F1_T8 - F1 T8 HOMEWORK F1 Income Statement(Topic 8 Fair Value Measurements and HvNI 1 5.5 v 9 6 move 7 ‘3 1v'tfhich ofthe follovving statements

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: F1 T8 HOMEWORK F1 : Income Statement (Topic 8 : Fair Value Measurements and HvNI 1 5.5 v 9% 6% move 7 ‘3 1v'tfhich ofthe follovving statements regarding fair value is.-"are correct”?I |. The fair value of an asset or liability is specific to the entity making the fair value measurement. ||. Fairvalue is the price to acquire an asset or assume a “ability. I”. Fairvalue includes transportation costs. but not transaction costs. I‘v'. The price in the principal market for an asset or Iiahilitvvvill he the fairvalue measurement. 0a. is” Oh. leiv 0:. Ham 1 ed. IIIELIv' Choice "[1" is correct. Statements Ill and I‘vr are correct. Statement | is incorrect because fair value is a market-specific measure. not an entity-specific measu incorrect because fair value is an exit price [the price to sell an asset or transfer a liability]. not an entrance price. Choices "a". "h" and "c" are incorrect. perthe ahove explanation. iF. PM S'l'l11 Frlil'inn fl.":..1i E HOMEWORK F1 : Income Statement (Topic 8 : Fair Value Measurements and My”. 2 7 eg a as to app? E e 0 IWhich ofthe following is not a valuation technique that can he used to measure the fairyalue of an asset or liahility? C} a The market approach {3} h. The impairment approach. C} c The income approach C} d The cost approach Choice "h" is correct The impairment approach is not used to measure the fairyalue of an asset or liability Instead when an entity is determining whether an impaired the entity will use the market approach the income approach orthe cost approach to determine the fair value ofthe asset Choice "a" is incorrect The market approach is an accepted method of fairyalue measurement in which price and other market information from identical or co liahilities is used to measure fairyalue Choice "c" is incorrect The income approach is an accepted method offair yalue measurement in which future cash flows or earnings are discounted to detern Choice "d" is incorrect The cost approach is an accepted method offair yalue measurement in which current replacement cost is used to determine the fair ya it! PM '?|'|11 Frlil'irtn Ira-3.1T E HOMEWORK F1 : Income Statement (Topic 8 : Fair Value Measurements and vau 3 v 9% 9% :5,» 3g: ea 30:22:? E CE 0 'v‘v‘hich ofthe follovving statements is incorrect regarding the inputs that can he used to measure fairvalue? | Level | inputs are the most reliable fair value measurements and Level III inputs are the least relialJle ll Level | measurements are quoted prices in active markets for identical or similar assets or liabilities Ill :5. fairvalue measurement based on management assumptions only [no market data} vvould not be acceptable per GfifiP l‘vr The level in the fair value hierarchy ofa fair value measurement is determined by the level ofthe highest level significant input {3' a lonly C} h | II and iv {33' c. II. III. and iv. 1 C} d | II III and iv | Choice "c" is correct Statement | is correct and statements II III and IV are incorrect Statement II is incorrect because Level | measurements are quoted pri for identical assets or liabilities only Quoted prices in active markets for similar assets or liabilities are Level II inputs Statement III is incorrect because a fair based on management assumptions only is a Level III measurement and is acceptable when there are no Level | or Level II inputs or when undue cost or effort i: Level | or Level II inputs Statement l‘v’ is incorrect because the level in the fairvalue hierarchy of a fairvalue measurement is determined hythe level ofthe loive input :l'll'l PM 'DI'I11 Frlif'irtn f'..-:..1‘I E HOMEWORK F1 : Inceme Statement ( Tepic 8 : Fair Value Measurements and “ku 4 , e% 6% 3:“? m ea Betti? There are multiple active markets fer a financial asset with different ehservahle market prices Queted Transactien lvlarket F'rice Cests 15-. 5.7"6 55 El 5.7-4 52 There is he principal market fer the financial asset 'v"-.-‘hat is the fair value efthe asset? C} a 5.?1 1 C} h are {33' c. $f4 0d are Cheice "c" is cerrect 'fl-‘hen there is he principal market the price in the meet advantageeus market is the fair value measurement filtheugh transactien cest: the fairvalue measurement theg,r are used te determine the meet advantageeus market as fellevvs lvlarket r5. Net Price = Queted Price - Transactien Cests = STE - 5 = 5T1 lvlarket El Net Price = Queted F'rice - Transactien Cests = SH - 2 = 5T2 Because the net price in lvlarket E is higher than the net price in lvlarket fl. lvlarket E is the meet advantageeus market and the eueted price in lvlarket El [ST-Ii} asset Cheice "a" is incerrect This is the net price in lvlarket El. Fairvalue dees net include transactien cests Cheice "h" is incerrect This is the net price in lvlarket E This net price indicates that lvlarket E is the meet advantageeus market but the net price is net the value dees net include transactien cestsl Cheice "d" is incerrect lf lvlarket 1'1. were the principal market fer the asset then this vveuld he the fairvalue efthe asset Hevvever because there is he princip the meet advantageeus market [lvlarket E} is the price efthe asset :l'll PM 'DI'I11 Frlif'irtn f'..-:..1‘I HOMEWORK F1 : Income Statement (Topic 8 : Fair Value Measurements and vau 5 , tag 6% m is; as??? A change from the cost approach to the market approach of measuring fairvalue is considered to he vvhat type of accounting change? {3} a. Change in accounting estimate. C} h Change in accounting principle C} c Change in valuation technique C} d Error correction Choice "a" is correct 1'1. change in the valuation technique used to measure fairvalue is a change in accounting estimate Choice "h" is incorrect F'er SFAS No 15? a change in valuation technique is a change in accounting estimate not a change in accounting principal Choice "c" is incorrect although a change from the cost approach to the market approach is a change in valuation technique a change in valuation technique type of accounting change hut instead falls into the category of changes in accounting estimate 5 Choice "d" is incorrect Eloth the market approach and the cost approach are acceptable methods of measuring fairvalue per SFAS No 15? therefore svvitchi 3 methods is not the correction of an error additionally an error correction is not a type of accounting change :l'l‘? PM 'Dl'lll Frlil'irtn I'm-iii we a HOMEWORK F1 : Income Statement (Topic 8 : Fair Value Measurements and va /'_'x D Marked Options... E v 9% 6% move 7 w T FtElC Company owns stock in 3W2 Company The stock is traded on the New York Stock Exchange and the London Stock Exchange Stock price informa stock exchanges on December 31 is as follows I‘ Excliar-ce Quoted Stock Price T-"a-"-eact-'o-"- Costa .vet New York 5103 51 Ell] London 5106 55 5101 'v"-.-‘hat is the fair value ofthe 3W2 stock on December 31 ifthere is no principal market forthe stock? {2} a 5101 C} h 51:12 {3} c. $103 {2} d ewe :l'lF! PM Choice "c" is correct lfthere is no principal market then the price in the most advantageous market is the fair value ofthe stock The most advantageous ma the best price after considering transaction costs filthough the London quoted market price is higher afiertransaction costs the net amount is lower so New advantageous market and the fairvalue is 5103 Choice "a" is incorrect Transaction costs are considered when determining the most advantageous market hut are not included in the final fairvalue measurel Choice "h" is incorrect Transaction costs are considered when determining the most advantageous market hut are not included in the final fairvalue measurel Choice "d" is incorrect although the London quoted market price is higher afiertransaction costs the net amount is lower so NewYork is the most advantag fairvalue is 5103 ?I'I11 Frlitirtn t-..-=..1‘I ...
View Full Document

This note was uploaded on 05/31/2011 for the course ACCT 593 taught by Professor Karylfriedman during the Spring '11 term at Keller Graduate School of Management.

Ask a homework question - tutors are online