Which of the Following Statements Does Not Accurately Describe the Accounting

question 17

Multiple Choice

Which of the following statements does not accurately describe the accounting for derivatives?

• A)The holding gain resulting from a fair value hedge that qualifies for hedge accounting is recognized in net income along with the offsetting loss on the hedged item.
• B)The holding loss resulting from a cash flow hedge that qualifies for hedge accounting is recognized in net income during the year of the loss.
• C)Management must be able to describe its hedging strategy in order to meet the GAAP criteria to qualify for hedge accounting.
• D)Derivatives that fail to meet the GAAP criteria for hedge accounting are accounted for as speculative investments.

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Definitions:

Capital Maintenance

A company's ability to maintain the level of its capital after covering its expenses, ensuring that its financial health and capacity to generate shareholder value are preserved.

Net Assets

This term refers to the total value of assets minus the total value of liabilities.

New Capital

Funds obtained by a company to finance its operations, expansion, or other projects, which can come from debt or equity sources.

Historical Cost

The original monetary value of an asset or transaction, based on the amount paid or the value at the time it was acquired.