Practice
Check your answer
Write your response and explain your reasoning.
A qualifying fair-value hedge has an opening derivative fair value of zero and an ending derivative asset of $48,000. The supplied decrease in the hedged item's value for the designated risk is $45,000. Prepare both adjustments and reconcile the net earnings effect.
Compare your reasoning with the worked answer
The derivative increases from zero to a $48,000 asset, producing a $48,000 gain. The hedged item's carrying amount decreases by $45,000 for the designated risk, producing a $45,000 loss. The net current-earnings effect is a $3,000 gain.