I am a bit confused – need help here to better understand why the answer was not B.
Each of the following would not be considered a level 2 observable input that could not be used to determine an asset or liability's fair value except .
a – Quoted prices for identical assets and liabilities in markets that are not active
b – quoted prices for similar assets and liabilities in markets that are active
c – internal generated cash flow projections for a related asset or liability
d – Interest rates are observable at commonly quoted intervals
Level OneThe preferred inputs to valuation efforts are “quoted prices in active markets for identical assets or liabilities,” with the caveat that the reporting entity must have access to that market. An example would be a stock trade on the New York Stock Exchange. Information at this level is based on direct observations of transactions involving the identical assets or liabilities being valued, not assumptions, and thus offers superior reliability. However, relatively few items, especially physical assets, actually trade in active markets. If available, a quoted market price in an active market for identical assets or liabilities should be used. To use this level, the entity must have access to an active market for the item being valued. In many circumstances, quoted market prices are unavailable. If a quoted market price is not available, preparers should make an estimate of fair value using the best information available in the circumstances. The resulting fair value estimate would then be classified in Level Two or Level Three.
On December 31, Calla Township paid a contractor $4 million for the total cost of a new police building built during the year. Financing was by means of a $3 million general obligation bond issue sold at face amount on December 31, with the remaining $1 million transferred from the general fund. What amount should Calla record as revenues in the capital projects fund in connection with the bond issue proceeds and the transfer?
.