REFERENCE: Ref.09_10 on October 1,2007,Eagle Company Forecasts the Purchase of Inventory from Inventory

question 13

Multiple Choice

REFERENCE: Ref.09_10
On October 1,2007,Eagle Company forecasts the purchase of inventory from a British supplier on February 1,2008,at a price of 100,000 British pounds.On October 1,2007,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 31,2007,the option has a fair value of $1,600.The following spot exchange rates apply:
-What is the amount of Cost of Goods Sold for 2008 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:

Groundwater

The subsurface water that occupies the pore spaces in soils and rocks, serving as a major source of fresh water for many areas.

Seas Saltier

A condition resulting from the evaporation of ocean water, which increases the concentration of salts, making the seas saltier.

Quartzite

A hard, metamorphic rock formed from quartz-rich sandstone that has undergone heat and pressure transformations.

Weather

The state of the atmosphere at a place and time as regards heat, dryness, sunshine, wind, rain, etc.