On October 1, 2013, Eagle Company Forecasts the Purchase of Inventory

question 58

Multiple Choice

On October 1, 2013, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2014, at a price of 100,000 British pounds. On October 1, 2013, 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, 2013, the option has a fair value of $1,600. The following spot exchange rates apply: $\begin{array}{|l|c|}\hline \text { Date } & \text { Spot Rate } \\\hline \text { October 1, 2013 } & \$ 2.00 \\\hline \text { December 31,2013 } & \$ 1.97 \\\hline \text { February 1,2014 } & \$ 2.01 \\\hline\end{array}$ What is the amount of Cost of Goods Sold for 2014 as a result of these transactions?

• A)$200,000.
• B)$195,000.
• C)$201,000.
• D)$202,600.
• E)$203,000.

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Definitions:

Decentralized Organization

An organizational structure where decision-making authority is distributed throughout various levels rather than being concentrated at the top.

Physical Locations

The tangible and geographical places where businesses, organizations, or other entities occupy space, often important for operations, customer interaction, and logistic purposes.

Taller Organizations

Organizations with multiple layers of management between front-line employees and the top level, often resulting in slower decision-making processes.

Spans

Refers to the extent, scope, or duration of something, often used in contexts such as time spans or spans of control in organizations.