Atherton,Inc What Amount Will Atherton Include as an Option Expense in at a Price

question 5

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: $\begin{array} { | l | r | } \hline & \\\hline \text { Option strike price } & \$ 4.34 \\\hline \text { Option cost } & \$ 5,000 \\\hline \text { July 24 spot rate } & \$ 4.34 \\\hline \text { April 17 spot rate } & \$ 4.26 \\\hline\end{array}$
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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