4. Accounting for Derivative Securities Fair Value Hedge (15 points) On 1 September 20X5 Smiths Company, a mining entity had 100,000 pounds of copper that cost $350,000 to produce. Management chooses to hedge the copper position against a decline in copper prices (a fair value hedge) by selling copper futures contracts to sell 100,000 pounds of copper at $4.40 per pounds. The futures contracts mature in March 20X6 which coincides with the date management expects to sell the copper they hold. Assume that Smiths made a margin deposit with the commodities broker of $10,000 on 1 September 20X5 related to the futures contract. A summary of the copper spot and futures prices on relevant dates is as follows: Copper Prices per pound in $US Date Spot Price Futures prices for delivery on 3/20/X5 9/1/X5 $4.38 $4.40 12/31/X5 $4.31 $4.32 3/14/X6 $4.36 $4.36 The contract has no value at inception. Assume that Smiths' management designates the derivative as a fair value hedge. Hint: you can use an account labeled 'Amount due to/from Broker' to reflect the position Smiths has on the derivative. Please record required transactions on the following dates: a) Deposit with broker on 9/1/X5. (1 pt) b) Adjusting journal entries on 12/31/X5. (4 pts) c) Adjusting journal entries on 3/14/X6 to update accounts. (4 pts) d) Net settlement of the futures contracts on 3/14/X6. (1 pt) e) Sale of the Copper on 3/14/X6. (5 pts)