<p>Justin D. Bost October 7, 2009 Chapter 7 and 8</p><p>Case 7- 2</p><p> a. The current values for investments might be determined by fair value, amortized </p><p> cost, or the result of applying the equity method. Land is valued by allocating the </p><p> cost of the land to the various periods benefiting from their use. Buildings and </p><p> equipment are valued by the carrying value between the cost and the accumulated </p><p> depreciation. Patents, copyrights, trademarks, and franchises might be valued as </p><p> intangibles and disclosed at the net amount of their cost less amortization.</p><p> b. The use of current values in the accounting records cause earnings volatility </p><p> because the current value is changing so frequently or it is too difficult to </p><p> ascertain a reliable figure that investors can count on. There is also the threat of </p><p> managers using current value for earnings management and issues like these can </p><p> cause significant fluctuation.</p><p> c. Managers will value their assets when that certain asset is very scarce and the </p><p> price to replace it is very high, or vice versa. If the assets are placed at a higher or </p><p> lower value that can drastically affect certain ratios or other assessment tools. If </p><p> the figures are being placed at the amount that managers would like them then </p><p> there is really no indication of what the true value is to the company. </p><p> d. There are four main aspects to SFAS No. 157 that affect the use of fair value </p><p> measurement in financial. (1) It provides a new definition of fair value. (2) A fair </p><p> value hierarchy used to classify the source of information used in fair value measurements. (3) A new disclosures of assets and liabilities measured at fair </p><p> value based on their level in the hierarchy.</p><p>Case 8- 2</p><p> a. Trading securities are securities held for resale. Securities available for sale are </p><p> securities not classified as trading securities or held to maturity securities. </p><p>Securities held to maturity are debt securities for which the reporting entity has </p><p> both the positive intent and ability to hold until they mature.</p><p> b. All trading securities are reported as current assets on the balance sheet. </p><p>Individual held to maturity and available for sale securities are reported as either </p><p> current assets or investments as appropriate. The appropriate classification is to be</p><p> based on the definition of current assets provided in ARB No. 43.</p><p> c. The argument for current value with all marketable securities is relevance. </p><p>Current value gives the user the most up to date figures and therefore is more </p><p> relevant to the current financial position of the company. The argument against </p><p> using current value is reliability. All marketable securities’ values change by so </p><p> much and so frequently that the most reliable value to use the historical cost.</p>