Accounting for Derivatives on Financial Statements

Instructions:

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question 1 of 3

A derivative had a value of $0 at inception and has $1,000 today. The derivative should be booked as a(n):

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1. When the market value of a hedged asset decreases, the value of the derivative used as a hedge should:

2. The gains or losses from a fair value hedge should be:

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About This Quiz & Worksheet

What is a fair value hedge? What is a cash flow hedge? These are just two facts you should be familiar with in order to successfully answer all of the questions appearing on this quiz and worksheet assessment.

Quiz & Worksheet Goals

For this quiz, you must be able to do the following:

  • Note how a derivate should be booked in accounting in a given situation
  • Understand what should happen to the value of the derivative used as a hedge when the market value of a hedged asset decreases
  • Identify what the gains or losses from a fair value hedge should be in regards to accounting
  • Note what the gains or losses from a cash flow hedge should be in accounting
  • Select the term that best describes financial instruments that take their value from fluctuations in the value of something else

Skills Practiced

  • Reading comprehension - ensure that you draw the most important information from the lesson, such as what word is defined as a financial instruments drawing value from the fluctuations in the value of something else
  • Information recall - access the knowledge you've gained regarding the booking of derivatives
  • Knowledge application - use your knowledge to answer questions about gains or losses in fair value hedges and cash flow hedges

Additional Learning

You can expand your understanding of this subject by studying the lesson titled Accounting for Derivatives on Financial Statements. Information covered in this lesson includes:

  • How a hedge cuts risk
  • Examples of fair value and cash flow hedges
  • How a cash flow hedge is defined
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