CPA · Question 13 · Area II: Technical Accounting
Riverdale Corp. enters into a forward contract to hedge the fair value exposure of an inventory of copper. The inventory is carried at cost. The hedge qualifies as a Fair Value Hedge. At year-end, the fair value of the copper inventory has decreased by $50,000, and the fair value of the forward contract has increased by $48,000. How should these changes be reported in the income statement?
Answer options:
Recognize $48,000 gain on derivative; ignore inventory loss until sold.
Recognize $48,000 gain on derivative and $50,000 loss on inventory.
Recognize net $2,000 loss in OCI.
Recognize $48,000 gain in OCI.
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