ISSUES IN ACCOUNTING EDUCATION Vol. 25, No. 1 2010 pp.

5970

American Accounting Association DOI: 10.2308/iace.2010.25.1.59

Snowy Ridge Ski Resort: Fair Value Measurement and the Impairment of Long-Term Assets
Richard A. Gore and Paul J. Herz
ABSTRACT: The Snowy Ridge Ski Resort case study illustrates the use the new Fair Value Measurement Standard SFAS No. 157 with various assets in connection with the acquisition of a ski resort and subsequent test for impairment. The case study introduces students to the two primary approaches for measuring fair value Market and Income. These approaches are then used to compute fair value for a variety of assets. In addition, students become familiar with the Fair Value Hierarchy and classify fair value measures in accordance with the hierarchy. The assets to which the fair value measures are generated include: marketable securities; property, plant, and equipment; real estate under development; and goodwill. The fair values and other input data are then used to test for impairment of the operating assets and goodwill. Thus, the case study illustrates the interplay between fair value measurement and impairment testing in a simple setting to give the student a foundation for understanding how fair value measurement is used in GAAP for operating assets.

INTRODUCTION ate Smith, chief accountant for Recreational Properties, Inc., couldnt help but admire the view of the mountains as she sipped her coffee before getting down to work. It was July 20X2 and Kate was visiting the ofces of Snowy Ridge Ski Resort, one of the subsidiaries of Recreational Properties. Her task for the day was to nalize the asset values to be reported on the year-end nancial statements for the Snowy Ridge Ski Area. While Snowy Ridge seemed like a promising acquisition two years ago, below average snowfall and the current downturn in the real estate market had seriously impacted the initial projections for success. Accordingly, Kates assignment was to evaluate the assets for possible impairment.

Background The Snowy Ridge Ski Resort is located in the San Juan Mountains of southwest Colorado. Annual snowfall near 250 inches attracts local skiers and snowboarders, and a four-star lodge at the base of the slopes attracts vacationers from Arizona, New Mexico, Texas, and Colorado.
Richard A. Gore is an Associate Professor and Paul J. Herz is a Professor, both at Fort Lewis College.
We appreciate the thoughtful comments of the editor and two anonymous reviewers, and our students who each in their own way helped us improve the case.

Published Online: February 2010

59

60

Gore and Herz

Recreational Properties, Inc., RP is a holding company for a portfolio of recreation-oriented corporations. These companies operate golf resorts, spas, shing lodges, and dude ranches. Snowy Ridge is RPs rst venture into the ski and snowboard industry and is operated as a separate unit for which discrete nancial information is available, and corporate regularly reviews the operating results of the resort. A lucrative sale of a golf resort provided the money to purchase the ski resort. The golf resort had been chosen by the PGA to host a nationally televised golf tournament, and the press and attention resulting from the event had put RP in a position to realize a prot well beyond its original investment. At the time, the Snowy Ridge acquisition seemed like the perfect opportunity. Unfortunately, the weather and the economy did not cooperate. Purchase Information RP acquired Snowy Ridge two years ago on June 30, 20X0, for $ 46.5 million in a cash purchase. The fair value of identiable assets and liabilities acquired are reported in Exhibit 1. These assets included the ski lifts and other infrastructure on the slopes, a four-star lodge at the base of the slopes, and real estate surrounding the base area. One attractive aspect of the acquisition was the undeveloped land surrounding the ski area that could be converted into residential lots for sale. The real estate market at that time suggested that this development could be very lucrative. As with most ski and snowboard areas in the western United States, the purchase included Special Use Permits, granting Snowy Ridge the right to use federal land as the site for its ski lifts, trails, and related activities. Snowy Ridge pays a fee to the Forest Service equal to 2 percent of its sales occurring on Forest Service land for the Special Use Permit. The Forest Service can terminate Snowy Ridges permit if the Service determines that termination is in the public interest. However, no Special Use Permit in connection with a ski resort has ever been terminated against the wishes of the permit holder. Snowy Ridge Operations Kate has concluded that the Snowy Ridge Ski Resort is considered a single reporting unit of RP because it is accounted for and operated separately from RPs other properties. However, the operations of the Snowy Ridge Ski Resort are separated into three divisions: Mountain, Lodging, and Real Estate. Each division represents a separate business such that the cash ows of each division are largely independent of the other divisions. The Mountain division derives revenue from the sale of lift tickets and other services such as ski and snowboard lessons, equipment rentals, and other recreational activities. Ski resort operations are highly seasonal in nature, with the typical ski season beginning in mid-November and running through mid-April. In an effort to counterbalance the concentration of revenues in the winter months, Snowy Ridge offers non-ski season attractions such as guided hiking, sightseeing, and mountain biking in the summer and fall. The Lodge division generates revenue from renting rooms to skiers and other vacationers. The intent of the Lodge is to complement and enhance the ski resort. The Lodge consists of 85 rooms and is categorized by Smith Travel Research, a leading lodging industry research rm, as luxury accommodations. During the scal year, the Lodge generated average daily rates of $160. However, due to the poor snowfall of the previous two years, Snowy Ridge experienced a lower average occupancy versus the general lodging industry. For the year ended June 30, 20X2, average occupancy was 61 percent. The Real Estate division is engaged in development of the land adjacent to the ski area into an Alpine Village of private homes. Currently the property is zoned for 145 home sites. The company plans to sell the home sites to individuals and custom builders. Infrastructure costs for

Issues in Accounting Education American Accounting Association

Volume 25, No. 1, 2010

Snowy Ridge Ski Resort

61

streets, water, and sewer since the acquisition have added $2.4 million to the costs of the lots. Sales of home site lots commenced in the last quarter of the most recent scal year, and were mildly disappointing. During the quarter the company sold ve lots. There are signicant barriers to entry for new ski areas, due to the limited private lands on which ski areas can be built and the difculty in getting governmental approvals to build on public lands, as well as the signicant capital needed to construct the necessary infrastructure. Nonetheless, the ski industry is highly competitive. A ski areas prot and growth potential is largely dependent on attracting skiers away from other resorts. There are a variety of factors that contribute to a skiers choice of ski resort, including terrain, weather, especially snowfall, and the availability and type of lodging. Due to the lack of snow and the real estate slowdown, Snowy Ridge has lost money in each of the last two years. The nancial results for the most recent year are reported in Exhibit 2. Snowy Ridges balance sheet at year-end, June 30, 20X2, prior to fair value adjustments, is reported in Exhibit 3. Impairment Issue At the end of the current year, Snowy Ridges balance sheet is very similar to what it was when it was acquired by RP. For example, Snowy Ridge has continued the practice of selling deeply discounted season passes at the end of each ski season. The proceeds from the after-ski season sale are invested in debt securities until needed to fund autumn and pre-winter ski season costs. Hence, at year-end, investment in marketable securities remains a signicant asset. The other assets remain basically the same, with account balances adjusted for subsequent activity and depreciation charges where appropriate. At the time of the acquisition, RP believed that it could enhance the protability of Snowy Ridge through the development of the Alpine Village, expansion and improvements of the ski slopes, improvements in the operating efciency of the operations, and cross-marketing efforts to increase its existing customer base. However, in light of the recent losses and the economic slowdown, management believes it is appropriate to undertake a comprehensive review of the Snowy Ridge Ski Area to determine if any assets should be impaired as of June 30, 20X2. In connection with this review, Kate reviewed the following data regarding the signicant assets of Snowy Ridge at June 30, 20X2. Fair Value Information at June 30, 20X2 Kate received a memo from the chief executive ofcer of Snowy Ridge that the company had recently acquired a report from a qualied professional valuation specialist that the fair value of the entire Snowy Ridge Ski area including the real estate and the lodge net of its liabilities is $41 million. In addition, this fair value estimate has been appropriately classied as a Level 2 measure, per SFAS No. 157 FASB 2006. Kate also notes that RP uses a 12 percent discount rate in calculating the present value of future cash ows of investments for internal analysis of projects. This discount rate is unique to RP and may be different from the appropriate rate for Snowy Ridge or its operating divisions. Additional information regarding specic assets is presented below: Investment in Marketable Securities The marketable securities held for investment are all publicly traded debt instruments and are classied as Available-for-Sale per SFAS No. 115 FASB 1993. Accordingly, Kate veried the quoted market price for the bonds per the year-end brokerage statement. The market price of the bonds held by the company on June 30, 20X2, is reported in the following table:

Issues in Accounting Education

Volume 25, No. 1, 2010 American Accounting Association

62 Description US Treasury Bonds GE Corporate Bonds JNJ Corporate Bonds Total Market Price $2,550,000 990,000 1,025,000 $4,565,000

Gore and Herz

Mountain Division Although there are no assets identical to the ski area of the resort, unlike the Marketable Securities, Kate notes that two other very similar ski areas Mountain Divisions only were sold in the last year. Kate recognizes that she can use these sales to compute a market multiple to estimate the value of Snowy Ridges Mountain Division. Her research indicates that these and other sales of ski areas mountain division only are often expressed as a multiple of sales revenue. The prior sales included the following: Sunset Mountain, which generated average annual sales revenue of $6,500,000, was sold for $11,375,000, and Crooked Creek, which generated average annual sales revenue of $13,000,000, was sold for $22,750,000. She notes that these sales include both the special use permit as well as the infrastructure related to the Mountain Division. Further, her review suggests that there are no unique or distinguishing characteristics at Sunset Mountain or Crooked Creek that would cause these resorts to generate sales prices signicantly different from Snowy Ridge. The Snowy Ridge Ski Area has generated average annual sales revenue, over good years and bad, of $5,500,000. Hence, Kate believes this is a reasonable estimate to use in applying the market multiple derived from the sales of the other ski areas. Furthermore, Kate observes that although the Mountain Division is currently operating at a loss $320,000, once depreciation expense is added back to the Divisions net income, it is operating at breakeven on a cash basis. Thus, the future undiscounted cash ows from operating the Mountain Division are expected to be marginal at best. Accordingly, by default Kate plans to use the Divisions current market price as an estimate of its undiscounted future cash ows. Lodge Division Kate notes that for the lodge, she has the necessary information to estimate fair value using either the income approach or the market approach. Under the income approach, she must discount some measure of the lodges future operating income at the appropriate discount rate. Her research indicates that the market discount or capitalization rate of similar lodges as of June 30, 20X2, based on the gross prot, is 6 percent. She notes that discount or capitalization rates are often used for real estate assets because of the relatively stable cash ows these assets generate. She recognizes that this discount rate has probably changed substantially since the end of Snowy Ridges scal year-end as the economic crisis has deepened after the year-end; however, that is next years problem. Her task is to compute fair value as of June 30, the balance sheet date. In addition, she also notes that this rate is lower than the 12 percent used by RP for its internal investment analysis. Kates discussion with the management of Snowy Ridge at June 30, 20X2, led her to believe that the Lodges future average occupancy based on average snow conditions should be 70 percent. Using the current average room rate of $160 per night, she prepared the following projection of future annual operating income for the Lodge division.
Description Revenues Cost of Sales Annual Projection $3,474,800 2,779,840 (continued on next page)

Issues in Accounting Education American Accounting Association

Volume 25, No. 1, 2010

Snowy Ridge Ski Resort

63

Description Gross Prot

1

Annual Projection $694,960

Alternatively, under the market approach, Kate notes that the fair value of lodges of this type is often expressed as a multiple of current year revenue. Her research reveals that the mean multiple of the ve mountain resort lodges sold in the western United States within the last year were 3.75 times the prior year revenue of the lodge. Again, she notes that subsequent to June 30, 20X2, the market for hotel properties has deteriorated; however, that also is next years problem. Real Estate Division Management expects the home sites to sell out over the next four years per the following schedule despite the recent real estate downturn:
20X3 Lots 20 20X4 35 20X5 40 20X6 45

Lot sales are expected to be slightly below initial projections, but are consistent with the ve sales in the last quarter of the current year. Lot sales are expected to recover as the economy improves in 20X4 and the development matures. Furthermore, Kate notes that although real estate activity has slowed recently, sale prices are holding steady in the local market. The projected net selling price for each lot is $180,000. In addition, the company expects to incur $600,000 per year in overhead expenses. Given the unique nature of the real estate development, Kate does not believe there are any comparable developments she can use to nd a market multiple for the project. However, given the nite nature of the project, Kate recognizes that she can compute the present value of the net cash ows the project is expected to generate. Discussion with the real estate executives for the company and a review of current market conditions suggest that the market discount rate for developments of this type is 20 percent. The relatively high discount is driven by the uncertainty regarding real estate developments in 20X3 and beyond. Liabilities The liabilities consist of accounts payable and a bank loan. The accounts payable are all currently due and are recorded in the accounting records at the face value of the debt. Details regarding the bank loan are noted in the footnotes to the nancial statements in Exhibit 3. Kate has also conrmed that although the company is operating at a loss, it is very capitalized, and there has been no change in its credit rating. ASSIGNMENT 1. 2. Dene fair value and explain the purpose and function of the Fair Value Hierarchy. Calculate the initial value of Goodwill resulting from the acquisition of the Snowy Ridge Ski Resort on June 30, 20X0, by Recreational Properties. Note that Goodwill has not been adjusted since the purchase. Determine the fair values of identiable assets and liabilities that differ from their carrying value of the Snowy Ridge Ski Area as of June 30, 20X2. Also, identify the level per the Fair Value Hierarchy of each fair value measure. Use the following table to organize your results.

3.

Gross Prot may be assumed to approximate cash ow in the lodging industry.

Issues in Accounting Education

Volume 25, No. 1, 2010 American Accounting Association

64 Valuation Approach

Gore and Herz

Asset Marketable Securities Mountain Division Lodge Division Lodge Division Final Lodge Division Value Real Estate Division

Level

Calculation

Fair Value

4.

Multiple lines are left for the lodge because information is provided to calculate its fair value two different ways. In addition, it is necessary to arrive at a single nal fair value estimate of the Lodge to complete the remainder of the assignment. Include any assumptions you make regarding your estimates below the table. Test the operating assets, other than Goodwill, for impairment or fair value adjustment as of June 30, 20X2. Hint: Impairment tests need to be performed for each of the three divisions: Mountain, Lodge, and Real Estate. Kate has prepared the following work paper to organize her impairment testing.
Carrying Value Impairment Table Undiscounted Recoverable Cash Flows Yes/No Adjustment Dr (Cr)

Asset Marketable Securities Mountain Division Lodge Division Real Estate Division

Fair Value

Test Goodwill for impairment as of June 30, 20X2. Prepare the necessary adjusting entries to record the Snowy Ridge balance sheet as of June 30, 20X2, in accordance with GAAP. Note that you may ignore deferred income taxes. 7. Prepare the Snowy Ridge Ski Resort Balance Sheet as of June 30, 20X2, in accordance with GAAP. For each asset and liability, identify the measurement attribute and its level, if applicable, per the Fair Value Hierarchy. 8. Write a memo to the RP management regarding your analysis and ndings. Place your work in connection with Questions 37 of the case in an appendix to the memo. 9. Identify the signicant assumptions you made in the measurement of fair value for each of the Divisions. Provide one numerical example of how the nancial statements would have been altered if one of the assumptions had been changed. 10. Rank the assets and liabilities reported on the Snowy Ridges June 30, 20X2, balance sheet in terms of the level of condence you have in their reported value. Discuss how your ranking compares to the levels in the Fair Value Hierarchy. 11. Assume after the end of the scal year June 30, 20X2 the real estate markets and the overall economy continued to worsen such that a credit crisis developed. The result of this credit crisis was that the availability of loans to purchase real estate or lodging assets all but disappeared. Consequently, Kate estimates that if RP were forced to sell its assets in this new environment the selling price would be substantially reduced from the estimates of fair value at June 30, 20X2. Discuss how Kate would estimate fair value for the lodging and real estate assets in this environment and how the change in economic circumstances after year-end would impact the Snowy Ridge nancial statements. 12. Discuss the advantages and disadvantages of using fair value measurement in the nancial statements.

5. 6.

Issues in Accounting Education American Accounting Association

Volume 25, No. 1, 2010

Snowy Ridge Ski Resort EXHIBIT 1 Snowy Ridge Ski Resort Fair Value of Identiable Assets and Liabilities at Date of Acquisition June 30, 20X0 Description Cash Investment in Debt Securities Real Estate/Land Held for Development Special Use Permit Ski Lifts and Infrastructure Lodge and Related Equipment Accounts Payable Net Fair Value

65

Fair Value $600,000 4,400,000 15,000,000 5,000,000 8,000,000 10,000,000 500,000 $42,500,000

Description

EXHIBIT 2 Snowy Ridge Ski Resort Income Statement June 30, 20X2 Mountain Lodge Real Estate $5,500,000 5,100,000 $400,000 400,000 320,000 $320,000 $3,028,040 2,422,432 $605,608 400,608 250,000 $45,000 $800,000 600,000 $200,000 125,000 0 $75,000

Total $9,328,040 8,122,432 $1,205,608 925,608 570,000 $290,000

Revenues Cost of Sales/Direct Costs Gross Prot Other Expenses Depreciation Expense Net Income Loss

Issues in Accounting Education

Volume 25, No. 1, 2010 American Accounting Association

66 EXHIBIT 3 Snowy Ridge Ski Resort Balance Sheet June 30, 20X2 Description Cash Investment in Marketable Securities Land held for Development Real Estate Division Special Use Permit Mountain Division Ski Lifts and Infrastructure Mountain Division Lodge Lodge Division Goodwill Total Assets

Gore and Herz

$540,000 4,500,0001 16,800,0002 5,000,0003 7,360,0004 9,500,0005 4,000,0006 $47,700,000

Accounts Payable Bank Loan Total Liabilities Capital Investment Retained Earnings decit Equity Total Liabilities and Equity

$150,000 1,500,0007 $1,650,000 46,500,0008 450,0009 $46,050,000 $47,700,000

1. Investment in Marketable Securities is classied as Available for Sale and consists of the following bonds at cost: Cost Description US Treasury Bonds $2,500,000 GE Corporate Bonds 1,000,000 JNJ Corporate Bonds 1,000,000 $4,500,000 Total 2. The land held for development is comprised of available residential home sites. The balance sheet value represents the original purchase price of $15,000,000 plus $2,400,000 of improvements minus $600,000 of cost of sales from the most recent year. 3. The Special Use Permit has an indenite life and is recorded at its initial acquisition price. 4. The Ski Lifts and related infrastructure are depreciated on a straight-line basis with an average life of 25 years. The balance sheet value is based on its original acquisition costs of $8,000,000 less Accumulated Depreciation of $640,000. 5. The Lodge and related equipment are depreciated on a straight-line basis with an average life of 30 years. The balance sheet value is based on its original acquisition price of $10,000,000 allocated 75 percent to buildings and equipment and 25 percent to land less Accumulated Depreciation of $500,000. 6. The Goodwill has an indenite life and is recorded at its initial acquisition costs. 7. The Bank loan calls for interest-only payments for three years. The interest rate varies monthly and is set to prime plus 2 percent. The prime rate at the end of the year is 6.5 percent. 8. Capital Investment represents RPs initial investment in Snowy Ridge. Note that Snowy Ridge is considered a separate reporting unit, but it is not a separate legal entity. 9. Retained Earnings represent the cumulative losses of the Snowy Ridge Ski Resort reporting unit since the date of its acquisition by Recreational Properties, Inc.

Issues in Accounting Education American Accounting Association

Volume 25, No. 1, 2010

Snowy Ridge Ski Resort

67

CASE LEARNING OBJECTIVES AND IMPLEMENTATION GUIDANCE The case provides an opportunity to introduce students to the application of the new Fair Value Measurement Standard SFAS No. 157, FASB 2006 in connection with the testing of impairment of long-term assets including Goodwill. To start, the case provides simple input data that can be used to estimate fair value of the various assets and liabilities of a ctional ski resort. The data provided allows for estimates of fair value under both the market and income approaches. Based on the nature of the inputs, the resulting fair value estimates may then be classied into one of the three levels of measurement per the Fair Value Hierarchy. The facts of the case result in at least one of the fair value estimates being classied into each of the three levels in the hierarchy. Next, the case extends the analysis by requiring students to use their fair value estimates to adjust historical cost accounting values to fair value where appropriate. The fair value estimates are applied to investments in marketable securities and in testing for impairment of the long-term operating assets. The long-term assets include three separate cash-generating units: the Mountain Division area, the Lodge Division, and the Real Estate Division. In addition, students must determine if Goodwill for the entire reporting unit has been impaired. Accordingly, students must apply the similar impairment standards for Goodwill SFAS No. 141R, FASB 2007 and other long-term operating assets SFAS No. 144, FASB 2001. The application of fair value measures to both marketable securities and long-term assets also illustrates how the reporting of fair values varies between nancial versus operating assets. Following the above analysis, students prepare adjusting journal entries to reect any required adjustments to the assets and liabilities to fair value. Students then prepare an adjusted Balance Sheet in accordance with GAAP on which they indicate the measurement attribute used for asset and liability and its level, if applicable, per the Fair Value Hierarchy for the reporting entity. Finally, to summarize their analysis and conclusions, students draft a memo to the management of our ctional company reporting their ndings. In summary, the case study provides not only an overview of the new fair value measurement standard, but it also demonstrates how fair values measures are incorporated in the nancial statements. The specic learning objectives of the case are: 1. 2. 3. 4. 5. 6. 7. Understand the terms and concepts including the signicant assumptions and limitations of fair value measurement assignments 1 and 912. Review and practice the purchase price allocation procedures related to a business combination assignments 2 and 5. Apply basic valuation techniques in estimating fair value and classify the resulting measure in accordance with the Fair Value Hierarchy assignment 3. Test long-term operating assets including Goodwill for impairment assignments 4 and 5. Prepare adjusting journal entries and year-end balance sheet to reect fair value measures where appropriate assignments 6 and 7. Practice written communication skills assignment 8. Practice research, analytical, and problem solving skills assignments 28.

Few accounting textbooks provide sufcient details regarding estimating fair value or the Fair Value Hierarchy to provide adequate guidance to students to complete this task. One option is to distribute the Fair Value Primer in the optional appendix included in the teaching notes. This Primer provides the basic information for students to complete the case study. In our eld test of the case, we distributed the article Measuring Fair Value for Financial Reporting, by Gore and Cooper 2007. This article provides a summary of SFAS No. 157, FASB 2006 and includes a

Issues in Accounting Education

Volume 25, No. 1, 2010 American Accounting Association

68

Gore and Herz

comprehensive example related to the issues incorporated in this case study. Other articles that might be useful for conveying general information about the topic include Rening Fair Value Measurement, by Miller and Bahanson 2007, and Some Facts about Fair Value, issued by the FASB 2008. Alternatively, the instructor might have the students examine SFAS No. 157 FASB 2006 directly. However, our experience is that the standard is too complex for most students to successfully read and interpret in a reasonable amount of time. It should also be noted that the intent of the case is merely to introduce students to these concepts. Thus, many complexities associated with fair value measurement are ignored. Note that if student estimates of fair value are off the mark, it will be difcult for them to successfully complete the remainder of the case because the impairment test depends in part on the fair value estimates. Hence, it might be advisable to provide feedback regarding the fair value estimates assignment 3 prior to starting the impairment tests assignment 4. However, once the fair value estimates had been derived, we found that students were generally able to apply the impairment tests of SFAS No. 144 FASB 2001 and SFAS No. 141R FASB 2007 and determine the adjustments to the marketable securities to fair value per SFAS No. 115 FASB 1993 without too much difculty. The students had available both the professional standards as well as their Intermediate Accounting and Advanced Accounting textbooks in addition to the aforementioned article in solving the case. STUDENT FEEDBACK AND LEARNING The case was presented as a class assignment in Advanced Accounting. This course included three other case studies during the semester. This case study was the fourth and nal case study used during the semester. Thirty-nine 39 students completed the case, working in groups of four or ve. The average grade/score for the case projects was 82 percent, which is consistent with the other scores during the semester. To determine the effectiveness of the case, a Student Feedback Questionnaire was circulated to students prior to them receiving their grade on the case, but after the solution to the case was presented in class see the Appendix. The questionnaire included nine questions regarding the case and also asked students to estimate the time they spent on the case, as well as rank the usefulness of resources they used in completing the assignment. The questionnaire used a vepoint Likert scale, where 1 indicated Strongly Agree and 5 indicated Strongly Disagree. A total of 38 students lled out the student feedback questionnaire; however, one response was unusable because the student did not complete the questionnaire. In summary, student responses indicated that the average time taken to prepare the case was four and a half hours, and that the case increased their knowledge of fair value measurements 1.65, impairment of assets 1.65, and impairment of goodwill 1.65. However, we note that students were unsure of the need for more fair value instruction in accounting curriculum, rating it a neutral 2.57. This perception could be attributable to lack of emphasis placed on fair value measurement in most accounting textbooks, thus deemphasizing the topic in the minds of students. However, this perception indirectly suggests the need for more case studies like this one, given the importance of the topic in nancial reporting. Overall, students found the questions in the case very manageable, indicating on average that they disagreed 3.47 with the statement that the questions were too difcult. Regarding the resources used in completing the case, students indicated that they relied most heavily on an article handed out in class, the Advanced Accounting textbook, and their Intermediate Accounting textbook, in that order. This result is also consistent with the lack of fair value material included in textbooks and suggests the need for instructors to supplement the textbook they are using with one or more articles on fair value. The complete results are summarized in Table 1.

Issues in Accounting Education American Accounting Association

Volume 25, No. 1, 2010

Snowy Ridge Ski Resort

69

TABLE 1 Results of Student Feedback Questionnaire

Sample Size 37 1 2 4 5 6 7 8 9 Additional Questions 1 2 I enjoyed the case. The case required me to integrate knowledge of several accounting topics to solve. The case increased my knowledge of the application of fair value measurement to nancial reports. The case increased my knowledge of reporting the impairment of long-term assets other than goodwill. The case increased my knowledge of reporting the impairment of goodwill. The case questions were too difcult to answer. More instruction regarding Fair Value Measurement is needed in the accounting curriculum. Case Studies are useful for learning accounting. How much time did you spend on the case study? Rank the resources in order of importance you used in completing the case study. The Fair Value Article FAS #157 The Hoyle textbook The Spiceland textbook Other Average 2.43 1.65 1.65 1.65 1.65 3.43 2.57 1.65 4.25 hrs

1.9 2.7 2.9 3.5 2.1

TEACHING NOTES Teaching Notes are available only to full-member subscribers to Issues in Accounting Education through the American Accounting Associations electronic publications system at http:// aaapubs.aip.org/tnae/. Full-member subscribers should use their usernames and passwords for entry into the system where the Teaching Notes can be reviewed and printed. If you are a full member of AAA with a subscription to Issues in Accounting Education and have any trouble accessing this material, then please contact the AAA headquarters ofce at ofce@aaahq.org or 941 921-7747. APPENDIX FAIR VALUE CASE STUDY STUDENT FEEDBACK QUESTIONNAIRE For each of the following statements, place an x in the box that best reects your assessment of the case study. SA is strongly agree, A is agree, NAD is neither agree or disagree, D is disagree, and SD is strongly disagree.
Statement 1 2 3 I enjoyed the case. The case required me to integrate knowledge of several accounting topics to solve. The case increased my knowledge of fair value measurement. (continued on next page) SA A NAD D SD

Issues in Accounting Education

Volume 25, No. 1, 2010 American Accounting Association

70

Gore and Herz

Statement 4 5 6 7 8 9 The case increased my knowledge of the application of fair value measurement to nancial reports. The case increased my knowledge of reporting the impairment of long-term assets other than goodwill. The case increased my knowledge of reporting the impairment of goodwill. The case questions were too difcult to answer. More instruction regarding Fair Value Measurement is needed in the accounting curriculum. Case Studies are useful for learning accounting.

SA

NAD

SD

Additional Questions 1 2 How much time did you spend on the case study? ____ Rank the resources in order of importance you used in completing the case study. Rank 15, 1 highest. The Fair Value Article ____ FAS #157 ____ The Hoyle textbook ____ The Spiceland textbook ____ Other ____

REFERENCES
Financial Accounting Standards Board FASB. 1993. Accounting for Certain Investments in Debt and Equity Securities. Statement of Financial Accounting Standards No. 115. Stamford, CT: FASB. Available at: http://www.fasb.org. . 2001. Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Statement of Financial Accounting Standards No. 144. Stamford, CT: FASB. Available at: http:// www.fasb.org. . 2006. Fair Value Measurement. Statement of Financial Accounting Standards No. 157. Stamford, CT: FASB. Available at: http://www.fasb.org. . 2007. Business Combinations. Statement of Financial Accounting Standards No. 141 Revised 2007. Stamford, CT: FASB. Available at: http://www.fasb.org. . 2008. Some Facts about Fair Value. Available at: http://www.fasb.org. Gore, R., and J. Cooper. 2007. Measuring fair value for nancial reporting. Valuation Strategies July/ August: 413. Miller, P. B. W., and P. R. Bahanson. 2007. Rening fair value measurement. Journal of Accountancy November: 3036.

Issues in Accounting Education American Accounting Association

Volume 25, No. 1, 2010

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.