Chapter 17 Investments (Including Appendix A Accounting for Derivative Instruments) Answer the following questions on Accounting for Investments and Derivative Instruments.

1. Evergreen Co. recently made an investment in the bonds issued by Double Tree Corp. Discuss the accounting for this investment if Evergreens business model is: (a) to profit from selling in response to changes in market interest rates; (b) to hold the investment to collect interest while outstanding and to receive the principal at maturity; and (c) held-for-collection and selling.

2. Evergreen Co. also has an investment that it has held for several years. When it purchased the investment, Evergreen accounted for the investment at amortized cost. Can Evergreen use the fair value option for this investment? Explain.

3. Distinguish between the accounting treatment for non-trading equity investments and trading equity investments. Why is the held-for-collection classification not applicable to equity investments?

4. What are the main distinctions between a traditional financial instrument and a derivative financial instrument?

5. Describe the basic principles in accounting for derivatives. In what situation will the unrealized holding gain or loss on a futures contract be reported in other comprehensive income?