#10 Fair Value Framework

Question 1

What is Fair Value?

Answer 1

The price the entity would receive to sell an asset or pay to transfer a liability and takes into consideration risk and restrictions.

Question 2

How does the Fair Value Framework say to handle stock-based payment transactions?

Answer 2

Stock-based payment transactions are exempt from the purview of the fair value framework.

Question 3

Are transaction and transportation costs taken into account when determining the most advantageous market?

Answer 3

Yes

Question 4

Are transportation costs used when determining the fair value of an asset or liability in the most advantageous market?

Answer 4

Yes

Question 5

Are transaction costs used when determining the fair value of an asset or liability in the most advantageous market?

Answer 5

No

Question 6

If a firm changes the valuation approach used to determine fair value, how would the amount of change in fair value resulting from the change in the valuation approach be reported?

Answer 6

As a change in accounting estimate

Question 7

Can a firm elect to measure accounts payable at fair value?

Answer 7

Yes

Question 8

Can a firm report an investment in a subsidiary that is to be consolidated at fair value?

Answer 8

A firm may carry an investment in a subsidiary in its own books at fair value, but it can not be reported at fair value. The “investment in subsidiary” will be eliminated in the consolidating process and replaced with the subsidiary’s assets and liabilities on the consolidated balance sheet.

Question 9

What is another name for fair value?

Answer 9

Current Market Value

Question 10

Which one of the following is not a purpose of the fair value framework?
1. Provide a uniform definition of “fair value” for GAAP purposes.

2. Establish new measurement requirements for financial instruments.
3. Establish expanded disclosures about fair value when it is used.

Answer 10

2. Establish new measurement requirements for financial instruments.