Question

Bauer Securities decided to purchase a 51% controlling interest in a small private company that produces software necessary to run their specialized analytical programs. Because the company is private, the market value of the stocks is not consistent. When this information is disclosed on Bauer’s financial statements, the fair value of the stocks should be considered a ________ fair value measure

Answer 1

Answer:

The answer is: level 3 fair value

Explanation:

Level 3 fair value refers to a valuation technique used in situations where the valuation is highly subjective. It is difficult to assign value to level 3 assets since their stocks aren't part of any trading market. For example, mortgage backed securities, private equity shares, foreign stocks, etc. are considered level 3 assets.