Question

If a company cannot determine the fair value of the goods exchanged for a note, and if the note has no ready market, what is the implication for the company?

1) The company should use the historical cost of the goods as the fair value
2) The company should estimate the fair value based on similar goods in the market
3) The company should record the note at its face value
4) The company should not recognize the transaction in its financial statements

Answer 1

If a company cannot determine the fair value of goods exchanged for a note and the note has no ready market, the company should record the note at its face value.

Step-by-step explanation:

When a company cannot determine the fair value of goods exchanged for a note, and the note has no ready market, the implication for the company is that they should record the note at its face value (option 3). This means that the company should recognize the transaction in its financial statements by recording the note at the value stated on the note itself.