At the beginning of 20X5, a derivative loss associated with a forecasted purchase of equipment will plus the expected cost of the equipment is $211,000.The fair value of the equipment is $199,000.The equipment has a useful life of 5 years.
A)$12,000 should be included in Other Comprehensive Income in 20X5.
B)$2,400 should be included in Other Comprehensive Income each year from 20X5 to 20X9.
C)$12,000 should be included in Income in 20X5.
D)$2,400 should be included in Income each year from 20X5 to 20X9.

Question

At the beginning of 20X5, a derivative loss associated with a forecasted purchase of equipment will plus the expected cost of the equipment is $211,000.The fair value of the equipment is $199,000.The equipment has a useful life of 5 years.
A)​$12,000 should be included in Other Comprehensive Income in 20X5.
B)​$2,400 should be included in Other Comprehensive Income each year from 20X5 to 20X9.
C)​$12,000 should be included in Income in 20X5.
D)​$2,400 should be included in Income each year from 20X5 to 20X9.

Quizplus · Accepted Answer

DThe derivative loss of $12,000 ($211,000 expected cost - $199,000 fair value) should be recognized in income in 20X5 when the loss occurs. Then, as the equipment is depreciated over its useful life of 5 years, the loss should be allocated equally, resulting in $2,400 ($12,000 / 5 years) being included in income each year from 20X5 to 20X9 to reflect the depreciation expense associated with the equipment's cost basis.

At the Beginning of 20X5, a Derivative Loss Associated with a Forecasted