Question :
101. Which of the following is/aretrue? A. U.S. GAAP and IFRS allow firms : 1245718
101. Which of the following is/aretrue? A. U.S. GAAP and IFRS allow firms to choose whether to designate a particular derivative as a hedge, and therefore eligible for hedge accounting. B. Firms remeasure derivatives not designated as a hedge to fair value at every balance sheet date and include changes in fair value in net income. C. For a derivative designated as a hedge, firms must further designate it as hedging the risk of a change in fair value (fair value hedges) or a change in cash flows (cash flow hedges).D. all of the aboveE. none of the above
102. The accounting for fair value hedges is similar under both U.S. GAAP and IFRS. Which of the following is/aretrue? A. Firms remeasure both the hedged item and the related derivative instrument (the hedging instrument) to fair value each period.B. Firms remeasure both the hedged item and the related derivative instrument (the hedging instrument) to recognize gains and losses from changes in the fair value of both in net income.C. If the hedge is fully effective, the gain (loss) on the derivative will precisely offset the loss (gain) on the asset or liability hedged. The net effect on earnings is zero. D. If the hedge is not fully effective, the net gain or loss increases or decreases earnings to the degree the offset is incomplete. E. all of the above
103. For cash flow hedges, which of the following is/aretrue? A. U.S. GAAP and IFRS require firms to remeasure the derivative instrument (the hedging instrument) to fair value each period but to include gains and losses from changes in fair values in other comprehensive income each period to the extent the hedging instrument is “highly effective” in neutralizing the risk of the hedged item. B. Firms must include the ineffective portion in net income currently.C. At the end of the period, the firm closes the Other Comprehensive Income account to the balance sheet account for Accumulated Other Comprehensive Income. D. The firm removes the amount in Accumulated Other Comprehensive Income related to a particular hedging instrument and transfers it to net income either periodically during the life of the hedging instrument or at the time of settlement, depending on the type of derivative instrument used as a hedge.E. all of the above
104. The matching convention provides both the basis for hedge accounting, as well as the logic for the treating gains and losses from changes in fair value of fair value hedges differently from cash flow hedges. Which of the following is/are not true? A. In a fair value hedge of a recognized asset or liability, both the hedged asset (or liability) and its related derivative (hedging instrument) appear on the balance sheet. B. Remeasuring both the hedged asset (or liability) and its related derivative to fair value each period and including the gain or loss on the hedged asset (or liability) and the loss or gain on the derivative in net income results in a net gain or loss that indicates the effectiveness of the hedge in neutralizing the risk. C. If the hedge is completely effective, there is a zero net effect on income (the gain or loss on the hedged item exactly offsets the loss or gain on the hedging instrument). D. In a cash flow hedge of a forecasted transaction, the hedged cash flow commitment does not appear on the balance sheet but the derivative instrument does appear. E. Application of the matching convention results in classifying the gain or loss on the derivative instrument in net income each period.
105. 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 aboveE. none of the above
106. 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.
107. When accounting for a cash flow hedge of a recognized asset or liability, which of the following is/are true? A. If the derivative is not highly effective in neutralizing the gain or loss on the hedged item, then the firm must reclassify the ineffective portion to net income immediately and not wait until the gain or loss on the hedged items affects net income. B. The firm reports the hedged asset and liability and the hedging instrument separately on the balance sheet and the cumulative amount of net changes in fair value of the hedging instrument in accumulated other comprehensive income. C. The firm removes the hedged asset or liability and its related derivative from the accounts at the time of settlement. 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.
108. U.S. GAAP requires firms to disclose which of the following information with respect to derivatives? A. A description of the firm’s risk management strategy and how particular derivatives help accomplish the firm’s hedging objectives.B. For fair value and cash flow hedges, firms must disclose the net gain or loss recognized in earnings resulting from the hedge’s ineffectiveness.C. For cash flow hedges, firms must describe the transactions or events that will result in reclassifying gains and losses from accumulated other comprehensive income to net income and the estimated amount of such reclassifications during the next 12 months. D. The net amount of gains and losses recognized in earnings because a hedged firm commitment no longer qualifies as a fair value hedge or a hedged forecasted transaction no longer qualifies as a cash flow hedge. E. all of the above
109. Which of the following is/aretrue? A. Both U.S. GAAP and IFRS provide for the option of reporting selected financial assets and financial liabilities at fair value and recognizing gains and losses in net income as fair values change. B. Once elected, the fair value option is irrevocable for the instrument to which the firm applies it.C. Both U.S. GAAP and IFRS require measurement at fair value with changes included in income for three items: (1) trading securities, (2) fair value hedges, (3) derivatives not designated as hedges.D. 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. E. all of the above
110. 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 aboveE. none of the above
