Morley Manufacturing Has Notes Receivable That Have a Fair Value

question 4

Multiple Choice

Morley Manufacturing has notes receivable that have a fair value of $810,000 and a carrying amount of $620,000.Morley decides on December 31, 2015, to use the fair value option for these recently-acquired receivables.Which of the following statements is correct regarding the election of the fair value option by Morley?

• A)Morley can elect to use the fair value option or amortized cost for these notes at each statement of financial position date.
• B)Morley reports the receivables at fair value, with any unrealized holding gains and losses reported as a separate component of comprehensive income.
• C)The unrealized holding gain is the difference between the fair value and the carrying amount.
• D)All of the choices are correct regarding the fair value option.

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Definitions:

Complementary Goods

Products or services that are typically consumed together or have a high cross-elasticity of demand, implying that a change in the price of one affects the demand for the other.

Substitute Goods

Products or services that can be used in place of each other, fulfilling the same need or want, thus potentially affecting their demand.

Vertical Contracts

Agreements between firms at different levels in the supply chain, such as manufacturers and retailers, to govern the terms of their relationship.

Customers' Goals

The specific objectives or desired outcomes that consumers aim to achieve through the purchase or use of products and services.