The treasurer of Building Materials Inc. enters into a fair value hedge at the end of the third quarter of Year 1. The purpose of the hedge is to protect against changes in the fair value of certain high-end finished building products due to market risk. If during the fourth quarter the company has a $40,000 gain on the fair value hedge transaction as well as a $15,000 loss on the hedged item, what is the impact on the company's Year 1 financial statements? O $15,000 loss recognized in income statement and $40,000 gain recognized in other comprehensive income. O $25,000 net gain recognized in net earnings. O $40,000 gain recognized in net earnings only. O $25,000 net gain recognized in other comprehensive income.

The treasurer of Building Materials Inc. enters into a fair value hedge at the end of the third quarter of Year 1. The purpose of the hedge is to protect against changes in the fair value of certain high-end finished building products due to market risk. If during the fourth quarter the company has a $40,000 gain on the fair value hedge transaction as well as a $15,000 loss on the hedged item, what is the impact on the company's Year 1 financial statements? O $15,000 loss recognized in income statement and $40,000 gain recognized in other comprehensive income. O $25,000 net gain recognized in net earnings. O $40,000 gain recognized in net earnings only. O $25,000 net gain recognized in other comprehensive income.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter4: The Balance Sheet And The Statement Of Shareholders' Equity

Section: Chapter Questions

Problem 5C: It is February 16, 2020, and you are auditing Davenport Corporation's financial statements for 2019...

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Question

The treasurer of Building Materials Inc. enters into a fair value hedge at the end of the third quarter of Year 1. The purpose of the
hedge is to protect against changes in the fair value of certain high-end finished building products due to market risk. If during the
fourth quarter the company has a $40,000 gain on the fair value hedge transaction as well as a $15,000 loss on the hedged item,
what is the impact on the company's Year 1 financial statements?
O $15,000 loss recognized in income statement and $40,000 gain recognized in other comprehensive income.
O $25,000 net gain recognized in net earnings.
O $40,000 gain recognized in net earnings only.
O $25,000 net gain recognized in other comprehensive income.

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