Sample Questions
Question 1
Easy
Under U.S. GAAP, which of the following is a component of other comprehensive income?
Solution
C is correct.
Under ASC 715, defined benefit pension accounting requires that prior service cost arising from plan amendments be recorded in OCI and amortized into pension expense over the average remaining service period of affected employees. This is one of the recognized components of OCI under ASC 220. Trading securities are measured under ASC 320 with unrealized gains and losses in earnings, and goodwill impairment is recognized under ASC 350 in income from continuing operations.
Under ASC 715, defined benefit pension accounting requires that prior service cost arising from plan amendments be recorded in OCI and amortized into pension expense over the average remaining service period of affected employees. This is one of the recognized components of OCI under ASC 220. Trading securities are measured under ASC 320 with unrealized gains and losses in earnings, and goodwill impairment is recognized under ASC 350 in income from continuing operations.
Question 2
Medium
Bristol Manufacturing entered into derivative contracts during the year. Which of the following amounts is reported in OCI?
Solution
C is correct.
Under ASC 815, only the EFFECTIVE portion of a cash flow hedge gain or loss is reported in OCI; it is parked there until the hedged forecasted transaction affects earnings. The ineffective portion of a cash flow hedge flows through net income immediately. Fair value hedges run entirely through net income (the hedge gain/loss offsets the hedged item's fair value change in earnings). Speculative (non-designated) derivatives are also marked to market through net income.
Under ASC 815, only the EFFECTIVE portion of a cash flow hedge gain or loss is reported in OCI; it is parked there until the hedged forecasted transaction affects earnings. The ineffective portion of a cash flow hedge flows through net income immediately. Fair value hedges run entirely through net income (the hedge gain/loss offsets the hedged item's fair value change in earnings). Speculative (non-designated) derivatives are also marked to market through net income.
Question 3
Hard
Under U.S. GAAP, which of the following disclosures is required for recurring fair value measurements categorized within Level 3 of the fair value hierarchy but is not required for Level 1 or Level 2 measurements?
Solution
A is correct.
ASC 820-10-50 requires a Level 3 rollforward for recurring fair value measurements: a reconciliation showing beginning balance, total gains or losses (realized and unrealized), purchases, sales, issuances, settlements, and transfers in or out of Level 3. This rollforward is unique to Level 3 because Level 3 inputs are unobservable and warrant the most extensive disclosure.
The other items (asset class, measurement date, and the recurring versus nonrecurring designation) are required for all three levels of the hierarchy and therefore do not distinguish Level 3.
ASC 820-10-50 requires a Level 3 rollforward for recurring fair value measurements: a reconciliation showing beginning balance, total gains or losses (realized and unrealized), purchases, sales, issuances, settlements, and transfers in or out of Level 3. This rollforward is unique to Level 3 because Level 3 inputs are unobservable and warrant the most extensive disclosure.
The other items (asset class, measurement date, and the recurring versus nonrecurring designation) are required for all three levels of the hierarchy and therefore do not distinguish Level 3.
