Stocks

Question 1

Which of the following statements is true regarding the fair value option for valuing financial assets and liabilities?

A The fair value option can be applied to a portion of a financial instrument.
B Unrealized gains and losses from reporting items using the fair value option are reported in other comprehensive income for the period.
C The fair value option can be elected on an instrument-by-instrument basis.
D The fair value option cannot be applied to insurance contracts.

Answer 1

A The fair value option can be applied to a portion of a financial instrument.
This answer is incorrect because the fair value option must be applied to all portions of the instrument.
B Unrealized gains and losses from reporting items using the fair value option are reported in other comprehensive income for the period.
This answer is incorrect because unrealized gains and losses are reported in earnings for the period.
C The fair value option can be elected on an instrument-by-instrument basis.
This answer is correct. The fair value option can be elected on an instrument-by-instrument basis.
D The fair value option cannot be applied to insurance contracts.
This answer is incorrect because the fair value option may be applied to insurance contracts that can be settled by a third party.

TREPD-0084