Accounting Question

Scenario

The company CEO who previously requested your advice as accounting advisor has now emailed again asking for additional guidance and requesting information about hedges. You need to reply to the CEO’s email and advise on the accounting ramifications of how the use of hedges impacts the financial statements.

Directions

Write an email to the CEO explaining the treatment of gains and losses on hedges, including the four major types of derivative contracts.

Specifically, you must address the following rubric criteria:

Identify the implications of the various hedging options.

Describe the four major types of derivative contracts.

1. Determine the strategies for applying one hedging option versus another in international transactions.

Explain the accounting effects of various hedging options for financial statements.