On January 7, 2018, Webb Industries purchased 1,000 shares of Class A common stock in Bloomberg Corporation for $50,000. Webb does not have significant influence or control over Bloomberg. Although Class A shares are not actively traded, Class B shares are traded and are nearly identical aside from being publicly traded. At the end of 2018, Class B shares are trading for $54 per share. If Webb makes the appropriate election to measure the investment based on observable price changes for similar securities, what Fair Value Adjustment should be made at the end of 2018?

Question

Quizplus · Accepted Answer

The fair value adjustment is calculated by comparing the cost of the investment to the fair value of similar securities. The Class B shares are trading at $54, so the fair value of Webb's investment is 1,000 shares x $54 = $54,000. The original cost was $50,000, so the fair value adjustment is $54,000 - $50,000 = $4,000. Since the fair value has increased, a $4,000 debit adjustment is made to increase the investment's carrying amount.

On January 7, 2018, Webb Industries Purchased 1,000 Shares of Class