Ineffective portions of hedges should go to NI or OCI?

In CFAI Volume 2, practice problem #6.B (Page 349): The ineffective portions of hedge were recongized in net income. The provided corect answer is C other than B, which means that the above statement is wrong. However, in Schweser Book 2, the last sentence said (Page 167): Any portion of the hedge that is not effective is recognized in the income statement. 1. Where should the ineffective portions of hedges be recognized? A. Net Income in income statement; or B. Other Comprehensive Income in equity of balance sheet. 2. Where should the “effective” portions of hedges be recognized for Fair Value/Cash Flow hedge? A. Net Income in income statement; or B. Other Comprehensive Income in equity of balance sheet; or C. No shown in any financial statement. Thanks, JW

The treatment depends on the TYPE of the hedge. What kind of hedge are you talking about

The ineffective component of the cash flow hedge results must be realized in current income, while the effective portion is initially posted to “other comprehensive income” (OCI) and later re-classified to income in the same time frame in which the forecasted cash flow affects earnings. Fair value hedge: the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. The effect of that accounting is to reflect in earnings the extent to which the hedge is not effective in achieving offsetting changes in fair value. So just think CASH FLOW HEDGE—> effective part goes to OCI and then hits NI later FAIR VAL HEDGE—> think “trading”, hits earnings in that period