1. A company uses options to hedge its merchandise inventory. If the options qualify as a fair value hedge of the inventory, and analysis of hedge effectiveness excludes option time value, which statement is true concerning reporting for changes in the value of the options?

Select one:

A. Changes in intrinsic value adjust the carrying value of the merchandise when it is purchased.

B. Changes in intrinsic value adjust cost of goods sold when the merchandise is sold.

C. All changes in option value remain in other comprehensive income until the merchandise is purchased.

D. All changes in option value are adjustments to cost of goods sold as they occur.

2. Which statement below accurately describes reporting for a cash flow hedge of an inventory purchase?

Select one:

A. Changes in the value of the hedge are reported in other comprehensive income until the inventory is purchased.

B. Changes in the value of the hedge are reported in other comprehensive income until the inventory is sold.

C. Changes in the value of the hedge are reported in income, along with changes in the forecasted purchase obligation.

D. Changes in the value of the hedge are reported in other comprehensive income, along with changes in the forecasted purchase obligation.

3.

A company uses futures to hedge a firm commitment to buy inventory. Which statement is true concerning the hedge?

Select one:

A. The company takes a short position in futures and records changes in their value in OCI.

B. The company takes a long position in futures and records changes in their value in OCI.

C. The company takes a short position in futures and records changes in their value in income.

D. The company takes a long position in futures and records changes in their value in income.

4.

A company uses options to hedge its forecasted purchase of merchandise. If the options qualify as a cash flow hedge of the forecasted purchase, and analysis of hedge effectiveness excludes option time value, which statement is true concerning reporting for changes in the value of the options?

Select one:

A. Changes in intrinsic value adjust cost of goods sold when the merchandise is sold.

B. All changes in option value remain in other comprehensive income until the merchandise is purchased.

C. All changes in option value are adjustments to cost of goods sold as they occur.

D. Changes in intrinsic value adjust the carrying value of the merchandise when it is purchased.