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Palmer Corporation, operating as a U.S. corporation, expects to order goods from a foreign supplier at a price of 255,000 pounds, with delivery and payment

Palmer Corporation, operating as a U.S. corporation, expects to order goods from a foreign supplier at a price of 255,000 pounds, with delivery and payment to be made on April 15. On January 15, Palmer purchased a three-month call option on 255,000 pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction. The option has a strike price of $0.44 per pound and costs $2,550. The spot rate for pounds is $0.44 on January 15 and $0.41 on April 15. What amount will Palmer Corporation report as an option expense in net income during the period January 15 to April 15?

$2,550.

$10,455.

$765.

$1,275.

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