An investment in common share of another company is adjusted to its quoted price based on the closing stock price on a public exchange. The fair value is considered to be a Level 1 classification in the fair value hierarchy because the market price is observable.
Fair Value Principle
Yes, an investment in common shares of another company is typically adjusted to its quoted price based on the closing stock price on a public exchange. In accounting terminology, this process is known as marking-to-market.
Additionally, the fair value of the invested common shares is considered to be a Level 1 classification in the fair value hierarchy because the market price is observable. The fair value hierarchy provides guidance on how to measure fair value and it is classified into three levels based on the type of inputs used to measure the fair value of an asset or liability.
Level 1 inputs are observable, quoted prices for identical assets or liabilities in active markets. Thus, if the investment in common shares is listed on a public exchange, the fair value can be easily determined as it is observable and readily available.
As a professional tutor, I would suggest that it is crucial to understand the fair value hierarchy and its levels as it affects the financial reporting of companies’ financial statements.
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