Under US GAAP, Which of the Following Conditions Must Be Met

question 54

Multiple Choice

Under U.S. GAAP, which of the following conditions must be met to qualify for hedge accounting?

• A) There must be formal documentation of the hedging relationship.
• B) A derivative must be used specifically to hedge fair value exposure or cash flow exposure.
• C) The hedge must be effective.
• D) All of the above must be met in order to qualify for hedge accounting.

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Definitions:

Capacity

The highest amount of production a business can maintain over a specific time frame under standard conditions.

Machine-Hours

A measure of production volume or activity based on the number of hours that machines are operated.

Unused Capacity

The available production or service facility that is not currently being used to its full potential.

Estimated Activity

A forecast of the level of operations or engagement in a particular task or project.