A hedge to avoid the potential unfavorable effects of changing prices associated with all of the following would qualify for special fair value hedge accounting except:
A)debt instruments held in a trading portfolio.
B)equity and debt instruments held in an available-for-sale portfolio.
C)a firm commitment to acquire crude oil.
D)a farmer's inventory of hogs.

Question

A hedge to avoid the potential unfavorable effects of changing prices associated with all of the following would qualify for special fair value hedge accounting except:
A)debt instruments held in a trading portfolio.
B)​equity and debt instruments held in an available-for-sale portfolio.
C)​a firm commitment to acquire crude oil.
D)​a farmer's inventory of hogs.

Quizplus · Accepted Answer

Debt instruments held in a trading portfolio do not qualify for fair value hedge accounting since they are already designated as trading assets and any change in their fair value is recognized in the income statement.

Answer: B 
 Equity and debt instruments held in an available-for-sale portfolio do not qualify for fair value hedge accounting since any change in their fair value is already recognized in other comprehensive income.

Answer: C 
 A firm commitment to acquire crude oil would qualify for fair value hedge accounting since it has the potential to cause the business to be exposed to the effects of changing prices.

Answer: D 
 A farmer's inventory of hogs would qualify for fair value hedge accounting since it has the potential to cause the farmer to be exposed to the effects of changing prices.

A Hedge to Avoid the Potential Unfavorable Effects of Changing