On March 1, Derby Corporation (a U.S.-based company) expects to order merchandise from a supplier in Norway in three months. On March 1, when the spot rate is $0.42 per Norwegian krone, Derby enters into a forward contract to purchase 735,000 Norwegian kroner at a three-month forward rate of $0.436. Forward points are excluded in assessing the forward contract's effectiveness as a hedge, and are amortized to net income on a straight-line basis. At the end of three months, when the spot rate is $0.431 per Norwegian krone, Derby orders and receives the merchandise, paying 735,000 kroner. The merchandise is sold within 30 days. What amount(s) does Derby report in net income as a result of this cash flow hedge of a forecasted transaction and the related purchase and sale of merchandise?

Multiple Choice

• Cost of goods sold of $320,460

• Cost of goods sold of $308,700 plus foreign exchange loss of $11,760

• Cost of goods sold of $320,460 less foreign exchange gain of $11,760

• Cost of goods sold of $316,785 plus foreign exchange loss of $3,675