Answer:
Option B: 70,900 decrease in net income
Explanation:
Net impact on black lion company's year 2 net income as a result of this hedge of a forecast foreign currency purchase can be calculated by summing up the Option expense, cost of goods sold and adjustment to net income in year 2 .
NET IMPACT ON YEAR NET INCOME
Option expenses (900)
Cost of goods sold (72,000)
Adjustment to Net Income 2000
Decrease in Net Income (70,900)
Working
DEBIT CREDIT
Option expense 900
Foreign currency Option 1100
(0.35 - 0.36) x 200,000 = 2000
2000 - 900 = 1100
Accumulated other comprehensive income 2000
DEBIT CREDIT
Foreign currency 72,000
(200,000x0.36)
Cash 70,000
(200,000x0.35)
Foreign currency option 2,000
DEBIT CREDIT
Cost of goods sold 72,000
Foreign currency 72,000
DEBIT CREDIT
Accumulated other comprehensive income 2000
Adjustment to Net Income 2000
