To account for a forward contract cash flow hedge of a foreign currency denominated asset or liability at initiation date requires which of the following?
A) 1. Recognize the transaction (sale or purchase) and foreign currency denominated asset or liability2. Recognize option as an asset (purchase price is fair value)
B) 1. No entry related to the firm commitment (zero value)2. No entry related to forward contract (zero fair value)
C) 1. Recognize the transaction (sale or purchase) and foreign currency denominated asset or liability2. No entry related to forward contract (zero fair value)
D) 1. Recognize the transaction (sale or purchase).2. Recognize the option as a liability.
E) 1. None. No journal entry is required.

Question

Quizplus · Accepted Answer

At initiation, the transaction and foreign currency denominated asset or liability are recognized, but the forward contract is not recorded as it initially has zero fair value.

To Account for a Forward Contract Cash Flow Hedge of a Foreign