Read the case study below and explain the proper disclosures for derivatives:
The chief financial officer (CFO) of your company has asked you to review an interest rate hedging proposal that aims to help reduce the organization’s interest expenses. Your review indicates that the organization has available $30 million in cash immediately, with a specific amortization table on paying back the funds (over the next 20 years starting in Year 2). The organization’s borrowing rate is determined to be 5.0% per annum, while the implicit rate of this transaction is 5.5%. What are some of the financial disclosure issues you would raise with the CFO?
Review other organizations’ GAAP disclosures in the SEC 10-K and 10-Q filings. You can find these on the Yahoo Finance website (http://finance.yahoo.com). You can find these types of disclosures in Item 7 in the SEC 10-K (critical accounting estimates).
Analyze accounting issues associated with the case study. Questions you may want to consider (but should not limit yourself to) include:
What are some of the issues you would raise with the CFO? Provide the proper accounting treatment for derivatives supported by current and relevant literature.
Write a scholarly paper, utilizing a minimum of 4 scholarly references beyond the course readings, focusing on accounting for derivative disclosures. Your paper should explain the proper accounting treatment for derivatives.
Submit your 4–5-page paper in Microsoft Word format using the APA Paper Guide. Use the following file naming convention: LastnameFirstInitial_M2_A2.doc.
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