Question : 81. U.S. GAAP and IFRS require firms to classify derivatives as : 1230345

81. U.S. GAAP and IFRS require firms to classify derivatives as  
A. fair value hedges, only.
B. cash flow hedges, only.
C. not a hedging instrument, only.
D. fair value hedges or cash flow hedges, only.
E. fair value hedges, cash flow hedges, or not a hedging instrument.

82. Which of the following is/aretrue? 
A. Derivatives designated as cash flow hedges or fair value hedges receive special accounting treatment.
B. The choice between the derivatives designation of cash flow hedges or fair value hedges depends on the firm’s general hedging strategy and its purpose in acquiring the particular derivative instrument.
C. According to U.S. GAAP, if a firm does not designate a particular derivative as either a fair value hedge or a cash flow hedge, the firm must account for the derivative as if it were a trading security
D. According to IFRS, if a firm does not designate a particular derivative as either a fair value hedge or a cash flow hedge, the firm must account for the derivative as a security at fair value through profit and loss.
E. all of the above

83. Derivative instruments acquired to hedge exposure to changes in the
fair values of assets or liabilities are fair value hedges. Fair value hedges are 
A. hedges of a recognized asset or liability (or an identified portion of a recognized asset or liability), only.
B. hedges of an unrecognized firm commitment (or an identified portion of that commitment), only.
C. hedges on some or all of the cash flows of a recognized asset or liability, only.
D. hedges on some or all of the cash flows of forecasted transactions, only.
E. hedges of a recognized asset or liability (or an identified portion of a recognized asset or liability), and hedges of an unrecognized firm commitment (or an identified portion of that commitment).

84. Cash flow hedges are 
A. hedges of a recognized asset or liability (or an identified portion of a recognized asset or liability), only.
B. hedges of an unrecognized firm commitment (or an identified portion of that commitment), only.
C. hedges on some or all of the cash flows of a recognized asset or liability, only.
D. hedges on some or all of the cash flows of forecasted transactions, only.
E. hedges on some or all of the cash flows of a recognized asset or liability, and hedges on some or all of the cash flows of forecasted transactions.

85. 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 above
E. none of the above

86. 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

87. 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

88. 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.

89. 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

90. 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.