Contingencies in financial statements

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1. Discuss contingencies and how they are reported on financial statements. What conditions must be met before a contingency can be charged against income? 2. When is it better for a business to have Long Term Debt versus when is it better to have Capital? 3. For each of the intended uses of the derivatives listed below, explain the accounting in fair value: Derivative designated as a hedge of the exposure to changes in the fair value of a recognized asset or liability to or firm commitment Derivative designated as a hedge of the exposure to variable cash flows of a forecasted transaction Derivative designated as a hedge of the foreign currency exposure of a net investment in a foreign operation Derivative not designated as a hedge