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FASB Codification Exercise using the Master Glossary

Access the FASB Codification ad http://asc.fasb.org/home to prepare responses to the following exercises. Provide Codification references for your responses.

1. Access the glossary ("Master Glossary") to answer the following.

(a) What are trading securities?
(b) What is the definition of "holding gain or loss"?
(c) What is a cash flow hedge?
(d) What is a fair value hedge?

2. What guidance does the SEC give for disclosures regarding accounting policies used for derivatives?

3. When would an investor discontinue applying the equity method in an investment? Are there any exceptions to this rule?

4. For balance sheet purposes, can the fair value of a derivative in a loss position be netted aginst the fair value of a derivative in a gain position?

Solution:

Access the FASB Codification ad http://asc.fasb.org/home to prepare responses to the following exercises. Provide Codification references for your responses.

1. Access the glossary ("Master Glossary") to answer the following.

(a) What are trading securities?
(b) What is the definition of "holding gain or loss"?
(c) What is a cash flow hedge?
(d) What is a fair value hedge?

2. What guidance does the SEC give for disclosures regarding accounting policies used for derivatives?

3. When would an investor discontinue applying the equity method in an investment? Are there any exceptions to this rule?

4. For balance sheet purposes, can the fair value of a derivative in a loss position be netted against the fair value of a derivative in a gain position?

Solution Preview

1. Access the glossary ("Master Glossary") to answer the following.

(a) What are trading securities?

Trading securities are securities that are bought and held principally for the purpose of selling them in the near term and therefore held for only a short period of time. Trading generally reflects active and frequent buying and selling, and trading securities are generally used with the objective of generating profits on short-term differences in price.

(b) What is the definition of "holding gain or loss"?

The definition of holding gain or loss is the net change in fair value of a security. The holding gain or loss does not include dividend or interest income recognized but not yet received or write-downs for other-than-temporary impairment.

(c) What is a cash flow hedge?

A cash flow hedge is a hedge of the exposure to variability in the cash flows of a recognized asset or liability, or of a forecasted transaction, that is attributable to a particular risk.

(d) What is a fair value hedge?

A fair value hedge is a hedge of the exposure to changes in the fair value of a recognized asset or liability, or of an unrecognized firm commitment, that are attributable to a particular ...

Solution Summary

The solution provides a completed exercise solution for the FASB Codification exercise that begins with the Master Glossary. All questions are answered in detail with references. This is based on the exercise in Intermediate Accounting/Kieso.

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