Advanced Accounting 12th Edition by Joe Ben Hoyle,Thomas Schaefer , Timothy Doupnik

Exercise 11

Palmer Corporation, operating as a US. corporation, expects to order goods from a foreign supplier at a price of 200,000 pounds, with delivery and payment to be made on April 15. On January 15, Palmer purchased a three-month call option on 200,000 pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction. The option has a strike price of $0.25 per pound and costs $2,000. The spot rate for pounds is $0.25 on January 15 and $0.22 on April 15. What amount will Palmer Corporation report as an option expense in net income during the period January 15 to April 15
A) $600.
B) $1,000.
C) $2,000.
D) $4,400.