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The following is an excerpt from a disclosure note of Johnson & Johnson: 6. Fair Value Measurements (in part) As of January 2, 2011, the balance of deferred net gains on derivatives included in accumulated other comprehensive income was $100 million after-tax. The Company expects that substantially all the amount related to foreign exchange contracts will be reclassified into earnings over the next 12 months as a result of transactions that are expected to occur over that period. Required: 1. Johnson & Johnson indicates that it expects that substantially all of the balance of deferred net gains on derivatives will be reclassified into earnings over the next 12 months as a result of transactions that are expected to occur over that period. What is meant by “reclassified into earnings”? 2. What type(s) of hedging transaction might be accounted for in this way?

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