On March 1, 2018, 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, 2019. On March 1, 2018, Mattie purchased a put option giving it the right to sell 200,000 British pounds on March 1, 2019 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, 2018. The following spot exchange rates apply:DateSpot RateMarch 1, 2018$1.90 December 31, 2018 1.89 March 1, 2019 1.84 ??Mattie's incremental borrowing rate is 12 percent, and the present value factor for two months at a 12 percent annual rate is .9803.?What was the net impact on Mattie's 2019
income including the fair value hedge of a firm commitment?
A. $379,760.60 increase.
B. $8,360.60 increase.
C. $4,390.40 decrease.
D. $8,360.60 decrease.
E. $379,760.60 decrease.
Answer: A
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