Woolsey Corporation, a U What Amount Will Woolsey Include as Adjustment to Net Income

question 59

Multiple Choice

Woolsey Corporation, a U.S. company, expects to sell goods to a British customer at a price of 250,000 pounds, with delivery and payment to be made on October 24. On July 24, Woolsey purchased a three-month put option for 250,000 British pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction expected to be completed in late October. The following exchange rates apply: $\begin{array}{|l|l|}\hline \text { Option strike price } & \$ 2.17 \\\hline \text { Option cost } & \$ 4,000 \\\hline \text { July 24 spot rate } & \$ 2.17 \\\hline \text { October 24 spot rate } & \$ 2.13 \\\hline \text { October 24 option premium } & \$ .04 \\\hline\end{array}$ What amount will Woolsey include as Adjustment to Net Income for the period ended October 31?

• A)$6,000 positive.
• B)$6,000 negative.
• C)$10,000 positive.
• D)$10,000 negative.
• E)$14,000 positive.

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Definitions:

Inelastic Demand

A situation where the quantity demanded of a good or service changes very little when its price changes.

Luxury

Goods or services that are considered superior in quality and are often expensive, catering to a more affluent consumer base.

Necessity

A good or service that is considered essential for survival, such as food, shelter, and healthcare.

Income Elasticity

A measure of how much the demand for a good or service changes in response to a change in consumers' income.