Introduction The purpose of this assignment is for you to learn more about the fair value disclosure requirements included in the FASB Accounting Standards Codification (the Codification ) You will do so by examining fair value disclosures included in the following filings Form 10 Q for Microsoft Corporation (MSFT) for the quarter ending December 31, 2018 (filed with the SEC on January 30, 2019) and Form 10 K for The Goldman Sachs Group, Inc (GS) for the year ending December 31, 2018 (filed with the SEC on February 26, 2019) Most of the questions in this assignment can be answered by referring to the Notes to the Financial Statements (Footnotes) in these SEC filings Group Number Name(s) Questions Microsoft Corporation List the three categories of investments held by Microsoft for which the corresponding fair value measurements fall within Level 1 of the fair value hierarchy How does the relevant footnote describe Level 1 inputs (3 points) Answer Microsoft uses quoted prices in active markets for identical assets or liabiltiies to determine the fair value of their financial instruments This is a level 1 non derivative invenstment which included active trading of mutual funds, international equitities, and U S government securities In level 1, inputs cannot be adjusted as they are based on unadjustable prices for indentical instruments in the market List the various categories of investments held by Microsoft for which the corresponding fair value measurements fall within Level 2 of the fair value hierarchy How does the relevant footnote describe Level 2 inputs (3 points) Answer Their level 2 investmnets includes notes and bonds, common and preferred stocks and securities Their value is based on similar instruments in active and non active markets Substantial data is needed to determine the assets and liabilities List the two categories of assets and liabilities held by Microsoft for which the corresponding fair value measurements fall within Level 3 of the fair value hierarchy How does the relevant footnote describe Level 3 inputs (4 points) Answer Level 3 refersto non derivative assets The primary focus in this case is the compromise of common and preffered stock, goodwill and intangible assets Theyre recorded at fair value due to an impairment charge Using the same portion of the footnote that you used to answer the previous three questions what does Microsoft say about derivative assets and liabilities at Levels 1 and 2 of the fair value hierarchy (3 points) Answer Microsfot measures certain assets, including the cost and equity method investments, at fair value on a nonrecurring basis when they are deemed to be other than temporarly impaired How is the effective portion of the gain (loss) on derivative instruments designated as cash flow hedges initially reported and ultimately recognized (1 5 points) Answer How are the gains (losses) from changes in fair values on derivative instruments not designated as hedges primarily recognized (1 5 points) Answer How does Microsoft measure its equity investments without readily determinable fair values on a nonrecurring basis (4 points) Answer For what purpose does Microsoft use derivative instruments What is their stated objective for holding derivatives (3 points) Answer What was the change in fair value of foreign exchange contracts designated as hedging instruments that are derivative assets that was recorded in other comprehensive income at December 2018 What was the change in fair value for foreign exchange contracts designated as hedging instruments that are derivative assets that was recorded in net income at December 2018 What was the change in fair value for foreign exchange contracts not designated as hedging instruments that are derivative assets that was recorded in other net income at December 2018 (4 points) Answer What was the total carrying value and estimated fair value of Microsofts long term debt, including the current portion, as of December 31, 2018 How do these figures compare to the total carrying value and estimated fair value of the long term debt as of June 30, 2018 The estimated fair values at both dates are based upon inputs at what level in the fair value hierarchy (3 points) Answer Explain the procedure that Microsoft uses to determine the fair value of its financial instruments Hint Refer to the Managements Discussion and Analysis of Financial Condition and Results of Operations (MD A) section (Part I, Item 2) of the Form 10 Q (5 points) Answer

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Introduction: The purpose of this assignment is for you to learn more about the fair value disclosure requirements included in the FASB Accounting Standards Codification

Introduction: The purpose of this assignment is for you to learn more about the fair value disclosure requirements included in the FASB Accounting Standards Codification (the Codification). You will do so by examining fair value disclosures included in the following filings:

Form 10-Q for Microsoft Corporation (MSFT) for the quarter ending December 31, 2018 (filed with the SEC on January 30, 2019) and
Form 10-K for The Goldman Sachs Group, Inc. (GS) for the year ending December 31, 2018 (filed with the SEC on February 26, 2019).

Most of the questions in this assignment can be answered by referring to the Notes to the Financial Statements (Footnotes) in these SEC filings.

Group Number:

Name(s):

Questions: Microsoft Corporation

List the three categories of investments held by Microsoft for which the corresponding fair value measurements fall within Level 1 of the fair value hierarchy. How does the relevant footnote describe Level 1 inputs? (3 points)

Answer: Microsoft uses quoted prices in active markets for identical assets or liabiltiies to determine the fair value of their financial instruments. This is a level 1 non-derivative invenstment which included active trading of mutual funds, international equitities, and U.S government securities. In level 1, inputs cannot be adjusted as they are based on unadjustable prices for indentical instruments in the market.

List the various categories of investments held by Microsoft for which the corresponding fair value measurements fall within Level 2 of the fair value hierarchy. How does the relevant footnote describe Level 2 inputs? (3 points)

Answer: Their level 2 investmnets includes notes and bonds, common and preferred stocks and securities. Their value is based on similar instruments in active and non-active markets. Substantial data is needed to determine the assets and liabilities.

List the two categories of assets and liabilities held by Microsoft for which the corresponding fair value measurements fall within Level 3 of the fair value hierarchy. How does the relevant footnote describe Level 3 inputs? (4 points) Answer: Level 3 refersto non-derivative assets. The primary focus in this case is the compromise of common and preffered stock, goodwill and intangible assets. Theyre recorded at fair value due to an impairment charge.

Using the same portion of the footnote that you used to answer the previous three questions what does Microsoft say about derivative assets and liabilities at Levels 1 and 2 of the fair value hierarchy? (3 points)

Answer: Microsfot measures certain assets, including the cost and equity method investments, at fair value on a nonrecurring basis when they are deemed to be other-than-temporarly impaired.

How is the effective portion of the gain (loss) on derivative instruments designated as cash-flow hedges initially reported and ultimately recognized? (1.5 points)

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How are the gains (losses) from changes in fair values on derivative instruments not designated as hedges primarily recognized? (1.5 points)

Answer:

How does Microsoft measure its equity investments without readily determinable fair values on a nonrecurring basis? (4 points)

Answer:

For what purpose does Microsoft use derivative instruments? What is their stated objective for holding derivatives? (3 points)

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What was the change in fair value of foreign exchange contracts designated as hedging instruments that are derivative assets that was recorded in other comprehensive income at December 2018? What was the change in fair value for foreign exchange contracts designated as hedging instruments that are derivative assets that was recorded in net income at December 2018? What was the change in fair value for foreign exchange contracts not designated as hedging instruments that are derivative assets that was recorded in other net income at December 2018? (4 points)

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What was the total carrying value and estimated fair value of Microsofts long-term debt, including the current portion, as of December 31, 2018? How do these figures compare to the total carrying value and estimated fair value of the long-term debt as of June 30, 2018? The estimated fair values at both dates are based upon inputs at what level in the fair value hierarchy? (3 points)

Answer:

Explain the procedure that Microsoft uses to determine the fair value of its financial instruments. Hint: Refer to the Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) section (Part I, Item 2) of the Form 10-Q. (5 points)

Answer: