On Dec 31, a company has a Cash Flow Hedge (Interest Rate Swap) with a fair value loss of $50,000. The hedge is 100% effective. How should this loss be reported in the financial statements?

Answer options:

Recognize $50,000 loss in Net Income.

Recognize $50,000 as a Deferred Asset.

Recognize $50,000 loss in Other Comprehensive Income (OCI).

Do not recognize the loss until the swap is settled.

How to approach this question

Cash Flow Hedge = OCI (Effective portion). Fair Value Hedge = Net Income.

Full Answer

C.Recognize $50,000 loss in Other Comprehensive Income (OCI).✓ Correct

For a qualifying cash flow hedge, the effective portion of the gain or loss on the hedging instrument is reported as a component of Other Comprehensive Income (OCI) and reclassified into earnings in the same period the hedged transaction affects earnings.

Common mistakes

Putting CF hedge gains/losses in Net Income.

Question 34 All questions Question 36

Practice the full CPA BAR Practice Exam 2

50 questions · hints · full answers · grading

More questions from this exam

Q01Orion Manufacturing provided the following data for the current year:<br/><br/>- Net Sales: $5,00...Hard Q02A company has a Debt-to-Equity ratio of 1.5 and a Times Interest Earned (TIE) ratio of 4.0. The c...Hard Q03An analyst is reviewing a company's quarterly revenue data using a visualization tool. The trend ...Hard Q04TechSolutions Inc. reports Net Income of $500,000. The following items are included in the calcul...Hard Q05A company is implementing a Balanced Scorecard. They have identified 'Employee Training Hours per...Hard

View all 50 questions →