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On December 1, Year One, a company acquires two three-month financial instruments that qualify as derivatives. Financial instrument A was bought to serve as a fair value hedge. Financial instrument B was bought to serve as a cash flow hedge. By the end of Year One, both of these financial instruments have increased in value by $1,000. How should these gains in value be reported by the company on the Year One financial statements?

a) Both gains are reported within net income.

b) Both gains are reported within accumulated other comprehensive income.

c) The gain on the fair value hedge is reported within net income whereas the gain on the cash flow hedge is reported within accumulated other comprehensive income.

d) The gain on the fair value hedge is reported within accumulated other comprehensive income whereas the gain on the cash flow hedge is reported within net income.

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