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Fair Value vs. Historical Cost

Accountants are lifelong students. The weekly quizzes are open
to everyone in the wonderful field of accounting, business
and the study of accounting. Good luck!

This week's quiz brought to you by:
Barbara W. Scofield, PhD, CPA - Associate Professor of Accounting
and Director of the Financial Accounting Concentration
University of Dallas
Irving, Texas



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1 - ABC Company purchased a vehicle with a list price of $30,000 for $25,000. The company would have been willing to pay $28,000 for the vehicle because that's what the alternative rental costs would be. The company could resell the vehicle for $27,000 immediately after it takes possession of the vehicle. What is the value of the vehicle on the books of ABC Company?
$25,000
$27,000
$28,000
$30,000

2 - ABC Company purchased a vehicle for a $1000 downpayment, a trade-in with a fair value of $4,000 and a loan of $20,000. What is the value of the vehicle on the books of ABC Company?
$5,000
$20,000
$24,000
$25,000

3 - Generally accepted accounting principles require a deviation from the historical cost assumption:
when the fair value of an asset is above its carrying value.
when the fair value of an asset declines below its carrying value.
when the depreciated cost is below its acquisition cost.
when the acquisition cost of an asset is below its fair value.

4 - Depreciation based on historical cost accounting would expense:
the change in fair value of the asset in each year of its use.
the change in appraisal value of the asset in each year of its use.
an allocation of the acquisition cost of the asset in each year of its use.
the rental value of the asset in each year of its use.

5 - Land values based on historical cost accounting would:
remain at acquisition cost.
decrease with recorded depreciation expense for the land.
increase with appreciation of the land.
remain at zero.

6 - Fair Value accounting differs from historical cost accounting in that Fair Value:
recognizes increases in equity when fixed assets increase in value.
recognizes decreases in equity when fixed assets decrease in value.
recognizes revenue on a cash basis.
recognizes expenses on a cash basis.

7 - Current Generally Accepted Accounting Principles (GAAP) recognizes the following asset at fair value on the balance sheet:
Accounts Receivable
Intangible Assets
Property, Plant, and Equipment
Short-term marketable Investments

8 - The values computed using a fair value principle and US GAAP differ:
for the account of Cash.
for interest rate swaps.
at the time of acquisition of an asset.
when assets appreciate in value.

9 - Adjusting liabilities to fair value requires:
discounting the future cash flows using the interest rate in the original note or lease contract.
discounting the future cash flows using the current interest rate for a comparable liability
decreasing liabilities for decreases in relevant interest rates.
increasing liabilities for increases in inflation.

10 - If a company chooses to use fair value to value one of its notes payable,
it must also use fair value for all of its other notes.
it must also use fair value for its notes receivable.
it must make the choice at the intial borrowing event.
it must recognize a gain or loss in restating its value.

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