Chapter 13 – Investments and Long–Term Receivables
55. Wright Company has available-for-sale debt and equity securities that on December 31, 2017, had a cost of $110,000
and a market value of $108,000. The market value rose to $123,000 by December 31, 2018. What accounting action is
required on December 31, 2018?
a.
Allowance for Change in Fair Value of Investments should be credited for $15,000.
b.
Unrealized Holding Gain/Loss-Available-for-Sale Securities should be debited for $13,000.
c.
Allowance for Change in Fair Value of Investments should be debited for $15,000.
d.
Unrealized Holding Gain/Loss-Available-for-Sale Securities should be credited for $13,000.
c
1
Easy
ACCT.WHAL.16.13.4 – LO: 13.4
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Analyzing
56. Reagan Company purchased 10,000 shares of Clinton’s Company at $45 per share plus $15,000 of Delta Company’s
12% bonds, acquired at par, as available-for-sale securities. The bonds pay interest on June 30 and December 31 each
year. What amount should be recorded to the Investment in Available-for-Sale Securities account?
a.
$450,000
b.
$466,800
c.
$15,000
d.
$465,000
d
1
Easy
ACCT.WHAL.16.13.4 – LO: 13.4
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
57. Chang Company purchased several investments in December 2017. Costs and market values of those investments on
December 31, 2017, are presented below:
Cost
Market Value
$200,000
$180,000
400,000
420,000
600,000
540,000
Assuming all of the securities are classified as available-for-sale, the journal entry required on December 31, 2017,
the end of Chang’s fiscal year, would include a
a.
debit to Unrealized Holding Gain/Loss-Available-for-Sale of $60,000.
b.
credit to Unrealized Holding Gain/Loss-Available-for-Sale of $60,000.
c.
credit to Unrealized Holding Gain/Loss-Available-for-Sale of $80,000.
d.
debit to Investment in Available-for-Sale Securities of $60,000.
a
1
Moderate
ACCT.WHAL.16.13.4 – LO: 13.4
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Analyzing
58. Bark Corporation began operations on January 1, 2017. At December 31, 2017, Bark appropriately had a credit
balance in Allowance for Change in Fair Value of Investments of $330. No transactions related to these investments
occurred during 2018, and the cost and market values on December 31, 2018, are as follows:
Cost
Fair Value
$700
$980
1,115
1,110
1,445
1,420
880
1,100
In the December 31, 2018 adjusting entry, there will be a
a.
credit of $140 to Unrealized Holding Gain/Loss-Available for Sale Securities.
b.
debit of $800 to Unrealized Holding Gain/Loss-Available for Sale Securities.
c.
debit of $140 to Allowance for Change in Fair Value of Investments.
d.
debit of $800 to Allowance for Change in Fair Value of Investments.
d
1
Challenging
ACCT.WHAL.16.13.4 – LO: 13.4
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Analyzing
59. All of the following statements regarding available-for-sale debt securities are true except
a.
premiums and discounts are not amortized.
b.
Interest Income may be debited at the time of acquisition.
c.
the securities will be valued using the lower of cost or market method.
d.
realized gain or loss is the difference between the amortized cost of the bonds and the proceeds from their sale.
c
1
Moderate
ACCT.WHAL.16.13.4 – LO: 13.4
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Understanding
60. For available-for-sale equity securities, the receipt of a cash dividend would be reported as
a.
a reduction from retained earnings.
b.
an increase in investment in available-for-sale securities.
c.
a reduction in investments in available-for-sale securities.
d.
dividend income.
d
1
Moderate
ACCT.WHAL.16.13.4 – LO: 13.4
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
61. On January 1, 2017, the Leaf Company acquired a 5% interest in the Trunk Corporation through the purchase of
100,000 shares of Trunk’s common stock for $640,000; the investment is recorded on Leaf’s books as available-for-
sale. During 2017, Trunk paid $40,000 in dividends and reported net income of $100,000. The market price of
Trunk’s common stock was $6.20 per share on December 31, 2017. Leaf should report the investment in the Trunk
Corporation on its December 31, 2017, balance sheet at
a.
$620,000.
b.
$627,000.
c.
$640,000.
d.
$645,000.
a
1
Moderate
ACCT.WHAL.16.13.4 – LO: 13.4
United States – OH – Default City – AICPA: FN-Measurement
62. On January 6, 2017, Michael Company acquired 4,000 shares (or 10%) of George Corporation’s common stock at $25
per share. The securities are classified as available-for-sale investments. On October 24, 2017, George declared and
paid a cash dividend of $1 per share. On December 31, 2017, the market value of George’s common stock was $35
per share. George also reported a net income of $250,000 for 2017. At what value should Michael report the
investment in George’s common stock on its December 31, 2017 balance sheet?
a.
$100,000
b.
$140,000
c.
$144,000
d.
$104,000
b
1
Challenging
ACCT.WHAL.16.13.4 – LO: 13.4
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
63. Which of the following statements regarding available-for-sale equity investments is true?
a.
The realized gain on sale is determined by comparing the carrying value of the investment with its selling
price.
b.
Income is affected by temporary changes in market value.
c.
All equity security investments are classified as noncurrent.
d.
Permanent declines in value are reported on the income statement.
d
1
Moderate
ACCT.WHAL.16.13.5 – LO: 13.5
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Understanding
64. A transfer of a security between categories is accounted for at the
a.
investment’s carrying value.
b.
investment’s fair value.
c.
original investment cost.
d.
lower of the original cost of the investment or its fair value.
b
1
Easy
ACCT.WHAL.16.13.5 – LO: 13.5
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
65. When transferring investments between categories, unrealized holding gains for securities transferred from trading to
available-for-sale
a.
must be realized on the income statement.
b.
must be recognized on the income statement.
c.
must be realized and reported in comprehensive income.
d.
need no accounting since they have already been recognized in net income.
d
1
Moderate
ACCT.WHAL.16.13.5 – LO: 13.5
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
66. Permanent declines in value for available-for-sale securities should be
a.
recorded in the allowance account.
b.
included in income as a realized loss.
c.
amortized over the remaining life of the security.
d.
recorded similarly to temporary declines in value.
b
1
Easy
ACCT.WHAL.16.13.5 – LO: 13.5
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
67. The Plutonium Company has a bond investment classified as held-to–maturity, which has a carrying value of $62,000
and a fair value of $24,000. The decline in value is considered as other than temporary. What entry should Plutonium
make to record the decline in value?
a.
Unrealized Loss on Value Decline 38,000
Allowance for Change in Fair
Value of Investment 38,000
b.
Investment in Held-to-Maturity Securities 38,000
Realized Loss on Decline in Value 38,000
c.
Realized Loss on Decline in Value 38,000
Investment in Held-to-Maturity Securities 38,000
d.
Unrealized Loss on Value Decline 38,000
Investment in Held-to-Maturity Securities 38,000
c
1
Moderate
ACCT.WHAL.16.13.5 – LO: 13.5
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Applying
68. Acquisition of greater than 20% of the outstanding stock of a company normally suggests that the investor should use
the
a.
consolidation method.
b.
equity method.
c.
fair-value method.
d.
straight-line method.
b
1
Easy
ACCT.WHAL.16.13.6 – LO: 13.6
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
69. With the equity method, the investor recognizes its share of the earnings of the subsidiary when the
a.
investor sells the investment.
b.
investee pays a cash dividend.
c.
investee declares a cash dividend.
d.
investee reports earnings on its income statement.
d
1
Easy
ACCT.WHAL.16.13.6 – LO: 13.6
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
70. Under the equity method, dividends received by the investor should be recorded as
a.
reductions in the carrying value of the investment.
b.
additions to the carrying value of the investment.
c.
dividend income.
d.
investment income.
a
1
Easy
ACCT.WHAL.16.13.6 – LO: 13.6
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
71. Under the equity method, a receipt of cash dividends by the investor would
a.
increase total assets and shareholders’ equity.
b.
increase total assets and liabilities.
c.
decrease the investment account.
d.
increase the investment account.
c
1
Easy
ACCT.WHAL.16.13.6 – LO: 13.6
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
72. Waldo Company owns 30% of Randy Company. During 2017, Randy reported earnings of $650,000 and paid cash
dividends of $345,000. What effect would this have on Waldo’s investment account and net income?
Investment Account
Net Income
I.
+$195,000
+$103,500
II.
—
+$103,500
III.
+$ 91,500
+$103,500
IV.
+$ 91,500
+$195,000
a.
I
b.
II
c.
III
d.
d
1
Moderate
ACCT.WHAL.16.13.6 – LO: 13.6
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Analyzing
IV
Exhibit 13-1
On January 1, 2017, Oak Corporation paid $900,000 for 87,500 shares of Beech Company’s common stock, which
represents 35% of Beech’s outstanding common stock. Beech reported income of $300,000 and paid a cash dividend of
$100,000 during 2017.
73. Refer to Exhibit 13-1. Oak should report income from the investment in Beech Company for 2017 of
a.
$70,000.
b.
$140,000.
c.
$105,000.
d.
$300,000.
c
1
Challenging
ACCT.WHAL.16.13.6 – LO: 13.6
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
74. Refer to Exhibit 13-1. Oak should report the investment in Beech Company on its December 31, 2017, balance sheet
at
a.
$900,000.
b.
$970,000.
c.
$935,000.
d.
b
1
Challenging
ACCT.WHAL.16.13.6 – LO: 13.6
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
$1,005,000.
Exhibit 13-2
On January 1, 2017, the Clutz Company purchased 30% of the 1,000,000 shares of Nancy’s common stock for
$15,000,000 when 30% of Nancy’s net assets totaled $12,000,000. The excess of purchase price over the underlying assets
was attributable to undervalued depreciable plant assets with a remaining useful life of ten years. Nancy reported net
income of $8,000,000 and paid cash dividends of $2,000,000 during 2017.
75. Refer to Exhibit 13-2. What should the income reported by Clutz during 2017 from its investment in the Nancy
Company be?
a.
$ 600,000
b.
$2,100,000
c.
$2,400,000
d.
$2,900,000
b
1
Challenging
ACCT.WHAL.16.13.6 – LO: 13.6
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
76. Refer to Exhibit 13-2. The investment in Nancy Company stock should be reported on Clutz’s December 31, 2017,
balance sheet at
a.
$15,000,000.
b.
$15,600,000.
c.
$16,500,000.
d.
$17,400,000.
c
1
Challenging
ACCT.WHAL.16.13.6 – LO: 13.6
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
77. The Wise Company acquired a 20% interest in the outstanding common stock of the Smith Company. The Wise
Company can exercise significant influence over the operating and financial policies of the Smith Company. The
Wise Company should account for its investment in the Smith Company by using the
a.
equity method.
b.
cost method.
c.
securities held-to–maturity method.
d.
lower of cost or market method.
a
1
Moderate
ACCT.WHAL.16.13.6 – LO: 13.6
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Understanding
78. When an investor currently using the fair value method acquires significant influence over the investee at mid-year,
the investor should
a.
restate its investment in the investee by debiting the investment account and crediting Retained Earnings for its
previous percentage of investee earnings (less dividends) for the period from the original date of acquisition to
the date significant influence was obtained.
b.
begin using the equity method from the date of acquiring significant influence and make no retroactive
adjustments.
c.
restate its investment in the investee by debiting the investment account and crediting Investment Income for
its percentage of investee earnings for the period from the last financial statement until the date significant
influence was obtained.
d.
continue to use the fair value method until the end of the accounting period and then switch to the equity
method in order to comply with the accounting conventions of consistency and conservatism.
a
1
Challenging
ACCT.WHAL.16.13.6 – LO: 13.6
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Evaluating
79. The Master Company acquired a 40% interest in the Dickerson Company on January 2, 2017, for $1,000,000. During
2017, Dickerson Company paid $100,000 in dividends and reported net income of $270,000. At the end of 2017, the
balance in Investment in Dickerson Company should be
a.
$1,000,000.
b.
$1,068,000.
c.
$1,040,000.
d.
$1,108,000.
b
1
Moderate
ACCT.WHAL.16.13.6 – LO: 13.6
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
80. On January 1, 2017, Peach, Inc. purchased 40% of the common stock of Apple Company for $61,000. At the date of
acquisition, the following information for Apple Company was available:
Fair Market
Book Value
Value
Depreciable assets (remaining life, 10 years)
$100,000
$105,000
Land
50,000
60,000
Total
$150,000
$165,000
Liabilities
$ 25,000
$ 25,000
Common stock
75,000
Retained earnings
50,000
Total
$150,000
All of Apple Company’s other assets had book values equal to their fair values. In 2017, Apple earned $18,000 of net
income and distributed $12,500 of dividends. How much investment income would Peach record in 2017?
a.
$6,700
b.
$7,000
c.
$7,200
d.
$7,400
b
1
Moderate
ACCT.WHAL.16.13.6 – LO: 13.6
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
81. David, Inc. used the equity method of accounting for its investment in Russell Company. At December 31, 2017, the
investment account balance was $4,500 after all adjustments were recorded. The following is additional information
David’s share of Russell’s’ 2017 net income
$2,300
David’s share of 2017 depreciation of Russell equipment
100
David’s dividends received from Russell in 2017
700
What was the January 1, 2017 balance in Investment in Russell Company?
a.
$3,800
b.
$3,000
c.
$2,900
d.
$2,300
b
1
Moderate
ACCT.WHAL.16.13.6 – LO: 13.6
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
82. On January 1, 2017, Fargo Company purchased 30% of the common stock of Fairly Company for $80,000. The
purchase was made at book value. Additional information for Fairly Company follows:
Year
Net Income
Dividends Paid
2017
$20,000
$24,000
2018
60,000
42,000
On Fargo’s books, what would be the balance of Investment in Fairly Company at December 31, 2018?
a.
$104,000
b.
$63,400
c.
$84,200
d.
$60,200
c
1
Challenging
ACCT.WHAL.16.13.6 – LO: 13.6
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
83. Which of the following disclosures is not required by current GAAP for investments in securities?
a.
the proceeds from sales and the gross realized gains and losses from the sale of available-for-sale securities.
b.
the circumstances leading to the decision to sell or transfer a trading security.
c.
the contractual maturities of held-to-maturity debt securities.
d.
the aggregate fair value of available-for-sale securities by major security type.
c
1
Moderate
ACCT.WHAL.16.13.7 – LO: 13.7
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Understanding
84. Which type of investment in securities must always be classified as a current asset?
a.
held-to-maturity debt securities
b.
available-for-sale securities
c.
trading securities
d.
none of the these, they may all be classified as current or long-term assets
c
1
Moderate
ACCT.WHAL.16.13.7 – LO: 13.7
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Understanding
85. For available-for-sale securities, a decline in value due to a temporary decline in market value below cost is
a.
disclosed in the financial statements by means of a footnote.
b.
disclosed as a reduction from shareholders’ equity on the balance sheet.
c.
disclosed as a loss on the income statement.
d.
not disclosed because the decline in value is only temporary.
b
1
Moderate
ACCT.WHAL.16.13.7 – LO: 13.7
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
86. Warren, Inc. purchased a $400,000 life insurance policy on the company president on January 1, 2017. The premium
that was paid on January 1 amounted to $11,600. In the first year, cash surrender value increased by $900 and
dividends received by Warren from the insurance company for the year amounted to $300. What was Warren’s
insurance expense for 2017?
a.
$10,400
b.
$11,000
c.
$12,500
d.
$12,800
a
1
Moderate
ACCT.WHAL.16.13.8 – LO: 13.8
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
87. Pope, Inc. has life insurance policies on its officers’ lives. Annual premiums amount to $5,000. At the end of 2017, the
cash surrender value of the policies totaled $18,200. Dividends received by Pope from the insurance company
amounted to $500 in 2017. The insurance expense recognized by Pope in 2017 was $3,500. What was the amount of
cash surrender value of these policies on January 1, 2017?
a.
$17,200
b.
$14,200
c.
$16,200
d.
$10,200
a
1
Moderate
ACCT.WHAL.16.13.8 – LO: 13.8
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
88. The cash surrender value of the insurance policy on the corporation’s president would be presented on the balance
sheet as
a.
cash.
b.
marketable securities.
c.
long-term investment.
d.
prepaid expense.
c
1
Easy
ACCT.WHAL.16.13.8 – LO: 13.8
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
89. The journal entry to recognize the impairment of a note receivable includes a
a.
debit to Bad Debt Expense
b.
credit to Notes Receivable
c.
credit to Interest Expense
d.
debit to Interest Income
a
1
Easy
ACCT.WHAL.16.13.8 – LO: 13.8
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
Chapter 13 – Investments and Long–Term Receivables
Exhibit 13-03
On January 1, 2017, Train, Inc. accepted an $80,000, non-interest bearing 3 year note in exchange for equipment it sold to
Steam Company. Train originally purchased the equipment for $125,000, and it had a book value of $75,000 on the date
of the sale. The note was non-interest-bearing. An assumed 11% interest rate is implicit in the agreement. Actual
information for 11%, three periods, follows:
Present value of 1
0.73119
Present value of annuity of 1
2.44371
90. Refer to Exhibit 13-03. What amount should Train record for the discount on Notes Receivable?
a.
$0
b.
$16,505
c.
$21,505
d.
$58,495
c
1
Challenging
ACCT.WHAL.16.13.8 – LO: 13.8
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
91. Refer to Exhibit 13-03. What amount would Train record as interest income on December 31, 2017?
a.
$6,434
b.
$8,800
c.
$2,366
d.
$0
a
1
Easy
ACCT.WHAL.16.13.8 – LO: 13.8
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
92. Refer to Exhibit 13-03. What amount would Train show as the balance for Discount on Notes Receivable on
December 31, 2018?
a.
$7,928
b.
$7,142
c.
$15,071
d.
$64,929
a
1
Challenging
ACCT.WHAL.16.13.8 – LO: 13.8
United States – BUSPORG: Analytic
United States – OH – Default City – AICPA: FN-Measurement
Bloom’s: Analyzing
93. A note receivable is considered impaired when
a.
the debtor misses an interest or principal payment.
b.
it is probable that the creditor will be unable to collect all amounts due.
c.
the market value of the note is less than its book value.
d.
the market value of interest exceeds the original contract interest rate.
b
1
Easy
ACCT.WHAL.16.13.8 – LO: 13.8
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
94. Which of the following is not a derivative?
a.
equity contract
b.
futures contract
c.
option contract
d.
swap contract
a
1
Easy
ACCT.WHAL.16.13.9 – LO: 13.9
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
95. An interest rate swap in which a company has a fixed rate of interest and pays a variable rate is called a
a.
cash flow hedge.
b.
fair value hedge.
c.
deferred hedge.
d.
hedge of foreign currency exposure of a net investment in foreign operations.
b
1
Easy
ACCT.WHAL.16.13.9 – LO: 13.9
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
96. A derivative may be classified as:
a.
an asset account only.
b.
a liability account only.
c.
a shareholders’ equity account only.
d.
either an asset or a liability account.
d
1
Easy
ACCT.WHAL.16.13.9 – LO: 13.9
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering
97. In a matched swap, the actual loan amount is
a.
greater than the notional amount.
b.
less than the notional amount.
c.
equal to the notional amount.
d.
the only amount because there is no notional amount.
c
1
Easy
ACCT.WHAL.16.13.9 – LO: 13.9
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
98. Current GAAP requires a company to recognize in its current net income any gain or loss from a change in the fair
value of the derivative for a
Fair Value Hedge
Cash Flow Hedge
I.
yes
yes
II.
yes
no
III.
no
no
IV.
no
yes
a.
I
b.
II
c.
III
d.
IV
b
1
Moderate
ACCT.WHAL.16.13.9 – LO: 13.9
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Understanding
99. In a perfectly matched hedge of fixed-rate debt using an interest rate swap, the effect of a change in fair value of the
derivative on the income statement
a.
is always a gain.
b.
may be a gain or a loss.
c.
is zero.
d.
is always a loss.
c
1
Easy
ACCT.WHAL.16.13.9 – LO: 13.9
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
United States – OH – Default City – AICPA: FN-Decision Modeling
Bloom’s: Remembering