Firms must designate each derivative as a hedging instrument, or else accounting views the derivative as a nonhedging instrument. Furthermore, firms must designate each hedging instrument as either a fair value hedge or a cash flow hedge. The accounting for fair value hedges
a. remeasures both the hedged item and the derivative to fair value each period and recognize any unrealized gains and losses in net income.
b. remeasures the derivative to fair value each period and include the unrealized gain or loss in other comprehensive income to the extent that the derivative instrument is effective in neutralizing risk. When the firm settles the hedged item, transfer the previously unrealized gain or loss from other comprehensive income to net income.
c. remeasures the derivative to fair value each period and include the unrealized gain or loss in net income.
d. all of the above
e. none of the above
A
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