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What amount will palmer corporation report

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Reference no: EM131755119

I reviewed the answer 'D' to the problem that was given. But I wanted to know how they came about to this answer. What formula was used to come up with this answer? If anyone can answer this, I would greatly appreciate it.

Palmer Corporation, operating as a U.S. corporation, expects to order goods from a foreign supplier at a price of 220,000 pounds, with delivery and payment to be made on April 15. On January 15, Palmer purchased a three-month call option on 220,000 pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction. The option has a strike price of $0.42 per pound and costs $2,200. The spot rate for pounds is $0.42 on January 15 and $0.39 on April 15. What amount will Palmer Corporation report as an option expense in net income during the period January 15 to April 15?

A. $660
B. $8,580
C. $1,100
D. $2,200

Reference no: EM131755119

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