To Account for a Forward Contract Cash Flow Hedge of a Foreign

question 20

Multiple Choice

To account for a forward contract cash flow hedge of a foreign currency denominated asset or liability at the balance sheet date

• A) 1. Adjust hedged asset or liability to fair value, with counterpart (change in fair value) reported as foreign exchange gain or loss in net income, 2. Adjust forward contract to fair value (either an asset or a liability), with counterpart (change in fair value) reported in AOCI, 3. Transfer an amount from AOCI to net income to offset the foreign exchange gain or loss on the hedged asset or liability recognized in 1, and 4. Transfer from AOCI to net income (as discount expense or premium revenue) the current period's amortization of discount or premium
• B) 1. Adjust hedged asset or liability to fair value, with counterpart (change in fair value) reported as foreign exchange gain or loss in net income and 2. Adjust option to fair value (either an asset or zero value), with counterpart (change in fair value) reported as gain or loss in net income
• C) 1. Adjust forward contract to fair value (either an asset or a liability), with counterpart (change in fair value) reported as gain or loss in net income and 2. Adjust firm commitment to fair value (based on change in forward rate), with counterpart (change in fair value) reported as gain or loss in net income
• D) 1. Adjust hedged asset, with counterpart (change in fair value) reported as a foreign exchange gain in net income and 2. Adjust forward contract to fair value (either an asset or a liability), with counterpart (change in fair value) reported as a gain or loss in net income
• E) 1. None. No journal entry is required.

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Definitions:

Endoneurium

The delicate connective tissue surrounding each nerve fiber within a peripheral nerve, providing mechanical and physiological support to individual axons.

Functional Unit

The smallest component of a structure or system that is capable of performing all of the system's necessary functions.

Autonomic Nuclei

Clusters of nerve cell bodies in the central nervous system that regulate the autonomic nervous system, controlling involuntary functions.

Lateral Gray Horns

The regions in the spinal cord that contain nerve cell bodies involved in the autonomic nervous system, responsible for controlling involuntary functions.