Firms Can Elect the Fair Value Option for the Following

question 6

Multiple Choice

Firms can elect the fair value option for the following items: (1) bonds held to maturity, (2) available-for-sale securities, and (3) cash flow hedges.Which of the following is/aretrue?

• A)Applying the fair value option to investments in debt securities classified as held to maturity results in accounting for the investments as if they were a trading security, with changes in fair value recognized in income each period.
• B)Applying the fair value option to available-for-sale securities results in reporting unrealized gains and losses from remeasurement to fair value in net income as fair value changes, instead of initially in other comprehensive income.
• C)Applying the fair value option to cash flow hedges results in reporting unrealized gains and losses from remeasurement to fair value in net income as fair value changes, instead of initially in other comprehensive income.
• D)all of the above
• E)none of the above

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