Hello, please give me the correct answer with an explanation. Thank you. _______

Question

Hello, please give me the correct answer with an explanation. Thank you. ______________________________________________________________________________________________________________________________________________________________________________________________________________________ On October 1, 2011, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2012, at a price of 100,000 British pounds. On October 1, 2011, 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, 2011, the option has a fair value of $1,600. The following spot exchange rates apply: spot rates are oct 1, 2011 = $2.00, dec 31,2011 = 1.97, Feb 1,2012 = 2.01. __________________________________________________________________________________________________________________________________________________________________________________________________________________________ 63. What is the amount of option expense for 2012 from these transactions? A. $1,000. B. $1,600. C. $2,500. D. $2,600. E. $0.

Explanation / Answer

B.)$1,600

since the option has fair value of 1600,hence that is considered as the option expense for 2012.

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