Step 2: Written Assignment (25 points)
With regards to your Assignment performed in Connect, and in general what you read and learned about in general in this Module, answer the following questions.
You should refer to the FASB Accounting Standards Codification (FASB ASC), specifically, when answering some of the questions below:
- Your Company has suddenly and unexpectedly had a large sale and receivable denominated in Euros, The payment for the sale will be received in Euros according to the terms of the contract with the customer in 30 days. Would you recommend to the Controller executing a forward exchange contract in this situation? Why or why not? Be specific.
- A cash flow hedge is a hedge of an exposure to variability in the cash flows of a specific asset or liability, or of a forecasted transaction, that is attributable to a particular risk. It is possible to only hedge the risks associated with a portion of an asset, liability, or forecasted transaction, as long as the effectiveness of the related hedge can be measured.
- Explain the accounting for a cash flow hedge for the effective and the ineffective portion of any gain or loss for the hedging item and the hedged item on the income statement and the statement of OCI.
- For a cash flow hedge, when a hedging transaction relates to a forecasted transaction, when should any gains or losses be reclassified from OCI to earnings?
- Finally, under what circumstances or situations should cash flow hedges be terminated? Be specific.
- A fair value hedge is a hedge of the exposure to changes in the fair value of an asset or liability. It is used to minimize fluctuations in earnings caused by changes in fair values from one period to another period.
- Explain how the accounting for a fair value hedge differs for the hedged item and for the hedging item compared to the accounting for a cash flow hedge. Be specific and include an example, if you need to, to explain the difference.
Requirements:
- Write a paper of 2 pages, double-spaced in length, not counting the title and the reference pages, which you must include. Submissions in excess of 2 pages are acceptable.
- Copy and paste each question into your paper in bold type (Questions are to be single-spaced) to ensure you have answered each of the Assignment Requirements.
- Use terms, evidence, and concepts from class readings, including professional business language.
- Cite at least 3 credible, academic or professional sources supporting your answers for this assignment. The CSU Global Library (link in left navigation panel) is a great place to find resources.
- Format your paper according to APA guidelines
