On October 1, 2016, Katy Co. forecasts the purchase of raw materials from a Nicaraguan supplier for February 1, 2017, at price of 300,000 Nicaraguan Crdoba. On November 1, Katy Co. pays $2,500 for a four month call option on 300,000 Nicaraguan Crdoba with a strike price of $0.045 per Crdoba. The option on properly designated as a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2016, the option has a fair value of $2,000. The following spot exchange rates apply.

Date		U.S. Dollar per Nicaraguan Crdoba
November 1, 2016		$0.045
December 31, 2016		$0.040
February 1, 2017		$0.050

Required:

1)What is the net impact on Katy Cos 2016 net income as a result of this hedge of a foreign currency purchase?

2) What is the net impact on Katy Cos 2017 net income as a result of this hedge of a foreign currency purchase? Assume that the raw materials are consumed and become a part of a cost of goods sold in 2017.