Question

Smith Corporation has many assets that are reported at fair value on its corporate balance sheet.  ...

Smith Corporation has many assets that are reported at fair value on its corporate balance sheet.  

Smith has an equity investment in Amazon.com stock and currently owns 25,000 shares of Amazon.com.

a. How should Smith determine the fair value for this investment?

b. At what level in the fair value hierarchy should this be classified and why?

Business   Accounting   
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Answer #1

As fair value is the value of the investment in the market at a given point of time.

amazon is a listed company. Hence to calculate the fair value smith should use the price at which the shares are traded at the given point of time.

This investment should be classifies as level 1 input. As the amazon shares have quoted prices in active market and hence its fair market value can easily be determined. It will net be level 2 input because the exact shares are traded and not of any "similar" asset or company i this case.

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