Which of the following is done when accounting for a cash flow hedge, but is not done when accounting for a fair value hedge?
A) The hedged asset or liability is adjusted to fair value.
B) Foreign exchange gains or losses on the hedged asset or liability are recorded in net income.
C) Increases or decreases in a derivative's fair value are recorded in accumulated other comprehensive income.
D) Gains or losses resulting from adjusting the fair value of a derivative are recorded in net income.

Question

Quizplus · Accepted Answer

When accounting for a cash flow hedge, increases or decreases in a derivative's fair value are recorded in accumulated other comprehensive income. This is done so that the gains or losses can be recognized in the income statement at the same time as the cash flows from the hedged item. In contrast, when accounting for a fair value hedge, gains or losses resulting from adjusting the fair value of a derivative are recorded in net income.

Which of the Following Is Done When Accounting for a Cash