A Company Uses Options to Hedge Its Merchandise Inventory

Multiple Choice

A company uses options to hedge its merchandise inventory. If the options qualify as a fair value hedge of the inventory, and analysis of hedge effectiveness excludes option time value, which statement is true concerning reporting for changes in the value of the options?

A) All changes in option value remain in other comprehensive income until the merchandise is purchased.
B) All changes in option value are adjustments to cost of goods sold as they occur.
C) Changes in intrinsic value adjust cost of goods sold when the merchandise is sold.
D) Changes in intrinsic value adjust the carrying value of the merchandise when it is purchased.