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| On October 1, Year 1, Bordeaux, Inc., a calendar-year-end firm, invested in a derivative designed to hedge the risk of changes in fair value of certain assets, currently valued at $5 million. The derivative is structured to result in an effective hedge. However, some ineffectiveness may result. On December 31, Year 1, the fair value of the hedged assets has decreased by $350,000; the fair value of the derivative has increased by $325,000. Bordeaux should recognize a net effect on Year 1 earnings of A. $0 B. $25,000 C. $325,000 D. $350,000 |