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 $0.22 per Norwegian krone, Derby enters into a forward contract to purchase 575,000 Norwegian kroner at a three-month forward rate of $0.240. 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 $0.232 per Norwegian krone, Derby orders and receives the merchandise, paying 575,000 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 $133,400 plus foreign exchange loss of $4,600

• Cost of goods sold of $138,000 less foreign exchange gain of $11,500

• Cost of goods sold of $138,000

• Cost of goods sold of $126,500 plus foreign exchange loss of $11,500