In Chapter 17, we will discuss goodwill impairment rules, which determine when goodwill must be written down and by how much. They do so by comparing the estimated fair value of a reporting unit to its carrying value.

Required:

1. Suppose Jesse Corporation uses a discounted free cash flow valuation approach to estimate fair value in the assessment of goodwill impairment of its subsidiaries. This valuation approach corresponds to which level of the FASB’s fair value measurement hierarchy?

2. Why wouldn’t Jesse use a Level 1 fair value measurement to assess goodwill impairment?