Firms Often Acquire Derivative Instruments to Hedge Interest Rate, Exchange

question 53

Multiple Choice

Firms often acquire derivative instruments to hedge interest rate, exchange rate, commodity price, and other risks.U.S.GAAP and IFRS classify derivatives into which of the following categories?

• A)Fair value hedges of a recognized asset or liability or of an unrecognized firm commitment, only.
• B)Cash flow hedges of an existing asset or liability or of a forecasted transaction, only.
• C)Nonhedging derivative, only.
• D)Fair value hedges of a recognized asset or liability or of an unrecognized firm commitment, cash flow hedges of an existing asset or liability or of a forecasted transaction, and nonhedging derivative.
• E)none of the above

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Definitions:

Process Costing

A costing method used where similar products are produced in a continuous process, allocating costs based on the average cost of production.

Mixing Department

A section within a manufacturing facility where ingredients or components are combined to produce a final product.

Job-Order Costing

Job-order costing tracks production costs individually for each job or project, making it suitable for customized orders or differentiated products.

Process Costing

An accounting method used to accumulate costs in standardized, continuous production processes, assigning average costs to identical product units.