On October 1, 2013, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2014, at a price of 100,000 British pounds. On October 1, 2013, 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, 2013, the option has a fair value of $1,600. The following spot exchange rates apply: What is the amount of Adjustment to Accumulated Other Comprehensive Income for 2014 from these transactions?
A) $1,000.
B) $1,600.
C) $1,800.
D) $2,000.
E) $2,600.

Question

On October 1, 2013, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2014, at a price of 100,000 British pounds. On October 1, 2013, 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, 2013, the option has a fair value of $1,600. The following spot exchange rates apply:  What is the amount of Adjustment to Accumulated Other Comprehensive Income for 2014 from these transactions?
A) $1,000. 
B) $1,600. 
C) $1,800. 
D) $2,000. 
E) $2,600.

Quizplus · Accepted Answer

$2.01 - $2.00 = $.01 × ≤100,000 = $1,000 Adjustment to AOCI for 2014

On October 1, 2013, Eagle Company Forecasts the Purchase of Inventory