To help you become familiar with the accounting standards, this case is designed to take you to the FASB’s Web site and have you access various publications. Access the FASB’s Web site at http://www.fasb.org. Click on “Pronouncements & EITF Abstracts.”

In this chapter, we discussed the accounting for derivatives. For this case, we will use Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Open FASB Statement No. 133.

1. Paragraph 18 outlines the accounting for gains and losses on derivative instruments. How are gains and losses on fair value hedges to be accounted for? How are gains and losses on cash flow hedges to be accounted for?
2. Paragraph 6 introduces the term “underlyings” and states that one characteristic of a derivative financial instrument is that it has one or more underlyings. Reference Appendix A of SFAS No. 133 and provide examples of underlyings.