A company is trying to value certain 20-year City of Atlanta bonds it owns, which mature in 2025. It finds that on December 31, there were no sales of these particular bonds, but there were market sales of City of Atlanta 15-year bonds, which mature in 2028. The information about the 15-year bonds is an example of a:
A) Level 1 input
B) Level 2 input
C) Level 3 input
D) Level 4 input

Question

Quizplus · Accepted Answer

The information about the market sales of City of Atlanta 15-year bonds is an example of a Level 2 input. Level 2 inputs are observable inputs that can be obtained from other sources, such as market transactions for similar assets or liabilities. This information is not as reliable as Level 1 inputs as it is not specific to the bonds in question, but it is more reliable than Level 3 inputs, which are unobservable inputs that require significant judgment or estimation. Level 4 inputs are not recognized under US GAAP.

A Company Is Trying to Value Certain 20-Year City of Atlanta