Complete Solutions includes ⬇
✅ All Chapters Solutions Manual - Chap 1 to 23 + Appx E and F
Excel Templates Solutions
Exercise Set B Solutions
IFRS Insights Solutions Manual Instructor Manuals
Problem Set B Solutions
Data Analysis Technology Bootcamps
, TABLE OF CONTENTS
1 The Environment and Conceptual Framework of Financial Reporting
2 The Accounting Information System
3 Income Statement, Related Information, and Revenue Recognition 4 Balance
Sheet and Statement of Cash Flows
5 Accounting and the Time Value of Money
6 Cash and Receivables
7 Valuation of Inventories: A Cost-Basis Approach
8 Inventories: Additional Valuation Issues
9 Acquisition and Disposition of Property, Plant, and Equipment
10 Depreciation, Impairments, and Depletion
11 Intangible Assets
12 Current Liabilities and Contingencies
13 Long-Term Liabilities
14 Stockholders̀ Equity
15 Dilutive Securities and Earnings per Share
16 Investments
17 Revenue Recognition
18 Accounting for Income Taxes
19 Accounting for Pensions and Postretirement Bene ts
20 Accounting for Leases
21 Accounting Changes and Error Analysis
22 Statement of Cash Flows
23 Full Disclosure in Financial Reporting
APPENDIX E Accounting for Derivative Instruments
APPENDIX F Environmental, Social, and Governance Reporting
, Appendix E
Accounting for Derivative Instruments
Assignment Classification Table (By Learning Objective)
Learning Objectives Brief Critical
Questions Exercises Exercises Problems Thinking
1. Describe the uses 1, 2 1, 5 1, 2, 3
of and accounting
for derivatives.
2. Explain the 3, 4, 6, 7 2, 3, 4, 6 4, 5, 6
accounting for
hedges.
3. Identify special 5, 6, 7, 8
reporting issues
for derivatives that
cause unique
accounting
problems.
Copyright © 2025 Kieso, Intermediate Accounting, 19/e, Solutions Manual 16-1
,Assignment Characteristics Table
Level of Time
Item Description Difficulty (minutes)
EE.1 Derivative transaction. Moderate 15–20
EE.2 Fair value hedge. Moderate 15–20
EE.3 Cash flow hedge. Moderate 15–20
EE.4 Fair value hedge. Moderate 15–20
EE.5 Call option. Moderate 20–25
EE.6 Cash flow hedge. Moderate 25–30
PE.1 Derivative financial instrument. Moderate 20–25
PE.2 Derivative financial instrument. Moderate 20–25
PE.3 Free-standing derivative. Moderate 20–25
PE.4 Fair value hedge interest rate swap. Complex 30–40
PE.5 Cash flow hedge. Moderate 25–35
PE.6 Fair value hedge. Moderate 25–35
16-2 Copyright © 2025 Kieso, Intermediate Accounting, 19/e, Solutions Manual
, Answers to Questions
1. An underlying is a specified interest rate, security price, commodity price, index of prices or rates,
or other market-related variable. Changes in the underlying determine changes in the value of the
derivative. Payment is determined by the interaction of the underlying with the face amount and
the number of shares, or other units specified in the derivative contract (these elements are referred
to as notional amounts).
LO: 1, Bloom: K, Difficulty: Moderate, Time: 3-5, AACSB: Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC: Communication
2. See illustration below:
Traditional Financial Instrument Derivative Financial Instrument
Feature (e.g., Trading Security) (e.g., Call Option)
Payment Provision Stock price times the number Change in stock price (underlying)
of shares. times number of shares (notional
amount).
Initial Investment Investor pays full cost. Initial investment is less than full cost
Settlement Deliver stock to receive cash. Receive cash equivalent, based on
changes in stock price times the
number of shares.
For a traditional financial instrument, an investor generally must pay the full cost, while derivatives require
little initial investment. In addition, the holder of a traditional security is exposed to all risks of ownership,
while most derivatives are not exposed to all risks associated with ownership in the underlying. For
example, the intrinsic value of a call option only can increase in value. Finally, unlike a traditional financial
instrument, the holder of a derivative could realize a profit without ever having to take possession of the
underlying. This feature is referred to as net settlement and serves to reduce the transaction costs
associated with derivatives.
LO: 1, Bloom: K, Difficulty: Moderate, Time: 5-7, AACSB: Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC: Communication
3. The purpose of a fair value hedge is to offset the exposure to changes in the fair value of a
recognized asset or liability or of an unrecognized firm commitment.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC: Communication
4. The unrealized holding gain or loss on inventory should be reported as income when this inventory
is designated as a hedged item in a qualifying fair value hedge. If the hedge meets the special
hedge accounting criteria (designation, documentation, and effectiveness),
the unrealized holding gain or loss is reported as income.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC: Communication
5. Entering into an interest rate swap is likely a setting where the company is hedging the fair value
of a fixed-rate debt obligation. The fixed payments received on the swap will offset fixed payments
on the debt obligation. As a result, if interest rates decline, the value of the swap contract increases
(a gain), while at the same time the fixed-rate debt obligation increases (a loss). The swap is an
effective risk management tool in this setting because its value is related to the same underlying
(interest rates) that will affect the value of the fixed-rate bond payable. Thus, if the value of the
swap goes up, it offsets the loss in the value of the debt obligation.
LO: 3, Bloom: C, Difficulty: Moderate, Time: 3-5, AACSB: Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC: Communication
6. A cash flow hedge is used to hedge exposures to cash flow risk, which is exposure to the variability
in cash flows. The cash flows received on the hedging instrument (derivative) will offset the cash
flows received on the hedged item. Generally, the hedged item is a transaction that is planned
sometime in the future (an anticipated transaction).
Copyright © 2025 Kieso, Intermediate Accounting, 19/e, Solutions Manual 16-3
, LO: 2, 3, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC: Communication
7. Derivatives used in cash flow hedges are accounted for at fair value on the balance sheet but gains
or losses are recorded in equity as part of other comprehensive income.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC: Communication
8. A hybrid security is a security that has characteristics of both debt and equity and often is a
combination of traditional and derivative financial instruments. A convertible bond is a hybrid
security because it is comprised of a debt security, referred to as the host security, combined with
an option to convert the bond to shares of common stock, the embedded derivative.
LO: 3, Bloom: K, Difficulty: Moderate, Time: 3-5, AACSB: Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting:, AICPA PC: Communication
Solutions to Exercises
Exercise E.1 (15–20 minutes)
(a) Call Option ............................................................... 300
Cash .................................................................. 300
(b) Unrealized Holding Gain or Loss—Income .......... 100
Call Option ($300 – $200) ................................ 100
Call Option ............................................................... 3,000
Unrealized Holding Gain or Loss—Income
(1,000 × $3) ................................................... 3,000
(c) Unrealized Holding Gain: $2,900 ($3,000 – $100)
LO: 1, Bloom: AP, Difficulty: Moderate, Time: 15-20, AACSB: Analytic, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC: Decision
Making
16-4 Copyright © 2025 Kieso, Intermediate Accounting, 19/e, Solutions Manual
✅ All Chapters Solutions Manual - Chap 1 to 23 + Appx E and F
Excel Templates Solutions
Exercise Set B Solutions
IFRS Insights Solutions Manual Instructor Manuals
Problem Set B Solutions
Data Analysis Technology Bootcamps
, TABLE OF CONTENTS
1 The Environment and Conceptual Framework of Financial Reporting
2 The Accounting Information System
3 Income Statement, Related Information, and Revenue Recognition 4 Balance
Sheet and Statement of Cash Flows
5 Accounting and the Time Value of Money
6 Cash and Receivables
7 Valuation of Inventories: A Cost-Basis Approach
8 Inventories: Additional Valuation Issues
9 Acquisition and Disposition of Property, Plant, and Equipment
10 Depreciation, Impairments, and Depletion
11 Intangible Assets
12 Current Liabilities and Contingencies
13 Long-Term Liabilities
14 Stockholders̀ Equity
15 Dilutive Securities and Earnings per Share
16 Investments
17 Revenue Recognition
18 Accounting for Income Taxes
19 Accounting for Pensions and Postretirement Bene ts
20 Accounting for Leases
21 Accounting Changes and Error Analysis
22 Statement of Cash Flows
23 Full Disclosure in Financial Reporting
APPENDIX E Accounting for Derivative Instruments
APPENDIX F Environmental, Social, and Governance Reporting
, Appendix E
Accounting for Derivative Instruments
Assignment Classification Table (By Learning Objective)
Learning Objectives Brief Critical
Questions Exercises Exercises Problems Thinking
1. Describe the uses 1, 2 1, 5 1, 2, 3
of and accounting
for derivatives.
2. Explain the 3, 4, 6, 7 2, 3, 4, 6 4, 5, 6
accounting for
hedges.
3. Identify special 5, 6, 7, 8
reporting issues
for derivatives that
cause unique
accounting
problems.
Copyright © 2025 Kieso, Intermediate Accounting, 19/e, Solutions Manual 16-1
,Assignment Characteristics Table
Level of Time
Item Description Difficulty (minutes)
EE.1 Derivative transaction. Moderate 15–20
EE.2 Fair value hedge. Moderate 15–20
EE.3 Cash flow hedge. Moderate 15–20
EE.4 Fair value hedge. Moderate 15–20
EE.5 Call option. Moderate 20–25
EE.6 Cash flow hedge. Moderate 25–30
PE.1 Derivative financial instrument. Moderate 20–25
PE.2 Derivative financial instrument. Moderate 20–25
PE.3 Free-standing derivative. Moderate 20–25
PE.4 Fair value hedge interest rate swap. Complex 30–40
PE.5 Cash flow hedge. Moderate 25–35
PE.6 Fair value hedge. Moderate 25–35
16-2 Copyright © 2025 Kieso, Intermediate Accounting, 19/e, Solutions Manual
, Answers to Questions
1. An underlying is a specified interest rate, security price, commodity price, index of prices or rates,
or other market-related variable. Changes in the underlying determine changes in the value of the
derivative. Payment is determined by the interaction of the underlying with the face amount and
the number of shares, or other units specified in the derivative contract (these elements are referred
to as notional amounts).
LO: 1, Bloom: K, Difficulty: Moderate, Time: 3-5, AACSB: Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC: Communication
2. See illustration below:
Traditional Financial Instrument Derivative Financial Instrument
Feature (e.g., Trading Security) (e.g., Call Option)
Payment Provision Stock price times the number Change in stock price (underlying)
of shares. times number of shares (notional
amount).
Initial Investment Investor pays full cost. Initial investment is less than full cost
Settlement Deliver stock to receive cash. Receive cash equivalent, based on
changes in stock price times the
number of shares.
For a traditional financial instrument, an investor generally must pay the full cost, while derivatives require
little initial investment. In addition, the holder of a traditional security is exposed to all risks of ownership,
while most derivatives are not exposed to all risks associated with ownership in the underlying. For
example, the intrinsic value of a call option only can increase in value. Finally, unlike a traditional financial
instrument, the holder of a derivative could realize a profit without ever having to take possession of the
underlying. This feature is referred to as net settlement and serves to reduce the transaction costs
associated with derivatives.
LO: 1, Bloom: K, Difficulty: Moderate, Time: 5-7, AACSB: Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC: Communication
3. The purpose of a fair value hedge is to offset the exposure to changes in the fair value of a
recognized asset or liability or of an unrecognized firm commitment.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC: Communication
4. The unrealized holding gain or loss on inventory should be reported as income when this inventory
is designated as a hedged item in a qualifying fair value hedge. If the hedge meets the special
hedge accounting criteria (designation, documentation, and effectiveness),
the unrealized holding gain or loss is reported as income.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC: Communication
5. Entering into an interest rate swap is likely a setting where the company is hedging the fair value
of a fixed-rate debt obligation. The fixed payments received on the swap will offset fixed payments
on the debt obligation. As a result, if interest rates decline, the value of the swap contract increases
(a gain), while at the same time the fixed-rate debt obligation increases (a loss). The swap is an
effective risk management tool in this setting because its value is related to the same underlying
(interest rates) that will affect the value of the fixed-rate bond payable. Thus, if the value of the
swap goes up, it offsets the loss in the value of the debt obligation.
LO: 3, Bloom: C, Difficulty: Moderate, Time: 3-5, AACSB: Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC: Communication
6. A cash flow hedge is used to hedge exposures to cash flow risk, which is exposure to the variability
in cash flows. The cash flows received on the hedging instrument (derivative) will offset the cash
flows received on the hedged item. Generally, the hedged item is a transaction that is planned
sometime in the future (an anticipated transaction).
Copyright © 2025 Kieso, Intermediate Accounting, 19/e, Solutions Manual 16-3
, LO: 2, 3, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC: Communication
7. Derivatives used in cash flow hedges are accounted for at fair value on the balance sheet but gains
or losses are recorded in equity as part of other comprehensive income.
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC: Communication
8. A hybrid security is a security that has characteristics of both debt and equity and often is a
combination of traditional and derivative financial instruments. A convertible bond is a hybrid
security because it is comprised of a debt security, referred to as the host security, combined with
an option to convert the bond to shares of common stock, the embedded derivative.
LO: 3, Bloom: K, Difficulty: Moderate, Time: 3-5, AACSB: Communication, AICPA BC: Strategic Perspective, AICPA AC: Reporting:, AICPA PC: Communication
Solutions to Exercises
Exercise E.1 (15–20 minutes)
(a) Call Option ............................................................... 300
Cash .................................................................. 300
(b) Unrealized Holding Gain or Loss—Income .......... 100
Call Option ($300 – $200) ................................ 100
Call Option ............................................................... 3,000
Unrealized Holding Gain or Loss—Income
(1,000 × $3) ................................................... 3,000
(c) Unrealized Holding Gain: $2,900 ($3,000 – $100)
LO: 1, Bloom: AP, Difficulty: Moderate, Time: 15-20, AACSB: Analytic, AICPA BC: Strategic Perspective, AICPA AC: Reporting, AICPA PC: Decision
Making
16-4 Copyright © 2025 Kieso, Intermediate Accounting, 19/e, Solutions Manual
