REFERENCE: Ref.09_07 Winston Corp. ,A U.S.company,had the Following Foreign Currency Transactions During

question 48

Multiple Choice

REFERENCE: Ref.09_07
Winston Corp. ,a U.S.company,had the following foreign currency transactions during 2008:
(1. ) Purchased merchandise from a foreign supplier on July 16,2008 for the U.S.dollar equivalent of $47,000 and paid the invoice on August 3,2008 at the U.S.dollar equivalent of $54,000.
(2. ) On October 15,2008 borrowed the U.S.dollar equivalent of $315,000 evidenced by a non-interest-bearing note payable in euros on October 15,2008.The U.S.dollar equivalent of the note amount was $295,000 on December 31,2008,and $299,000 on October 15,2009.
-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:
What amount will Atherton include as an option expense in net income during 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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