How the firms earnings and balance sheet would be affected

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Reference no: EM131318618

Suppose that a firm engages in a derivative transaction that qualifies for fair value hedging. The firm holds a security and hedges it by selling a derivative.

During the course of the hedge, the security increases in value by $20,000, while the derivative decreases in value by $22,000.

Explain what accounting entries would be done and how the firm's earnings and balance sheet would be affected.

Reference no: EM131318618

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