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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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