Case 11-2(b)
Fair Value Disclosures
Case 11-2(b) is an extension of Case 11-2(a). For this case, assume that the Case 11-2(a) facts remain, with the exception of the additional assumptions listed below for each security. As stated in Case 11-2(a), Family Finance Co. (FFC) accounts for its investments at fair value, with changes in fair value reflected either in earnings (for trading securities) or other comprehensive income (OCI) (for available-for-sale (AFS) securities). 1 Because FFC uses the interest rate swap in a cash-flow hedge, FFC measures the derivative at fair value, presenting the portion of the fair value change that effectively offsets cash flow variability on its corporate debt in OCI and the remainder in earnings.
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FFC executes IR swaps with various counterparties and accounts for its IR swap assets and liabilities on a gross basis on its balance sheet.
Instrument 6 — Fuel Swap — Gasoline
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FFC classifies its fuel swap within Level 3 of the fair value hierarchy as of
December 31, 2012.
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The fuel swap was the only derivative in FFC’s commodity derivatives portfolio.
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The fuel swap’s fair value at initial recognition (January 2, 2012) was $0.
Furthermore, each of the four annual swaplets 2 had an inception value of $0.
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A s waplet is akin to a swap with a single settlement. For example, an IR swap with a duration of two years that re-prices and settles every quarter can also be viewed as a sequential series of eight swaplets at inception (each swaplet is net settled as of the settlement date specified in the swap contract). The fair value measurement of an IR swap considers the expected cash flows of all unsettled swaplets as of the measurement date.
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Case 11-2(b): Fair Value Disc losures
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The first annual swaplet settled on December 31, 2012, resulting in a net cash payment to FFC of $100.
Required:
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Using the case facts and the fair value amounts provided in the fair value data table below, prepare the annual quantitative disclosure tables required by ASC
820 as of
b. What medium would you use to reach each of these parties and what would your relative resource allocation be to each?
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Sparkle Company is a Nigerian diamond mining company. Sparkle is a joint venture, 50 percent owned by Shine and 50 percent owned by Brighten. Both Shine and Brighten are U.S.-based companies with their functional currency being the American dollar. Sparkle Companies functional currency is that of Nigeria, being the Naira. During 2009, Sparkle had several transactions with its joint venture owners and outside parties. The details of Sparkle’s transactions are three loans, three expenditures, and one revenue stream. The loans the company took out were $1 million from Brighten, $1 million from Shine, and 300 million Naira from a local Nigerian bank. The expenditures
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IgG – funtions in neutralizing, opsonation, compliment activation, antibody dependent cell-mediated cytocity, neonatal immunity, and feedback inhibition of B-cells and found in the blood.
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3.) . Should the February 1, 2012, agreement and the May 1, 2012, agreement be accounted for separately or as a single arrangement?
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* There is an adverse change in legal factors or in the business climate that could affect value of the asset
Also, as of the measurement date, there is lack of recent and relevant transactions. Thus, the fair value measurement of this CDO should be classified as Level 3.
Morris Mining Corporation owns and operates mining facilities that are located in the United States, and Canada. This company primarily distributes extracted ores and minerals to their customers. Recently, in January 2015, Morris Mining acquired the mining company King Co. Once the company has been acquired, Mining Morris plans to record the difference of the purchase price and identifiable net assets as goodwill. The identifiable assets and liabilities of King Co. are going to be recorded at fair value on Morris Mining 's books. There has been discussion as to how the company is going to report the fair value for the patent that is part of the assets they acquired from King Co. Rob, an audit manager on the Morris Mining engagement, and Gabriela, the audit senior, are trying to evaluate if the method of the fair value estimate it reasonable.