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Homework answers / question archive / Ch 3 Practice MCQs 1) Inputs to income models include which of the following? using a risk-free and risk-adjusted interest rate adjusting cash flows and the discount rate in the same calculation actual cash flows time value of money Under the expected cash flow approach, the model is best used where the element being measured does not have variable cash flows

1) Inputs to income models include which of the following?

- using a risk-free and risk-adjusted interest rate
- adjusting cash flows and the discount rate in the same calculation
- actual cash flows
- time value of money

- Under the expected cash flow approach,

- the model is best used where the element being measured does not have variable cash flows.
- the projected cash flows reflect the certainty in terms of amount and timing.
- the discount rate is adjusted to accommodate the riskiness of the cash flows.

d) the cash flow uncertainty is dealt with by using probabilities.

- Which of the following is not a category to measure financial statement elements?

- cost-based measures.
- hybrid measures.

c. cash flow measures.

d. current value measures.

- Which of the following is an example of an item that would be measured under the current value measurement categorization?

- inventory using various cost flow assumptions.
- inventory measured at the lower of cost and net realizable value

c) biological assets.

d) financial instruments carried at cost.

- Which of the following is true regarding the traditional discounted cash flow approach?

a) The discount rate is adjusted to accommodate the riskiness of the cash flows.

- The cash flows have been adjusted to accommodate their riskiness.
- This model is best used where cash flows are fairly uncertain.
- Both a) and c) are correct.

- Frontier Landscaping owns some equipment that is used in their operations. Management estimates that the equipment will last another three years and will generate the following

future cash flows at the end of each year.

Year 1 |
Year 2 |
Year 3 |

$4,000 |
$6,000 |
$7,000 |

Assuming Frontier Landscaping’s equipment has a carrying value of $16,000, how much of an impairment loss must Frontier record?

- none as there is no impairment.

b) $383

c) $6,606

d) $2,518

7. The cost model attempts to reflect the amount that would be required to

a) replace the asset’s service capacity.

- value older financial assets where there is no longer a market for the asset.
- value the asset.
- value older non-financial assets where there is a market for the asset.

8. A fair value measure under IFRS 13 is based on which view of fair value?

a) market participant view

- shareholder view
- fair value view
- unbiased view

9. Branson Company deposited $5,800 in an account paying 2.5% annual interest. How much compound interest would Branson earn in 3 years?

a)$6,235

b) $435

c) $145

d) $446

10. Pearson Corporation makes an investment today (January 1, 2020). They will receive

$9,000 every December 31 for the next six years (2020–2025). If Pearson wants to earn 12% on the investment, what is the most they should invest on January 1, 2020?

a) $37,003

b) $41,443

c) $73,036

d) $81,801

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