On October 1, 2007, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2008, at a price of 100,000 British pounds. On October 1, 2007, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a strike price of $2.00 per pound. The option is considered to be a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2007, the option has a fair value of $1,600. The following spot exchange rates apply:

October 1,2007 $2.00

December 31,2007 $1.97

February 1, 2008 $2.01

Q. What is the amount of Cost of Goods Sold for 2008 as a result of these transactions?

A. $201,000

Q.What is the 2008 effect on net income as a result of these transactions?

B. $201,600

The answer to the problem is given:Please show the steps to come up with the answer thanks.