A Discount or Premium on a Forward Contract Is Deferred

question 25

Multiple Choice

A discount or premium on a forward contract is deferred and included in the measurement of the related foreign currency transaction if the contract is classified as a:

• A) hedge of a net investment in a foreign entity.
• B) hedge of an exposed asset or liability position.
• C) hedge of an identifiable foreign currency commitment.
• D) contract acquired to speculate in the movement of exchange rates.

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Definitions:

Investing Activities

Transactions involving the purchase or sale of long-term assets and other investments not considered cash equivalents.

Financing Activities

involve transactions related to raising capital and repaying investors, including issuing equity, obtaining loans, and paying dividends.

Direct Method

A cash flow statement preparation approach showing actual cash inflows and outflows from operating activities without adjustments for non-cash transactions.

Operating Activities

Activities that are directly related to the primary operations of the company, including cash inflows and outflows from selling products and services.