When Accounting for a Fair Value Hedge of a Recognized

question 5

Multiple Choice

When accounting for a fair value hedge of a recognized asset or liability, on the date a firm enters the derivative contract and designates that contract as a fair value hedge,

• A)no amount appears on the balance sheet for the derivative if the firm neither makes nor receives an initial payment.
• B)it recognizes the derivative as an asset if it makes an initial payment.
• C)it recognizes the derivative as a liability if it receives an initial payment.
• D)all of the above
• E)none of the above

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Definitions:

Reasoned Decision-Making Model

A systematic approach to making decisions that involves gathering information, evaluating options based on logic and reasoning, and selecting the most appropriate course of action.

Courses of Action

Alternative strategies or paths that can be taken in response to a situation or to achieve a specific goal.

Reasoned Decision-Making Model

A structured approach to making decisions by evaluating options, considering consequences, and applying logical analysis.

Commonsense Morality

Ethical principles and judgments that are widely shared and intuitively understood by people within a society.