FINANCIAL ACCOUNTING AND REPORTING EXAM 3: QUESTIONS WITH CORRECT ANSWERS 2025

FINANCIAL ACCOUNTING AND REPORTING EXAM 3:
QUESTIONS WITH CORRECT ANSWERS 2025
FairGvalueGmeasurementG-GCORRECTGANSWERG-FASBGwantsGtoGprovideGdecisionalGusefulGinformation:

-relevance(canGpredict/confirm)

-faithfulGrepresentation(depictsGunderlyingGeconomicGevent/value)



HowGisGPP&EGvaluedGonGtheGbalanceGsheet?G-GCORRECTGANSWERG--
historicalGcostGadjustedGforGdepreciationGandGpotentialGimpariments

-FASBGrequiresGfirmsGtoGhaveGPPEGatGhistoricalGcost

-PPEGisGverifiable?



HowGisGinventoryGvaluedGonGtheGbalanceGsheetG-GCORRECTGANSWERG--atGitsGcostGorGmarketGvalue

-whatGyouGgainGinGfaithfulGrepresenation,GyouGloseGinGverifiability



FairGvalue(marketGtoGmarket)G-GCORRECTGANSWERG--
priceGthatGwouldGbeGreceivedGtoGsellGanGassetGorGpaidGtoGtransferGaGliabilityGinGanGorderlyGtransactionGbet
weenGmarketGparticipantsGatGtheGmeasurementGdate



Hierarchy:levelG1G-GCORRECTGANSWERG--
LevelG1:GusesGquotedGpricesGfromGactiveGmarketsGforGidenticalGassetsGorGliabilitiesGtoGdetermineGfairGvalue



Hierarchy:Glevel2G-GCORRECTGANSWERG-
includesGobservablesGinputsGotherGthanGlevelG1GquotedGprices.GTheseGareGquotedGpricesGfromGanGactiveG
marketGforGsimilarGassetsGorGliabilities,GquotedGpricesGfromGlessGthanGactiveGmarketG&observableGinputerG
otherGthanGquotedGprices

-GbondsGrestrictedGstocks



Hierarchy:GlevelG3G-GCORRECTGANSWERG-
coversGunobservableGinputsGsuchGasGmanagementsGestimatesGofGexpectedGfutureGcashGflowsGorGearningsG
whichGareGthenGusedGinGvaluationGmodelGapproachesGtoGfairGvalueGmeasurement

-privateGequities,GrealGestate

-oftenGrefeeredGtoGasGmarketGtoGmodelGasGopposedGtoGmarketGtoGmarket

, HierarchyGqualityG-GCORRECTGANSWERG-levelG1:GhighestGquality

LevelG2:GfairGquality

LevelG3:GlowestGquality



FairGvalueGoptionG-GCORRECTGANSWERG--canGbeGelectedGforGmostGfinancialGassetsGandGliabilities

-electionGcanGbeGappliedGonGanGinstrument-by-instrumentGbasisGbutGonceGappliedGcannotGbeGchanged

-A/R,GnotesGreceievable,Ginvestment,GA/R,GnotesGpayable



WhatGyouGneedGtoGknowGtoGcalculateGbonds?G-GCORRECTGANSWERG--
discountGrate(marketGrateGofGinterestsGforGaGsimilarGbond

-faceGvalue(typicallyG$1,000)

-couponGrate(semiGannual)

-numberGofGperiods(term)

-singleGsum:GFV=PV(1=r)^n

PV=fv/(1+r)^n



AnnuityG-GCORRECTGANSWERG-PV=(1-(1+r)^-n)/r)PMT



FinancialGeffectsG-GCORRECTGANSWERG-B/s:GassetsGgoGupGandGliabilitesGincrease

I/s:GnoGeffect

SCF:GcashGinflowGinGfinancingGsection

IssuingGdebtGreducesGROA

-increasesGworkingGcapital

-increasesGcurrentGratio



EffectiveGinterestGmethodG-GCORRECTGANSWERG--
interestGexpense=marketGrate@issuancexGcarryingGvalueGofGbondG@GbeginningGofGperiod