3. [25 % of Test] On November 1, Year 1, Keefer Company received an order to sell a machine to a customer in Canada at a price of 100,000 Canadian dollars. The machine was shipped and payment was received on June 1, Year 2. On November 1, Year 1, Keefer Company purchased a put option giving it the right to sell 100,000 Canadian dollars on June 1, Year 2, at a price of $ 74,000. Keefer Company properly designates the option as a fair value hedge of the Canadian-dollar firm commitment. The option cost $ 1,700 and had a fair value of $2,800 on December 31, Year 1. The fair value of the firm commitment is measured through reference to changes in the spot rate. Keefer Company's incremental borrowing rate is 12 percent. The following spot exchange rates apply: Date U.S. Dollar per Canadian Dollar November 1, Year 1 ....... $0.74 December 31, Year 1 ......0.71 June 1, Year 2...........0.70 Required: Prepare all journal entries. The Present Value table for 1% a month follows. Period 1 23 4 5 i rate 0.01 0.01 0.01 0.01 0.01 0.01 Compund 1 1.01 1.0201 1.030301 1.040604 1.05101 1.06152 PV 1 0.990099 0.980296 0.97059 0.96098 0.951466 0.942045 3. [25 % of Test] On November 1, Year 1, Keefer Company received an order to sell a machine to a customer in Canada at a price of 100,000 Canadian dollars. The machine was shipped and payment was received on June 1, Year 2. On November 1, Year 1, Keefer Company purchased a put option giving it the right to sell 100,000 Canadian dollars on June 1, Year 2, at a price of $ 74,000. Keefer Company properly designates the option as a fair value hedge of the Canadian-dollar firm commitment. The option cost $ 1,700 and had a fair value of $2,800 on December 31, Year 1. The fair value of the firm commitment is measured through reference to changes in the spot rate. Keefer Company's incremental borrowing rate is 12 percent. The following spot exchange rates apply: Date U.S. Dollar per Canadian Dollar November 1, Year 1 ....... $0.74 December 31, Year 1 ......0.71 June 1, Year 2...........0.70 Required: Prepare all journal entries. The Present Value table for 1% a month follows. Period 1 23 4 5 i rate 0.01 0.01 0.01 0.01 0.01 0.01 Compund 1 1.01 1.0201 1.030301 1.040604 1.05101 1.06152 PV 1 0.990099 0.980296 0.97059 0.96098 0.951466 0.942045