If a derivative is not designated as a hedge:
A) the change in market value must be recognized in net income when it changes.
B) the change in market value is not recognized in net income.
C) the change in fair value is not recognized in net income.
D) the change in fair value must be recognized in net income when it changes.

Question

Quizplus · Accepted Answer

If a derivative is not designated as a hedge, any changes in its fair value must be recognized in net income when they occur. This means that any gains or losses from the derivative will immediately affect the company's earnings. Therefore, choice D is the best answer.

If a Derivative Is Not Designated as a Hedge