Fundamentals of Advanced Accounting 5th Edition by Joe Ben Hoyle,Thomas Schaefer,Timothy Doupnik

Exercise 7

On November 1, 2013, Dos Santos Company forecasts the purchase of raw materials from a Brazilian supplier on February 1, 2014, at a price of 200,000 Brazilian reals. On November 1, 2013, Dos Santos pays $1,500 for a three-month call option on 200,000 reals with a strike price of $0.40 per real. Dos Santos properly designates the option as a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2013, the option has a fair value of $1,100. The following spot exchange rates apply:

What is the net impact on Dos Santos Company's 2013 net income as a result of this hedge of a forecasted foreign currency transaction
A) $-0-.
B) $400 decrease in net income.
C) $1,000 decrease in net income.
D) $1,400 decrease in net income.