Derivatives, Hedging, Translation Flashcards

1
Q

How are derivatives recorded?

A

At cost when acquired re-valued to fair value each period on Balance Sheet.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How are unrealized gains/losses on trading securities recorded?

A

Recorded on income statement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

How are gains and losses on Available for Sale (AFS) securities recorded?

A

They are included in Other Comprehensive Income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is a Fair Value Hedge? How is it recorded?

A

Fair Value Hedge offsets exposure to changes in the value of a recognized asset/liability or of an unrecognized commitment

Initially recorded on Balance Sheet at Fair Value

Gains/Losses recorded on Income Statement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is a Cash Flow Hedge? How is it recorded?

A

Cash flow hedges protect from exposure to fluctuations in cash flows.

Initially recorded on Balance Sheet at Fair Value

Gains/Losses going to OCI

Example: A cereal company enters into a futures contract on grain purchases to offset the risk that grain will go up in price.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Where are gains and losses on foreign currency hedges recorded?

A

In Other Comprehensive Income (OCI)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What disclosures are required for derivative transactions?

A

Objectives and Strategies

Context to help investor understand the instrument

Risk Management Policies

Complete List of Hedged Instruments

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How do transactions denominated in in a currency other than a company’s functional currency affect the income statement?

A

Fluctuations in that currency cause a gain or loss that must be recognized on the income statement as Income from Continuing Operations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What causes a Foreign Currency Transaction G/L?

A

A change in exchange rates between the functional currency and the transaction currency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Where are Foreign Currency Transaction G/L recorded?

A

Income Statement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Where are Foreign Currency Translation G/L recorded?

A

OCI

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

If the Functional Currency equals the Local Currency - what rate is used for translating Assets and Liabilities?

A

Current Rate as of the Balance Sheet Date

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

If the Functional Currency equals the Local Currency - what rate is used for translating Revenues and Expenses?

A

Weighted Average Exchange Rate for the year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

If the Functional Currency equals the Reporting Currency - what Exchangee Rate is used??

A

Use Weighted Average - Historical Exchange Rates (Inventory and Pre-paid Assets and Property Plant and Equipment) and Current Exchange Rates (Monetary Assets and Liabilities and Inventory @ Market and Trading Securities and Deferred Taxes)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly