ACC 326 Study Guide - Midterm Guide: Futures Contract, Tax Deduction, Employee Stock Option
Document Summary
Positives: derivatives allow for a reduction of risk through hedging. Recognize derivatives to: i/s if tis fv hedge, comprehensive income if its cf hedge, i/s if its not a hedge. If a derivative is not a hedge, value at fv on the b/s and gain loss on i/s. If it"s a fv hedge derivative at fv on bs and changes in fv on the is or mark corresponding item being hedged to fv and changes in fv on the is. If it"s a cf hedge do the derivative at fv on the balance sheet and changes in fv in comprehensive income. Accounting: record at fair value, gains and losses accounted for as derivative, recognized in current earnings and switch the inventory from cost to fv. Put options put floors on what they can lose in regards to the sales price. Do not tax event until the position is liquidated.
