Question

A company has an equity investment with a historical cost of $500,000 that is traded in an active market. At December 31, year 1, the quoted price for an identical investment was $400,000 and the quoted price for a similar investment was $430,000. Using the company's internal present value of cash flows model, the company arrived at a value of $410,000. What amount is the value of the investment on December 31, year 1?

Answer 1

The value of the investment on December 31, year 1 is $410,000, determined using the company's internal present value of cash flows model.

Step-by-step explanation:

The value of the investment on December 31, year 1 is $410,000. This value was determined using the company's internal present value of cash flows model. The historical cost of the investment was $500,000, but the quoted price for an identical investment on that date was $400,000 and the quoted price for a similar investment was $430,000. Based on the company's calculations, the value of the investment is $410,000.