The FASB requires that companies report the fair value of their equity and debt securities on the balance sheets. The FASB described fair value as a market exit price—an estimate of the price an entity would have realized if it had sold the asset or paid if it had been relieved of the liability on the reporting data in an arm’s-length exchange motivated by normal business conditions.

a. Which of the four valuation bases discussed in the chapter is the FASB suggesting that companies use for their equity and debt securities?
b. Prior to the requirement, most of these securities were reported at cost. How did reporting them at fair value affect the income reported by companies?
c. Do you agree with the FASB? Why or why not?
d. Explain the basic differences between U.S. GAAP and IFRS regarding the use of fair market values on the balance sheet.

  • CreatedAugust 19, 2014
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