Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
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Question
Chapter 9.M, Problem 2UTI
To determine
Hedges:
The derivative is properly structured for the purpose of hedging. The change in the value of derivative 9th hedging instrument should be recognised in the same accounting period as the change in the value of the related asset or liability (the hedged item) these hedges are generally designated as either fair value or cash value.
Effects of the exposure with the risk associated to a firm’s commitment on selling the inventory when a fair value hedge was intended to reduce.
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Why might a manager intentionally classify a trading security as an available-for-sale security?
Select one:
a. The manager may wish to prevent an increase in value from being reported on the income statement.
b. The manager may wish to prevent a decline in value from being reported in shareholders' equity.
c. The manager may wish to prevent an increase in value from being reported in shareholders' equity.
d. The manager may wish to prevent a decline in value from being reported on the income statement.
What is a good response to?
Fair value hedges are used to mitigate exposure to fluctuations in the fair value of an asset or liability. In order to be eligible, the change in the fair value of the asset or liability must have the potential to affect the earnings of a company. This type of hedge can be used with the purchase of raw materials. The value of raw materials, the current market price can change; therefore, this type of hedge can offset any anticipated changes in the value of the raw materials.
Cash flow hedges are used to minimize the risk of future cash flow fluctuations from an asset that is already held, liabilities, or future transactions. These hedges are eligible if changes in cash flow can affect the income statement. This type of hedge can be used with future purchases for a company. For example, if a company is expected to purchase materials at a certain price, this type of hedge will ensure that the purchase price doesn’t change due to the contract in place.
Net…
What is idiosyncratic risk? How does it differ from market risk?
Chapter 9 Solutions
Advanced Accounting
Ch. 9.M - Prob. 1UTICh. 9.M - Prob. 2UTICh. 9.M - Prob. 3UTICh. 9.M - Prob. 4UTICh. 9.M - Prob. 5UTICh. 9.M - Prob. 1ECh. 9.M - Prob. 2ECh. 9.M - Prob. 3ECh. 9.M - Prob. 4.1ECh. 9.M - Prob. 4.2E
Ch. 9.M - Prob. 4.3ECh. 9.M - Prob. 4.4ECh. 9.M - Prob. 4.5ECh. 9.M - Prob. 4.6ECh. 9.M - Prob. 5ECh. 9.M - Prob. 6.1ECh. 9.M - Prob. 6.2ECh. 9.M - Prob. 7ECh. 9.M - Prob. M.1.1PCh. 9.M - Prob. M.1.2PCh. 9.M - Prob. M.2.1PCh. 9.M - Prob. M.2.2PCh. 9.M - Prob. M.3PCh. 9.M - Prob. M.4.3PCh. 9.M - Prob. M.4.4PCh. 9.M - Prob. M.4.5PCh. 9.M - Prob. M.4.6PCh. 9.M - Prob. M.5PCh. 9.M - Prob. M.6PCh. 9.M - Prob. M.7.1PCh. 9.M - Prob. M.7.2PCh. 9.M - Prob. M.7.3PCh. 9 - Prob. 1UTICh. 9 - Prob. 2UTICh. 9 - Prob. 3UTICh. 9 - Prob. 1.1ECh. 9 - Prob. 1.2ECh. 9 - Exercise 2 (LO 3) The accounting issues associated...Ch. 9 - Prob. 3.1ECh. 9 - Prob. 3.2ECh. 9 - Prob. 3.3ECh. 9 - Prob. 4.1ECh. 9 - Prob. 4.2E
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Similar questions
- The capital asset pricing model (CAPM) contends that there is systematic and unsystematic risk for an individual security. Which is the relevant risk variable and why is it relevant? Why is the other risk variable not relevant?arrow_forwardDefine systematic and unsystematic risk. What method is used to measure a firm's market risk?arrow_forwardIn theory, market risk should be the only “relevant” risk. However, companies focus asmuch on stand-alone risk as on market risk. What are the reasons for the focus on standalonerisk?arrow_forward
- How can an investor eliminate Unsystematic Risk?arrow_forwardc) Explain what is meant Market Risk and by Specific risk. How can an investor reducethese risks?arrow_forwardWhich one of the following is a risk that applies to most securities? Unsystematic Diversifiable Asset-specific Systematic Industryarrow_forward
- Market risk is portion of a security's stand-alone risk that cannot be eliminated through diversification. True Falsearrow_forwardQUESTION Hedging is a risk management strategy that is used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies. REQUIRED: Discuss the importance of hedging to the financial risk manager Are there any downside to hedging?arrow_forwardWhat type of risk is the risk that belongs to the market as a whole? Systematic risk Unsystematic risk (or nonsystematic risk) Total riskarrow_forward
- Can the goal of maximizing the value of the stock conflict with other goals, such as avoiding unethical or illegal behavior?arrow_forwardHedging is a risk management strategy that is used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies. REQUIRED: Discuss the importance of hedging to the financial risk manager Are there any downside to hedging?arrow_forwardWhat happens to the price and return of a security when investors recognize it as undervalued? Explain.arrow_forward
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