My CPA-FARmodule19 Test
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| A. at FV, election is irrevocable and made on instrument by instrument basis, change in FV recognized at year end to earnings. Show on balance sheet as separate lines for FV and non FV instruments or total amount of hybrid instruments with FV in parentheses B. 1. underlying is the stock price that exists outside the derivative instrument that is used to determine its value
2. notional amount is the number of units related to the derivative instrumentC. 1. cannot be traded on an exchange in the investor's functional currency
2. dividends must be denominated in same foreign currency as is expected to be received on sale of the securityD. 1.Diff between option price and intrinsic value. Zero at exercise date.
2. Greater of zero or diff between stock (exercise) price and exercise (stock) price in call (put)E. 1. as a fair value hedge
2. as a fair value hedge
3. as cash flow hedge (distinguish from from commitments because timing of cash flows remains uncertain)
4. change in FV of derivative recorded as translation adjustment to OCIncome closed to AOCIncomeF. Yes, by difference of spot rateG. two companies decide to swap interest payments on debt. One has fixed debt and thinks rates will drop, One has variable debt and thinks rates will riseH. Use the forward exchange rate for the remaining term of the contractI. 1. embedded derivative meets definition of derivative
2. hybrid instrument not regularly recorded at FV
3. economic characteristics/risks of embedded derivative are not clearly and closely related to to those of the host contractJ. 1. Documentation at the beginning must provide the objective and strategy of the hedge, the hedging instrument and the hedged item, how the effectiveness will be assessed
2. must be highly effective throughout its lifeK. The US company enters into a transaction with a foreign entity, and transaction is denominated in foreign currency units. May cause a foreign currency transaction gain or loss to be recognized in US companies income statementL. 1. hedged item must be all or a specific portion of a recognized asset/liability or an unrecognized firm commitment (must be binding on both parties, specific terms, contain nonperformance clause- makes performance probable)
2. in current earningsM. 1. objectives and strategies for achieving
2. context to understand the instrument
3. risk management policies
4. list of the hedged instrumentsN. 1. Fair value
2. appear in comprehensive income or reported in current earningsO. May have to separate ('bifurcate') derivative from host. Host would be accounted for as if derivative were never apart of and derivative accounted for using rules for derivativesP. 1. effective portion is reported in OCIncome
2.ineffective/excluded portion reported on cumulative basis, report lesser of cumulative gain/loss- of derivative since creation of hedge or from change expected cash flows from hedged instrument since creatioQ. 1hedged asset/liability must be linked(basis for change in cash flow is the same) to hedged instrument
2must be highly effective
3if forecasted transaction must be considered probable
4if forecasted is series of transactions, must share same risk exposR. 1. Must contain an underlying (financial or physical variable that has observable changes) and notional amount (units)
2. no initial net investment is required or it is smaller than normal
3. at settlement can be settled with cash or an assetS. Call/Put options, futures contracts, interest rate swaps, currency swaps, swaptions (an option on a swap) credit indexed contracts, interest rate caps/floors/collarsT. restate the accounts receivable to show the change in the spot rate (if there is one) and recognize a foreign currency transaction gain or loss |
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