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

Exercise 11

Use the following information for Problems 21 and 22.
On November 1, 2011, Dos Santos Company forecasts the purchase of raw materials from a Brazilian supplier on February 1, 2012, at a price of 200,000 Brazilian reals.On November 1, 2011, 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, 2011, 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 2012 net income as a result of this hedge of a forecasted foreign currency transaction Assume that the raw materials are consumed and become a part of the cost of goods sold in 2012.
a.$80,000 decrease in net income.
b.$80,600 decrease in net income.
c.$81,100 decrease in net income.
d.$83,100 decrease in net income.