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Intermediate Accounting (Kieso)
Found in: Page 610

Short Answer

What is the fair value option?

The fair option value is a special type of option by which the companies report their financial instrument on the fair value.

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Step by Step Solution

Definition of Fair Value

Fair value means the value of a financial instrument at the present date. It is a measure of the worth of a financial instrument.

Fair value option

This option allows companies to report all the financial instruments on fair value. Along with this, all the gains and losses related to the asset are reported in the income statement. A company can avail of this option only one time. The company avails this option on the occasion of its first purchase of the asset. According to this option, if the company uses this option on the instrument, the company reports this instrument on fair value until the date of ownership transfer.

Most popular questions for Business-studies Textbooks

(Comprehensive Intangible Assets) Montana Matt’s Golf Inc. was formed on July 1, 2016, when Matt Magilke purchased the Old Master Golf Company. Old Master provides video golf instruction at kiosks in shopping malls. Magik plans to integrate the instructional business into his golf equipment and accessory stores. Magik paid $770,000 cash for Old Master. At the time, Old Master’s balance sheet reported assets of $650,000 and liabilities of $200,000 (thus owners’ equity was $450,000). The fair value of Old Master’s assets is estimated to be $800,000. Included in the assets is the Old Master trade name with a fair value of $10,000 and copyright on some instructional books with a fair value of $24,000. The trade name has a remaining life of 5 years and can be renewed at nominal cost indefinitely. The copyright has a remaining life of 40 years.


  1. Prepare the intangible assets section of Montana Matt’s Golf Inc. on December 31, 2016. How much amortization expense is included in Montana Matt’s income for the year ended December 31, 2016? Show all supporting computations.
  2. Prepare the journal entry to record amortization expenses for 2017. Prepare the intangible assets section of Montana Matt’s Golf Inc. on December 31, 2017. (No impairments are required to be recorded in 2017.)
  3. At the end of 2018, Magilke is evaluating the results of the instructional business. Due to fierce competition from online and television (e.g., the Golf Channel), the Old Master reporting unit has been losing money. Its book value is now $500,000. The fair value of the Old Master reporting unit is $420,000. The implied value of goodwill is $90,000. Magik has collected the following information related to the company’s intangible assets.

Intangible Asset

Expected Cash Flows (undiscounted)

Fair value

Trade names

$ 9,000

$ 3,000




Prepare the journal entries required, if any, to record impairments on Montana Matt’s intangible assets. (Assume that any amortization for 2018 has been recorded.) Show supporting computations.


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