On October 1, 2021, Eagle Company Forecasts the Purchase of Inventory

question 57

Multiple Choice

On October 1, 2021, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2022, at a price of 100,000 British pounds. On October 1, 2021, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a strike price of $2.00 per pound. The option is considered to be a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2021, the option has a fair value of $1,600. The following spot exchange rates apply: What is the 2022 effect on net income as a result of these transactions?

• A)$195,000
• B)$201,600
• C)$201,000
• D)$202,600
• E)$203,000

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Definitions:

Customer Database

A collection of information about customers, including contact details and purchase history, which companies use to manage customer relationships.

Paired

Matched or coupled together in terms of characteristics, functions, or compatibility.

EmploymentDate

The specific date on which an individual starts or is scheduled to start their employment with a company or organization.

Customers Table

A database or spreadsheet feature that organizes and stores information about individuals or entities that purchase goods or services from a business.