(c) If a company elects not to bifurcate a hybrid financial
instrument, the entire instrument is recorded at fair value.
Changes in fair value each year are recognized in earnings for the
period. Answer (a) is incorrect because changes in fair value
must be recognized. Answer (b) is incorrect because the changes
are not recognized in other comprehensive income. Answer (d)
is incorrect, because an adjustment is only made to beginning
retained earnings in the year that a company initially adopts the
new accounting pronouncement.