1- [The following information applies to the questions displayed below.]

On September 1, 2020, Stone Company received an order to sell a machine to a customer in Australia at a price of 100,000 Australian dollars. Stone shipped the machine and received payment on March 1, 2021. On September 1, 2020, Stone purchased a put option giving it the right to sell 100,000 Australian dollars on March 1, 2021, at a price of $80,000. Stone properly designated the option as a fair value hedge of the Australian dollar firm commitment. The options time value is excluded in assessing hedge effectiveness, and the change in time value is recognized in net income over the life of the option. The option cost $2,000 and had a fair value of $2,300 on December 31, 2020. The fair value of the firm commitment was measured by referring to changes in the spot rate (discounting to present value is ignored). The following spot exchange rates apply:

Date	U.S. Dollar per Australian Dollar (AUD)
September 1, 2020	$	0.80
December 31, 2020		0.79
March 1, 2021		0.77

What was the net impact on Stone Companys 2021 income as a result of this fair value hedge of a firm commitment and export sale?

Multiple Choice

• $1,300 decrease in income

• $78,700 increase in income

• $78,000 increase in income

• $0

2- [The following information applies to the questions displayed below.]

On September 1, 2020, Stone Company received an order to sell a machine to a customer in Australia at a price of 100,000 Australian dollars. Stone shipped the machine and received payment on March 1, 2021. On September 1, 2020, Stone purchased a put option giving it the right to sell 100,000 Australian dollars on March 1, 2021, at a price of $80,000. Stone properly designated the option as a fair value hedge of the Australian dollar firm commitment. The options time value is excluded in assessing hedge effectiveness, and the change in time value is recognized in net income over the life of the option. The option cost $2,000 and had a fair value of $2,300 on December 31, 2020. The fair value of the firm commitment was measured by referring to changes in the spot rate (discounting to present value is ignored). The following spot exchange rates apply:

Date	U.S. Dollar per Australian Dollar (AUD)
September 1, 2020	$	0.80
December 31, 2020		0.79
March 1, 2021		0.77

What was the net increase or decrease in cash flow from having purchased the foreign currency option to hedge this exposure to foreign exchange risk?

Multiple Choice

• $1,500 decrease in cash flow

• $3,000 increase in cash flow

• $1,000 increase in cash flow

• $0

3- [The following information applies to the questions displayed below.]

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:

Date	U.S. Dollar per 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.

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?

Multiple Choice

• $1,000 decrease in net income

• $0

• $1,400 decrease in net income

• $400 decrease in net income