What is the net impact on Good Life Company’s 2020 net income as a result of this hedge of a forecasted foreign currency transaction?

a. $–0–

b. $400 decrease in net income

c. $1,000 decrease in net income

d. $1,400 decrease in net income

On November 1, 2020, Good Life Company forecasts the purchase of raw materials from a Chilean supplier on February 1, 2021, at a price of 20,000,000 Chilean pesos. On November 1, 2020, Good Life pays $1,500 for a three-month call option on 20,000,000 pesos with a strike price of $0.0015 per peso. On December 31, 2020, the option has a fair value of $1,100. The following spot exchange rates apply:
                                                             U.S. Dollar per
Date                                                  Chilean Peso (CLP)
November 1, 2020 ............................    $0.0015
December 31, 2020  .........................       0.0013
February 1, 2021  ..............................       0.0016

Good Life properly designates the option as a cash flow hedge of a forecasted foreign currency transaction. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. Raw materials are received and paid for on February 1, 2021, and the finished goods into which the materials are incorporated are sold by March 30, 2021.