1. Which of the following statements is false with regard to the accounting for derivatives?

A. The unrealized gains and losses of derivatives that fail to meet the GAAP criteria for hedge accounting are reported on the income statement.

B. A holding gain on a derivative instrument, which qualifies as a fair value hedge is recognized in Accumulated Other Comprehensive Income along with the offsetting loss from the hedged item.

C. The holding loss resulting from a cash flow hedge that qualifies for hedge accounting is recognized in Accumulated Other Comprehensive Income as part of Stockholders’ Equity during the year of the loss.

D. The cash gains/losses from the derivative must correlate with the cash losses/gains of the hedged item in order to meet the GAAP criteria to qualify for hedge accounting.

2. Which of the following statements is false with regard to the accounting for derivatives?

A. Investments in derivative instruments must be reported within the balance sheet at fair market value.

B. A speculative derivative’s unrealized holding gain or loss for a particular year should be reported as a component of income from continuing operations.

C. Speculative investments in derivative contracts are expected to result in decreased earnings volatility.

D. The unrealized losses of a speculative derivative must be included in net income quarterly.