【文章內(nèi)容簡介】 on the derivative should be reported in the same ine statement in which the ine effects on the hedged items are reported. 1923 Overview of Accounting for Derivatives and Hedging Activities ? No hedge. All changes in the fair value of derivatives that are not designated as hedges are recognized as gains or losses in the ine statement in the period in which the value changed. ? Fair value hedge. Changes in the fair value of derivatives designated as fair value hedges are recognized as gains or losses in the period of the value change. (continues) 1924 Overview of Accounting for Derivatives and Hedging Activities ? Cash flow hedge. Changes in the fair value of derivatives designated as cash flow hedges are recognized as part of the Accumulated Other Comprehensive Ine account. To account for a derivative as a hedge, a pany must define, in advance, how it will determine whether the derivative is functioning as an effective hedge. 1925 ? Companies must provide a description of their risk management strategy and how derivatives fit into that strategy. ? Firms must disclose the gains and losses on derivatives, separated by category: ? Fair value hedges ? Cash flow hedges ? Other Overview of Accounting for Derivatives and Hedging Activities (continues) 1926 Overview of Accounting for Derivatives and Hedging Activities ? The notional amount is the total face amount of the asset or liability that underlies a derivative contract. ? Notional amounts frequently grossly overstate both the fair value and the potential cash flows of derivatives. 1927 Illustrations of Accounting for Derivatives and Hedging Activities On January 1, 2020, Pratt Company received a twoyear $100,000 variablerate loan and also entered into an interest rate swap agreement. Jan. 1 Cash 100,000 Loan Payable 100,000 2020 No entry is made to record the swap agreement because the swap has a fair value of $0. (continues) 1928 ? The market interest rate on December 31, 2020 is 11%. ? The interest rate swap asset is reported at its present value of $901 ($1,000 discounted) in the December 31, 2020 balance sheet. Illustrations of Accounting for Derivatives and Hedging Activities (continues) 1929 The journal entry to record Pratt’s 2020 interest payment, along with the adjusting entry, is: Interest Rate Swap (asset) 901 Other Comprehensive Ine 901 Illustrations of Accounting for Derivatives and Hedging Activities Dec 31 Interest Expense 10,000 Cash ($100,000 ) 10,000 2020 (continues) 1930 Cash (from swap agreement) 1,000 Interest Rate Swap (asset) 901 Other Comprehensive Ine ($901 ) 99 Accumulated Other Comprehensive Ine 1,000 Interest Expense 1,000 Loan Payable 100,000 Cash 100,000 Illustrations of Accounting for Derivatives and Hedging Activities Dec 31 Interest Expense 11,000 Cash ($100,000 ) 11,000 2020 (continues) 1931 On November 1, 2020, Clayton Company sold machine parts to Maruta Company for 165。30,000,000 to be received on January 1, 2020. On the same date, Clayton also entered into a yen forward contract. Nov. 1 Yen Receivable 250,000 Sales 250,000 165。30,000,000 247。 165。120 per $1 Illustrations of Accounting for Deriv