Essay on Fair Value Case

1940 Words Mar 14th, 2013 8 Pages
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


FFC classifies its fuel swap within Level 3 of the fair value hierarchy as of
December 31, 2012.



The fuel swap was the only derivative in FFC’s commodity derivatives portfolio.



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.

2

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:


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

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