Reference no: EM132679061

Problem 1: Discuss is the primary objective of the fair value method of accounting for an investment?

• Fair value accounting is the practice of measuring assets and liabilities at their current market value. The fair value is the amount that the asset could be sold, or a liability settled for a value that is fair to both the buyer and the seller. The best way to determine the fair value of an asset is by listing the security on the exchange. Also known as mark-to-market, fair value accounting is one of the most widely recognized valuation standards that becomes increasingly important when the company is sold, or assets are acquired.

• The primary object of the fair value method of accounting for an investment: The investor possesses only a small percentage of an investee and cannot expect to have a significant impact on the operations or decision-making of the investee. Since the shares are bought in anticipation of cash dividends or appreciation of stock market values, dividends received are accounted for as income and the investment is reflected at each balance sheet date at its fair value which is generally the market value at that date.

Problem 2: What if the investor possesses a LARGE percentage. How does the accounting change?