Atherton Inc What Amount Will Atherton Include as an Option Expense in a Foreign

question 48

Multiple Choice

Atherton Inc., a U.S. company, expects to order goods from a foreign supplier at a price of 100,000 lira, with delivery and payment to be made on April 17. On January 17, Atherton purchased a three-month call option on 100,000 lira and designated this option as a cash flow hedge of a forecasted foreign currency transaction. The following exchange rates apply: $\begin{array}{ll}\text { Option Strike Price } & \$ 4.34 \\\text { Option Cost } & \$ 5,000 \\\text { January 17 Spot Rate } & \$ 4.34 \\\text { April 17 Spot Rate } & \$ 4.26\end{array}$ What amount will Atherton include as an option expense in net income for the period January 17 to April 17?

• A)$4,000
• B)$4,260
• C)$4,340
• D)$5,000
• E)$5,260

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