On March 1, 2021, Mattie Company received an order to sell a machine to a...
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Accounting
On March 1, 2021, Mattie Company received an order to sell a machine to a customer in England at a price of 200,000 British pounds. The machine was shipped and payment was received on March 1, 2022. On March 1, 2021, Mattie purchased a put option giving it the right to sell 200,000 British pounds on March 1, 2022 at a price of $380,000. Mattie properly designates the option as a fair hedge of the pound firm commitment. The option cost $2,000 and had a fair value of $2,200 on December 31, 2021. The following spot exchange rates apply:
Date
Spot Rate
March 1, 2021
$
1.90
December 31, 2021
$
1.89
March 1, 2022
$
1.84
What was the net impact on Matties 2022 net income including the fair value hedge of a firm commitment?
Multiple Choice
$379,800 decrease.
$8,400 increase.
$8,400 decrease.
$4,600 decrease.
$379,800 increase.
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