Appendix A Solutions Manual

Appendix A

Derivatives

AACSB assurance of learning standards in accounting and business education require documentation of outcomes assessment. Although schools, departments, and faculty may approach assessment and its documentation differently, one approach is to provide specific questions on exams that become the basis for assessment. To aid faculty in this endeavor, we have labeled each question, exercise, and problem in Intermediate Accounting, 7e, with the following AACSB learning skills: Question s AACSB Tags

A-1
A-2
A-3
A-4
A-5
A-6
A-7

Reflective thinking
Reflective thinking
Analytic
Reflective thinking
Reflective thinking
Reflective thinking
Reflective thinking

Exercises
A-1
A-2
A-3
A-4
A-5
A-6

Reflective thinking
Analytic
Analytic
Analytic
Analytic
Analytic

Problems
A-1
A-2
A-3

Reflective thinking ,
Analytic
Analytic, Communications
Reflective thinking ,
Analytic

Appendix A: Derivatives

© The McGraw-Hill Companies, Inc., 2013
A-1

QUESTIONS FOR REVIEW OF KEY TOPICS
Question A–1
These instruments “derive” their values or contractually required cash flows from some other security or index.

Question A–2
The FASB has taken the position that the income effects of the hedge instrument and the income effects of the item being hedged should be recognized at the same time.

Question A–3
If interest rates change, the change in the debt’s fair value will be less than the change in the swap’s fair value. The gain or loss on the $500,000 notional difference will not be offset by a corresponding loss or gain on debt. Any increase or decrease in income resulting from a hedging arrangement would be a result of hedge ineffectiveness such as this.

Question A–4
A futures contract is an agreement between a seller and a buyer that calls for the seller to deliver a certain commodity (such as wheat, silver, or Treasury bond) at a specific future date, at a predetermined price. Such contracts are actively traded on regulated futures exchanges. If the
“commodity” is