Woolsey Corporation, a U.S. company, expects to sell goods to a British customer at a price of 250,000 pounds, with delivery and payment to be made on October 24. On July 24, Woolsey purchased a three-month put option for 250,000 British pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction expected to be completed in late October. The following exchange rates apply:

What amount will Woolsey include as an option expense in net income for the period July 24 to October 24?

A) $4,000.
B) $5,000.
C) $10,000.
D) $12,000.
E) $14,000.

Question

Woolsey Corporation, a U.S. company, expects to sell goods to a British customer at a price of 250,000 pounds, with delivery and payment to be made on October 24. On July 24, Woolsey purchased a three-month put option for 250,000 British pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction expected to be completed in late October. The following exchange rates apply:

What amount will Woolsey include as an option expense in net income for the period July 24 to October 24?

A) $4,000. 
B) $5,000. 
C) $10,000. 
D) $12,000. 
E) $14,000.

Quizplus · Accepted Answer

The Answer of Woolsey Corporation, a U.S. company, expects to sell goods to a British customer at a price of 250,000 pounds, with delivery and payment to be made on October 24. On July 24, Woolsey purchased a three-month put option for 250,000 British pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction expected to be completed in late October. The following exchange rates apply:

What amount will Woolsey include as an option expense in net income for the period July 24 to October 24?

A) $4,000. 
B) $5,000. 
C) $10,000. 
D) $12,000. 
E) $14,000.