What was the net increase or decrease in cash flow from having purchased the foreign currency option to hedge this exposure to foreign exchange risk?

  a. $–0–.
  b. $1,000 increase in cash flow.
  c. $1,500 decrease in cash flow.
  d. $3,000 increase in cash flow.

On September 1, 2017, Jensen Company received an order to sell a machine to a customer in Canada at a price of 100,000 Canadian dollars. Jensen shipped the machine and received payment on March 1, 2018. On September 1, 2017, Jensen purchased a put option giving it the right to sell 100,000 Canadian dollars on March 1, 2018, at a price of $80,000. Jensen properly designated the option as a fair value hedge of the Canadian dollar firm commitment. The option cost $2,000 and had a fair value of $2,300 on December 31, 2017. The fair value of the firm commitment was measured by referring to changes in the spot rate. The following spot exchange rates apply:

                    

Jensen Company’s incremental borrowing rate is 12 percent. The present value factor for two months at an annual interest rate of 12 percent (1 percent per month) is 0.9803.