Question : 71. Which of the following true? A. Management can sell securities with : 1230368

71. Which of the following is true?  
A. Management can sell securities with unrealized holding gains (or losses) and transfer through net income to Retained Earnings the entire unrealized holding gain (or loss)—that is, management can affect the timing of gain or loss recognition in net income for securities available-for-sale, but not for trading securities.
B. The timing ability is asymmetric in that impairment rules preclude indefinite deferrals of the recognition in income of unrealized losses, but not unrealized gains.
C. Users of the financial statements should be alert to the accounting effect on net income in evaluating the profitability of firms with both trading securities and securities available-for-sale.
D. all of the above
E. none of the above

72. The firm’s purpose for holding certain securities may change, requiring it to transfer securities from one category to another. The firm transfers the securities at _____ at the time of the transfer.  
A. future value
B. net realizable value
C. amortized cost
D. fair value
E. present value of future cash flows

73. U.S. GAAP requires which of the following disclosures about marketable securities each period?  
A. The aggregate fair value, gross unrealized holding gains, gross unrealized holding losses, and amortized cost for debt securities held to maturity and for debt and equity securities available-for-sale.
B. The proceeds from sales of securities available-for-sale, and the gross realized gains and gross realized losses on those sales. The statement of cash flows shows the cash expenditures to purchase available-for-sale securities and the cash receipts from maturities and sales of available-for-sale securities.
C. The change during the period in the net unrealized holding gain or loss on securities available-for-sale included in a separate shareholders’ equity account.
D. The change during the period in the net unrealized holding gain or loss on trading securities included in earnings.
E. all of the above

74. Firms can purchase financial instruments to reduce certain business risks, that is, to reduce the volatility of certain outcomes. The outcomes include changes in  
A. interest rates, only.
B. foreign exchange rates, only.
C. commodity prices, only.
D. interest rates and foreign exchange rates, only.
E. interest rates, foreign exchange rates, and commodity prices.

75. Firms engage in transactions that subject them to specific financial risks. Most firms face risks—that is, variability of outcome—from changes in interest rates, foreign exchange rates, and commodity prices. Firms can purchase financial instruments to reduce these business risks, that is, to reduce the volatility of certain outcomes. Some of these instruments trade in relatively active markets, like marketable securities, while others have specialized terms and do not trade at all. The general term used for the types of financial instruments that firms might buy to mitigate the risks is a(n) 
A. swaps
B. derivative
C. forwards
D. futures
E. options

76. Which of the following is/are true? 
A. A derivative is a financial instrument whose value changes in response to changes in an underlying observable variable, such as a stock price, an interest rate, a currency exchange rate, or a commodity price.
B. Unlike equity securities, which have no definite settlement date, firms settle a derivative at a date that the terms of the instrument specify.
C. A derivative requires an investment that is small, relative to the investment in a contract that is similarly exposed to changes in market factors, or requires no investment at all.
D. Firms use derivative instruments to hedge the risks that arise from changes in interest rates, foreign exchange rates, and commodity prices.
E. all of the above

77. Which of the following is/are not true? 
A. A derivative is a financial instrument whose value changes in response to changes in an underlying observable variable, such as a stock price, an interest rate, a currency exchange rate, or a commodity price.
B. Unlike equity securities, which have no definite settlement date, firms settle a derivative at a date that the terms of the instrument specify.
C. A derivative requires an investment that is small, relative to the investment in a contract that is similarly exposed to changes in market factors, or requires no investment at all.
D. Firms use derivative instruments to hedge the risks that arise from changes in interest rates, foreign exchange rates, and commodity prices.
E. The general idea behind hedging is that changes in the fair value of the derivative instrument map the changes in the fair value of an asset or liability or changes in future cash flows, thereby multiplying the effects of those changes.

78. Which of the following is/are elements of a derivative? 
A. A derivative has one or more underlyings. An underlying is an observable variable such as a specified interest rate, or commodity price, or foreign exchange rate.
B. A derivative has one or more notional amounts. A notional amount is a number of currency units, bushels, shares, or other units specified in the contract.
C. A derivative sometimes requires no initial investment.
D. Derivatives typically require, or permit, net settlement, which means that when the counterparties settle the derivative contract, one of the contracting parties pays the other the fair value of the contract.
E. all of the above

79. Which of the following is/are elements of a derivative? 
A. Many derivatives require no initial investment, that is, no initial cash payment to the counterparty.
B. A derivative may have zero initial cost, but potentially large positive or negative fair values later.
C. Both U.S. GAAP and IFRS require that firms record derivatives at their fair values on the balance sheet date.
D. The firm usually acquires a derivative by exchanging promises with a counterparty, such as a commercial or investment bank. The exchange of promises is a mutually unexecuted contract.
E. all of the above

80. Which of the following is not true? 
A. A firm must recognize derivatives on its balance sheet as assets or liabilities, depending on the rights and obligations under the contract.
B. Firms must remeasure derivatives to fair value each period.
C. The change in fair value either increases or decreases the balance sheet carrying value of the derivative asset or liability.
D. The change in fair value affects either (1) net income immediately (like a trading security), or (2) other comprehensive income immediately and net income later (like securities available-for-sale).
E. The income effect of a change in the fair value of a derivative is independent of the purpose for which a firm acquires the derivative and whether the firm chooses to apply hedge accounting.