On November 1, 2015, Dos Santos Company forecasts the purchase of raw materials from a Brazilian supplier on February 1, 2016, at a price of 200,000 Brazilian reals. On November 1, 2015, Dos Santos pays $1,500 for a three-month call option on 200,000 reals with a strike price of $0.40 per real. Dos Santos properly designates the option as a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2015, the option has a fair value of $1,100. The following spot exchange rates apply:

What is the net impact on Dos Santos Company’s 2015 net income as a result of this hedge of a forecasted foreign currency transaction?

a. $–0–.

b. $400 decrease in net income.

c. $1,000 decrease in net income.

d. $1,400 decrease in net income.

 

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Status NEW Posted 25 May 2017 01:05 PM My Price 4.00

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