FV Measurements Flashcards
what is FASB ASC 825-10-25-1
Requires that the fair value option be applied contract by contract:
What is difference between monetary items and nonmonetary items?
a. Monetary items: Those assets and liabilities whose amounts are fixed by contract or otherwise in terms of numbers of dollars, regardless of changes in specific prices or in the general level of prices.
b. Nonmonetary items: Items reported in the financial statements other than monetary assets and liabilities.
The fair value for an asset or liability is measured as the?
Price that would be received when selling asset on open market?
Which of the following is not an eligible item for the fair value measurement option under FASB ASC 825-10-15-4?
A.
A recognized financial asset and financial liability, except any listed below in exceptions
B.
A firm commitment that would otherwise not be recognized at inception and that involves only financial instruments (An example is a forward purchase contract for a loan that is not readily convertible to cash. That commitment involves only financial instruments—a loan and cash—and would not otherwise be recognized because it is not a derivative instrument.)
C.
A written loan commitment
D.
An interest in a variable interest entity that the entity is required to consolidate
The following items are not available for FV treatment?
a. An investment in a subsidiary that the entity is required to consolidate
b. An interest in a variable interest entity that the entity is required to consolidate
c. Employers’ and plans’ obligations (or assets representing net overfunded positions) for pension benefits, other postretirement benefits (including health care and life insurance benefits), postemployment benefits, employee stock option and stock purchase plans, and other forms of deferred compensation arrangements, as defined in [FASB ASC] Topics 420; 710; 712; 715; 718; and 960.
d. Financial assets and financial liabilities recognized under leases as defined in [FASB ASC] Subtopic 840-10 (This exception does not apply to a guarantee of a third-party lease obligation or a contingent obligation arising from a cancelled lease.)
e. Deposit liabilities, withdrawable on demand, of banks, savings and loan associations, credit unions, and other similar depository institutions
f. Financial instruments that are, in whole or in part, classified by the issuer as a component of shareholder’s equity (including “temporary equity”). An example is a convertible debt security with a noncontingent beneficial conversion feature.
A company that wishes to disclose information about the effect of changing prices should report this information in:
supplementary information to the financial statements.
Any fair value measurement should assume that the transaction to sell the asset or transfer the liability occurs in which market?
A.
The principal market for the asset or liability
B.
The most advantageous market for that asset or liability
C.
The principal market and most advantageous market are the same.
D.
None of the answer choices are correct.
Any fair value measurement should assume that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability. The principal market is defined in FASB ASC 820-10-20 as “the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity for the asset or liability.”
If there is no principal market for that type of asset or liability, the entity should use the most advantageous market for that asset or liability. FASB ASC 820-10-20 defines the most advantageous market as “the market in which the reporting entity would sell the asset or transfer the liability with the price that maximizes the amount that would be received for the asset or minimizes the amount that would be paid to transfer the liability, considering transaction costs in the respective market(s).”
The following information pertains to each unit of merchandise purchased for resale by Vend Co.:
March 1 December 31 Purchase price $8 -- Selling price 12 $15 Price level index 110 121 Replacement cost -- 10
Under current cost accounting, what is the amount of Vend’s holding gain on each unit of this merchandise?
The gain is the difference in the cost at March 1 ($8) and at December 31 ($10).
•Holding gain = $10 − $8 = $2
Which of the following is an eligible item for the fair value measurement option under FASB ASC 825-10-15-4?
a. A recognized financial asset and financial liability, except any listed in the following paragraph
b. A firm commitment that would otherwise not be recognized at inception and that involves only financial instruments (An example is a forward purchase contract for a loan that is not readily convertible to cash. That commitment involves only financial instruments—a loan and cash—and would not otherwise be recognized because it is not a derivative instrument.)
c. A written loan commitment
d. The rights and obligations under an insurance contract that is not a financial instrument (because it requires or permits the insurer to provide goods or services rather than a cash settlement) but whose terms permit the insurer to settle by paying a third party to provide those goods or services
e. The rights and obligations under a warranty that is not a financial instrument (because it requires or permits the warrantor to provide goods or services rather than a cash settlement) but whose terms permit the warrantor to settle by paying a third party to provide those goods or services
f. A host financial instrument resulting from the separation of an embedded nonfinancial derivative instrument from a nonfinancial hybrid instrument under [FASB ASC] 815-15-25-1, subject to the scope exceptions in paragraph 8. (An example of such a nonfinancial hybrid instrument is an instrument in which the value of the bifurcated embedded derivative is payable in cash, services, or merchandise but the debt host is payable only in cash.)
Financial statements prepared under which of the following methods include adjustments for both specific price changes and general price-level changes?
A method of accounting based on measures of current cost or lower recoverable amounts in units of currency, each of which has the same general purchasing power.
On January 1, Year 1, Peabody Co. purchased an investment for $400,000 that represented 30% of Newman Corp.’s outstanding voting stock. For Year 1, Newman reported net income of $60,000 and paid dividends of $20,000. At year-end, the fair value of Peabody’s investment in Newman was $410,000. Peabody elected the fair value option for this investment. What amount should Peabody recognize in net income for Year 1 attributable to the investment?
DR Investment 400,000(Initial Investment)
DR Investment 18,000( 60,000 NIx30%)
CR Investment 6,000(20,000x30%)
= Investment End Balance 412,000
Investment End bal 412,000
Investment FV 410,000
adjust to FV (2,000)
Equity in Earnings 18,000
adjust to FV (2,000)
Total Gain on adj 16,000
