Which of the following would be considered a Level 3 fair value estimate?
A)The valuation of goodwill obtained from a purchase transaction.
B)The valuation of a building held for over 20 years.
C)The valuation of an equity investment traded on the NYSE.
D)The valuation of a bond investment with a 10 year maturity and an A+ S&P bond rating.

Question

Quizplus · Accepted Answer

Level 3 fair value estimates are based on unobservable inputs, which means there is little to no market data available to support the valuation. The valuation of goodwill obtained from a purchase transaction falls into this category because it is highly subjective and typically involves significant estimation and management judgment.

Which of the Following Would Be Considered a Level 3