Fair Value Framework

Question 1

Report Investment using Fair Value Option

Answer 1

% of outstanding Stock * Dividends Paid =

+ Increase in Fair Value of Investment

Question 2

The determination of fair value is based on

Answer 2

Hypothetical Transactions and on the use of a hypothetical exit price.

Question 3

In determining the fair value of an asset the most advantageous market, the market based exit price would be adjusted for

Answer 3

Transportation cost to get the asset to the principal or most advantageous market

Question 4

What cost is not adjusted to the most advantageous market

Answer 4

Transaction cost.

Question 5

The highest and best use of a non-financial asset to market participants may occur either

Answer 5

Principally through hits use with other assets or principally on the price that would be received to sell the asset.

Question 6

The guidance for determining fair value provided in the fair value framework is not appropriate for

Answer 6

Determining the fair value of services in exchange for entity’s common stock.

Question 7

In determining the fair value of a non financial asset

Answer 7

How the reporting entity would use the asset would not be taken into account in assessing the highers and best use of the asset.

Question 8

Fair Value Measurement must followed

Answer 8

whenever fair value measurement is used, either as required by GAAP or permitted by GAAP as an alternative that is elected by an entity.

Question 9

Fair value for an asset or liability is measured as the

Answer 9

Price that would be received when selling an asset or paid when transferring a liability in an orderly transaction between market participants, that is, fair value is measured as an exit price.

Question 10

Income approach to fair value measurement

Answer 10

An asset measures fair value by converting future amounts to a single present amount. Discounting future cash flows would be an income approach to determining fair value.

Question 11

A parent form may report all investments as

Answer 11

Held to maturity at Fair Value in its Consolidated Statements only. Whether or not the fair value option was elected by its subsidiaries for their separate books and any separate reporting purposes.

Question 12

Held to Maturity at Fair Value may be reported by which entities

Answer 12

An entity may elect to measure and report an investment classified as held to maturity at fair value.

Question 13

What is the appropriate basis for determining the fair value of an asset or liability

Answer 13

The Exit Price

Question 14

When fair value is determined as the amount that currently would be required to replace the service capacity of an asset

Answer 14

The cost Approach has been Used

Question 15

Investment in a subsidiary that is to be consolidated mea

Answer 15

A firm may not use fair value to measure and report an investment in a subsidiary that is to be consolidated. The financial asset Investment in subsidiary will be eliminated in the consolidating process and be replaced by the subsidiary’s assets and liabilities on the consolidated balance sheet.

Question 16

Amount of change in fair value resulting from a change in the valuation approach would be reported as an

Answer 16

accounting estimate change

Question 17

What is an entry price

Answer 17

Amount paid to acquire an asset or received to assume a liability

Question 18

What is an Exit Price

Answer 18

Amount received to sell an asset or paid to transfer a liability

Question 19

Reasons Entry Price

Answer 19

Transaction is between related parties
seller is under duress
Unit of account/measure is different than basis for fair value determination
Market is different than market for fair value determination

Question 20

Approaches for Fair Value Determination

Answer 20

Market Approach
Income Approach
Cost Approach

Question 21

Entry Assume an increase in Fair Value of an Asset

Answer 21

Dr: Asset

Credit Unrealized Gain - Fair Value Option

Question 22

In Fair Value Hierarchy what is the highest or most desirable level and what is the lowest or least desirable level

Answer 22

1 is the Highest Most Desirable

3 is the Lowest Least Desirable

Question 23

Inputs assumptions used to determine fair value may be:

Answer 23

Observable - Market Data

Un-Observable - Probability Assumptions

Question 24

Blockage Factor

Answer 24

Occurs when an entity holds a sizable portion of an asset (or liability) relative to the trading volume of the asset or liability in the market.
Using a blockage factor would adjust the market value of the impact of such a large block of securities being sold, but not permitted in determining fair value.

Question 25

What is the intended purposes of financial statement discloses required

Answer 25

To facilitate comparisons both across firms and for differently measured financial assets and liabilities of a single firm.

Question 26

Fair value measurement disclosures require both that fair value amounts be disclosed

Answer 26

Separately for each level of the fair value hierarchy and that quantitative disclosures be provided in tabular format.

Question 27

Disclosure requirements when fair value measurements is used are differentiated between items

Answer 27

measured at fair value on a recurring basis are adjusted to (measured at) fair value period after period. Items measured at fair value on a non recurring basis are adjusted to (measured at) fair value only when certain conditions are met.

Question 28

Firms which elect to measure financial assets and financial liabilities at fair value are required to make significant additional disclosuresin both

Answer 28

Interm (quarterly) and annual financial statements.