REFERENCE: Ref.09_08 on May 1,2007,Mosby Company Received an Order to Sell a Sell

question 87

Multiple Choice

REFERENCE: Ref.09_08
On May 1,2007,Mosby Company received an order to sell a machine to a customer in Canada at a price of 2,000,000 Mexican pesos.The machine was shipped and payment was received on March 1,2008.On May 1,2007,Mosby purchased a put option giving it the right to sell 2,000,000 pesos on March 1,2008 at a price of $190,000.Mosby properly designates the option as a fair value hedge of the peso firm commitment.The option cost $3,000 and had a fair value of $3,200 on December 31,2007.The following spot exchange rates apply: Mosby's incremental borrowing rate is 12 percent,and the present value factor for two months at a 12 percent annual rate is .9803.
-What was the net impact on Mosby's 2007 income as a result of this fair value hedge of a firm commitment?

• A)$1,760.60 decrease.
• B)$1,960.60 decrease.
• C)$1,000.00 decrease.
• D)$1,760.60 increase.
• E)$1,960.60 increase.

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Definitions:

Patients Who Smoke

Individuals receiving medical care who have the habit of smoking tobacco, which may affect their health outcomes.

Specialty Items

Products or goods that are distinct or unique to a specific field, industry, or interest.

Greatest Amount

The highest value or quantity attainable or recorded.

Discriminatory Behaviour

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