BB SA IBD - Superday Question

Q: Let’s say we’re looking at an energy company that uses derivatives for hedging purposes. They record a realized gain of $60 and an unrealized gain of $40. Walk me through the 3 financial statements.

A: On the income statement, you record both the realized gain and the unrealized gain, so operating income is up by $100 (normal companies may list these under pre-tax income, but for energy companies they are usually part of operating income). Net income is up by $60 assuming a 40% tax rate. On the cash flow statement, net income is up by $60 but you subtract the unrealized gain because it’s non-cash, so cash is up by $20 at the bottom. On the balance sheet, cash is up by $20 and the derivatives line item on the assets side is up by $40 due to the unrealized gain, so total assets are up by $60. On the other side, shareholders’ equity is up by $60 because of the net income increase, so both sides balance.

Why is it that the realized gain has no impact on the derivatives line item on the BS? Does the BS item only track new purchases and unrealized gains/losses?