firms preparing financial statements using United States generally accepted accounting principles (GAAP) may choose the fair value option for accounts and notes receivable. Any changes in fair value of the receivables during the period are included in net income. Accounts receivable are generally current assets and will be collected (or converted to cash) within a short time period — for example, 30 to 90 days. Notes receivable may be longer term and not be converted to cash for several years.
QUESTIONS
1. Think about the following two questions and answer with consideration to whether the FV is more relevant than NRV.
- How useful is the fair value (FV) of accounts receivable for financial statement users?
- How useful is the FV of long-term notes receivable for financial statement users?
2. What reasons might firms have for reporting FV instead of NRV for accounts receivable and/or notes receivable?
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