1. A pharmaceutical company acquires a company with two drugs. Drug A is a cholesterol-lowering drug. By itself, Drug A is moderately effective. Drug B is another moderately effective cholesterol-lowering drug. When taken together, Drug A and Drug B are highly effective at lowering cholesterol levels. On a standalone basis, Drug A has a fair value of $100 million and Drug B has a fair value of $150 million. When the drugs are valued together, Drug A and Drug B have a combined fair value of $650 million. Complete the table below indicating what is the highest and best use, and the fair value of these drugs? Explain your answer below the table.

 

Highest and Best Use
Fair Value

2. In a territory, there are two available markets for soybeans:

Export: This is the market in which higher prices are available for the producer. However, there are limitations in the volumes that can be sold in this market because the government sets a limit on the volume of exports and each producer needs to get authorization to export its production. It is rare for the government to authorize more than 25% of the production for export.

Domestic: The prices are lower in this market as compared to the export market, but there are no restrictions in terms of volume (other than the demand for the product by purchasers). Producers intend to sell all of the products they can in the export market and, when they do not have any further authorization to export, will sell the remaining products in the domestic market.

What is the principal market and why?

 

3. This is a disclosure from Disney’s recent 10-K: “Level 3 borrowings include the Asia Theme Park borrowings, which are valued based on the current borrowing cost and credit risk of the Asia Theme Parks as well as prevailing market interest rates”. Why would these be assigned as Level 3 (instead of Level 1 or Level 2) in the footnote disclosure?

4. FASB released ASU 2018-13 in August 2018. This ASU impacts the disclosures for fair value measurement (ASC 820)

a. Why did FASB issue this update?

b. Who is affected by the amendments in this update?

c. The main provisions of this update fall into what 3 categories?

d. When is/was ASU 2018-13 effective for public and private entities?