ExpertHard1 markMultiple Choice
CPA · Question 35 · Area II: Technical Accounting
On Dec 31, a company has a Cash Flow Hedge (Interest Rate Swap) with a fair value loss of $50,000. The hedge is 100% effective. How should this loss be reported in the financial statements?
On Dec 31, a company has a Cash Flow Hedge (Interest Rate Swap) with a fair value loss of $50,000. The hedge is 100% effective. How should this loss be reported in the financial statements?
Answer options:
A.
Recognize $50,000 loss in Net Income.
B.
Recognize $50,000 as a Deferred Asset.
C.
Recognize $50,000 loss in Other Comprehensive Income (OCI).
D.
Do not recognize the loss until the swap is settled.
How to approach this question
Cash Flow Hedge = OCI (Effective portion). Fair Value Hedge = Net Income.
Full Answer
C.Recognize $50,000 loss in Other Comprehensive Income (OCI).✓ Correct
For a qualifying cash flow hedge, the effective portion of the gain or loss on the hedging instrument is reported as a component of Other Comprehensive Income (OCI) and reclassified into earnings in the same period the hedged transaction affects earnings.
Common mistakes
Putting CF hedge gains/losses in Net Income.
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