When Accounting for a Cash Flow Hedge of an Recognized

question 24

Multiple Choice

When accounting for a cash flow hedge of an recognized asset or liability, which of the following is/are true?

• A)A firm recognizes the hedged asset or liability on the balance sheet and its measurement depends on the required accounting for the particular asset or liability.
• B)A firm recognizes the derivative as an asset on the date of acquisition to the extent it makes an initial investment or as a liability to the extent it receives cash.Otherwise, no amount appears on the balance sheet for the derivative.
• C)At the end of each period, the firm remeasures the derivative instrument (the hedging instrument) to fair value and includes the resulting loss or gain in other comprehensive income.
• D)The firm reclassifies gains and losses from other comprehensive income to net income when the gain or loss on the hedged item affects net income.
• E)all of the above.

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Definitions:

Deceptive And Manipulative Practices

Actions deliberately intended to mislead or trick others, often for personal or financial gain and at the expense of others.

Securities Regulation

Laws and regulations governing the issuance, trading, and enforcement of rights associated with financial instruments like stocks and bonds.

Securities Act

A law governing the issue and sale of securities to protect investors through requiring disclosures via registration of securities.

Public Securities

Financial instruments, such as stocks or bonds, that are traded openly in the public markets.