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Financial assets include stocks and bonds. These are fairly simple securities that can often be valued using quoted market prices. However, there are more complex financial instruments that do not have quoted market prices. These complex securities must still be valued on the balance sheet at fair value. Generally accepted accounting principles require that the reporting entity use assumptions in valuing investments when market prices or critical valuation inputs are unobservable. What are the ethical considerations in making subjective valuations of these complex financial instruments?

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 15, Problem 1CP
Textbook Problem
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Financial assets include stocks and bonds. These are fairly simple securities that can often be valued using quoted market prices. However, there are more complex financial instruments that do not have quoted market prices. These complex securities must still be valued on the balance sheet at fair value. Generally accepted accounting principles require that the reporting entity use assumptions in valuing investments when market prices or critical valuation inputs are unobservable.

What are the ethical considerations in making subjective valuations of these complex financial instruments?

To determine

Explain the valuation of investments, when market value is not available.

Explanation of Solution

Investment: The act of allocating money to buy a monetary asset, in order to generate wealth in the future is referred to as investment.

The valuation of investments for which the fair market is not available, the valuation could be done using the basic mathematical models, or, personal knowledge, or risk evaluation. But all these valuation models are subject to variation because they are based upon some assumptions, prevailing conditions, and other inputs...

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Chapter 15 Solutions

Financial Accounting
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Ch. 15 - Journalize the entries to record the following...Ch. 15 - Journalize the entries to record the following...Ch. 15 - On January 23, 10,000 shares of Tolle Company are...Ch. 15 - On September 12, 2,000 shares of Aspen Company are...Ch. 15 - On January 2, Cohan Company acquired 40% of the...Ch. 15 - On January 2, Yorkshire Company acquired 40% of...Ch. 15 - On January 1, Valuation Allowance for Trading...Ch. 15 - On January 1, Valuation Allowance for Trading...Ch. 15 - On January 1, Valuation Allowance for...Ch. 15 - On January 1, Valuation Allowance for...Ch. 15 - On June 30, Setzer Corporation had a market price...Ch. 15 - On October 23, Wilkerson Company had a market...Ch. 15 - Gonzalez Company acquired 200,000 of Walker Co.,...Ch. 15 - Torres Investments acquired 160,000 of Murphy...Ch. 15 - Bocelli Co. purchased 120,000 of 6%, 20-year Sanz...Ch. 15 - The following bond investment transactions were...Ch. 15 - On February 1, Hansen Company purchased 120,000 of...Ch. 15 - On February 22, Stewart Corporation acquired...Ch. 15 - The following equity investment transactions were...Ch. 15 - Yerbury Corp. manufactures construction equipment....Ch. 15 - Seamus Industries Inc. buys and sells investments...Ch. 15 - At a total cost of 5,600,000, Herrera Corporation...Ch. 15 - On January 4, Year 1, Ferguson Company purchased...Ch. 15 - On January 6, Year 1, Bulldog Co. purchased 34% of...Ch. 15 - Hawkeye Companys balance sheet reported, under the...Ch. 15 - JED Capital Inc. makes investments in trading...Ch. 15 - The investments of Charger Inc. include a single...Ch. 15 - Gruden Bancorp Inc. purchased a portfolio of...Ch. 15 - Last Unguaranteed Financial Inc. purchased the...Ch. 15 - The income statement for Delta-tec Inc. for the...Ch. 15 - Highland Industries Inc. makes investments in...Ch. 15 - The investments of Steelers Inc. include a single...Ch. 15 - Hurricane Inc. purchased a portfolio of...Ch. 15 - Storm, Inc. purchased the following...Ch. 15 - During Year 1, its first year of operations,...Ch. 15 - During Year 2, Copernicus Corporation held a...Ch. 15 - At the market close on May 12 of a recent year,...Ch. 15 - The market price for Microsoft Corporation closed...Ch. 15 - eBay Inc. developed a web-based marketplace at...Ch. 15 - On May 12, Year 1, Chewco Co. purchased 2,000...Ch. 15 - On December 31, Year 1, Valur Co. had the...Ch. 15 - Soto Industries Inc. is an athletic footware...Ch. 15 - Rios Financial Co. is a regional insurance company...Ch. 15 - Forte Inc. produces and sells theater set designs...Ch. 15 - OBrien Industries Inc. is a book publisher. The...Ch. 15 - Rekya Mart Inc. is a general merchandise retail...Ch. 15 - Zeus Investments Inc. is a regional investment...Ch. 15 - Glacier Products Inc. is a wholesaler of rock...Ch. 15 - Teasdale Inc. manufactures and sells commercial...Ch. 15 - Selected transactions completed by Equinox...Ch. 15 - Financial assets include stocks and bonds. These...Ch. 15 - In groups of three or four, find the latest annual...Ch. 15 - Berkshire Hathaway, the investment holding company...Ch. 15 - On July 16, 20Y1, Wyatt Corp. purchased 40 acres...Ch. 15 - International Financial Reporting Standard No. 16...

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