Advanced Accounting 10th Edition by Thomas Schaefer, Joe Ben Hoyle, Timothy Doupnik

Exercise 31

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.