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On October 1, 2021, Eagle Company forecasts the purchase of inventory from a British supplier...

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Accounting

On October 1, 2021, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2022, at a price of 100,000 British pounds. On October 1, 2021, 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, 2021, the option has a fair value of $1,600. The following spot exchange rates apply:

Date Spot Rate
October 1, 2021 $ 2.00
December 31, 2021 $ 1.97
February 1, 2022 $ 2.01

What is the net impact on Eagles 2021 net income as a result of this hedge of a forecasted foreign currency transaction?

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