周教授CFA金融课程(2019/2020年CFA一级全系列课程)

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周教授CFA金融课程:考点精讲+作答须知(2020年CFA三级全系列课程)

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周教授CFA金融课程:2019/2020年CFA一二三级系列课程

Reading 26: The Lessons We Learn-LOS c 习题精选

Session 7: Financial Reporting and Analysis: Earnings Quality Issues and Financial Ratio Analysis
Reading 26: The Lessons We Learn

LOS c: Provide a simplified description of the accounting treatment for derivatives being used to hedge 1) exposure to changes in the value of assets and liabilities, 2) exposure to variable cash flow, and 3) a foreign currency exposure of an instrument in a foreign corporation.

 

 

What value is used in the balance sheet when reporting a derivative instrument used in a cash flow hedge and where are the unrealized gains and losses on the derivative instrument reported?

Balance sheet Unrealized gains and losses

A)
Fair value Other comprehensive income
B)
Cost Other comprehensive income
C)
Fair value Income statement


 

A derivative instrument used in a cash flow hedge is reported on the balance sheet at fair value and the unrealized gains and losses are recognized in the other comprehensive income.

Recently, Firebird Corporation purchased 1,000 shares of GTO Corporation for $50 per share. GTO is a non-dividend paying stock and Firebird expects to sell the investment in the near term. To hedge the investment, Firebird purchases put options and designates the options as a fair value hedge. Ignoring the premium paid for the options, what is the net effect on Firebird’s total assets and net income if GTO declines $5 per share at year-end?

Total assets Net income

A)
Decrease No net effect
B)
No net effect No net effect
C)
No net effect Decrease


Total assets do not change. The decrease in the value of the investment is exactly offset by the increase in value of the options. Net income is also unaffected. The unrealized loss on the investment is offset by the unrealized gain on the options.

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MSH Corporation uses gold to manufacture jewelry. MSH anticipates the need for gold on June 30th for goods that will be sold on September 30th. Concerned that the price of gold will increase, MSH purchases a futures contract and designates the contract as a cash flow hedge. As it turns out, the spot price of gold was lower at the end of June when the contract was settled. When should MSH recognize the loss on the futures contract in the income statement and should the loss be included in income from continuing operations (IFCO)?

Date loss is recognized Loss included in IFCO

A)
September 30th No
B)
September 30th Yes
C)
June 30th Yes


On June 30th, the loss on the futures contract should be reported in other comprehensive income. When the goods are sold on September 30th, the loss should be recognized in the income statement along with the cost of goods sold which is lower since the price of gold declined. The loss is neither extraordinary nor related to a discontinued operation. Thus, the loss is reported “above the line” as a part of income from continued operations.

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