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Course # 171032
Accounting For Derivatives and Hedging
based on the electronic .pdf file(s):

Accounting For Derivatives and Hedging
by: Delta CPE, 2014, 58 pages

4 CPE Credit Hours

A P E X C P E . C O M  . . . . .  1.877.317.9047  . . . . .  support@apexcpe.com

Chapter 0 - Course Material

1.    A derivative must contain which attributes?   
It has an underlying interest rate, security or commodity price, foreign exchange rate, or index with one or more notional amounts
It has no initial cash outlay
The terms permit net settlement between counterparties.
All of the above
2.    Derivatives can be either on the balance sheet or off the balance sheet. They include   
Mortgage backed securities.
All of the above.
3.    Which of the following is the risk that arises from the possibility that future changes in market prices may make a financial instrument less valuable or more onerous?   
Market risk.
Correlation risk.
Systematic risk.
Valuation risk.
4.    Which of the following risks is(are) inherent in an interest-rate swap agreement: I) The risk of exchanging a lower interest rate for a higher interest rate; or II) The risk of nonperformance by the counterparty to the Agreement.   
I only.
II only.
Both I and II.
Neither I nor II.
5.    The FASB's definition of derivatives excludes:   
Forward contracts
Certain insurance contracts
All of the above
6.    A company enters into derivative contracts for ___________ purposes.   
A and B only
7.    The accounting for fair value hedges records the derivative at its   
Amortized cost.
Carrying value.
Fair value.
Historical cost.
8.    All of the following statements regarding accounting for derivatives are correct EXCEPT that   
They should be recognized in the financial statements as assets and liabilities.
They should be reported at fair value.
Gains and losses resulting from speculation should be deferred.
Gains and losses resulting from hedge transactions are reported in different ways, depending upon the type of hedge.
9.    An option to convert a convertible bond into shares of common stock is a(n)   
Embedded derivative.
Host security.
Hybrid security.
Fair value hedge.
10.    Disclosure of information about significant concentrations of credit risk is required for   
Most financial instruments.
Financial instruments with off-balance-sheet credit risk only.
Financial instruments with off-balance-sheet market risk only.
Financial instruments with off-balance-sheet risk of accounting loss only.
11.    Gains or losses on cash flow hedges are   
Ignored completely.
Recorded in equity, as part of other comprehensive income.
Reported directly in net income.
Reported directly in retained earnings.
12.    To the extent the hedge is effective, a loss arising from the decrease in fair value of a derivative is included in current earnings if the derivative qualifies and is designated as a   
Fair-Value hedge
Cash-Flow hedge
Both a Fair-Value hedge and Cash-Flow hedge
Neither a Fair-Value hedge nor a Cash-Flow hedge
13.    Which of the following transactions may NOT be eligible for cash flow hedge treatment?   
A hedge of future cash interest outflows associated with floating rate debt.
A hedge of a forecasted future purchase of a commodity to protect against rising prices.
A hedge of an exposure to changes in the fair value of a recognized asset or liability or of an unrecognized firm commitment.
A hedge to lock in the future cost of borrowing for the company.
14.    Under IFRS, companies record unrealized holding gains or losses on cash flow hedges as:   
Current income or loss.
Adjustments to the value of the hedged item.
Other comprehensive income.
Retained earnings.
15.    All of the following are requirements for disclosures related to financial instruments EXCEPT   
Disclosing the fair value and related carrying value of the instruments.
Distinguishing between financial instruments held or issued for purposes other than trading.
Combining or netting the fair value of separate financial instruments.
Displaying as a separate classification of other comprehensive income the net gain/loss on derivative instruments designated in cash flow hedges.
16.    For a hedging relationship to qualify as “highly effective,” the change in fair value or cash flows of the hedge must fall between _________ and ____________ of the opposite change in fair value or cash flows of the exposure that is hedged.   
50%, 100%.
80%, 125%.
0%, 100%.
75%, 100%.
17.    A highly-effective hedge of an existing asset or liability that is reported on the balance sheet would be recorded using   
Modified Cash Basis Accounting.
Critical Term Hedge Analysis.
Fair Value Hedge.
Hedge of Net Investment in Foreign Subsidiary.
18.    A fair value hedge differs from a cash flow hedge because a fair value hedge   
Cannot be used for firm purchase or sales commitments.
Is not recorded unless it is a highly-effective hedge.
Records gains or losses in the value of the derivative directly to earnings of the company in the period of change.
Defers the gains or losses in the value of the derivative using Other Comprehensive Income.
19.    When a cash flow hedge is appropriate, the effective portion of the gain or loss on the derivative is   
Recorded in equity as part of other comprehensive income.
Recognized immediately at the time the agreement is made.
Recognized over time, amortized over the period of the agreement.
Recognized over time, offset by the fluctuation in the value of the hedged asset or liability.
20.    When preparing their year-end financial statements, the Warner Company includes a footnote regarding their hedging activities during the year. Which of the following is NOT required to be disclosed?   
How hedge effectiveness is determined and assessed
The specific types of risks being hedged, and how they are being hedged
Alternative hedging options declined
The net gain or loss reported for the period for fair value hedges and where in the financial statements it is reported