. Level 3 inputs
CORRECT ANSWER : D. Level 3 inputs
Inputs based on the entity's own assumptions that are not observable in
the market fall into Level 3.
8. When measuring fair value, an entity assumes the transaction occurs
in the principal market, which is defined as the market:
A. With the greatest volume and level of activity for the asset or liability
B. In which the entity has historically sold the asset
C. Located closest to the entity's headquarters
D. That provides the highest selling price after transaction costs
CORRECT ANSWER : A. With the greatest volume and level of activity
for the asset or liability
The principal market is determined by volume and activity; the most
advantageous market is used only when there is no principal market.
Page 3 of 66
, BUS-A 355 Topics in Accounting
9. The highest and best use concept in fair value measurement applies
to:
A. Financial assets only
B. The entity's own equity instruments
C. Nonfinancial assets
D. Financial liabilities
CORRECT ANSWER : C. Nonfinancial assets
Highest and best use considers the use by market participants that
maximizes value and is relevant only for nonfinancial assets.
10. When a company elects the fair value option for an eligible financial
asset, subsequent changes in fair value are reported in:
A. Other comprehensive income
B. Additional paid-in capital
C. Retained earnings directly
D. Net income
CORRECT ANSWER : D. Net income
Under the fair value option, unrealized gains and losses on the asset flow
through earnings each period.
11. An asset trades in its principal market at $100. Selling would cost
$5 in transaction costs and $3 to transport the asset to that market.
The fair value of the asset is:
A. $92
B. $95
C. $97
D. $100
CORRECT ANSWER : C. $97
Transportation costs adjust the price because location is a characteristic
of the asset, but transaction costs do not; $100 minus $3 equals $97.
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