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2. On December 1, 2018, a cotton wholesale purchases 10 million pounds of cotton inventory at an average cost of $.95 per pound. To protect the inventory from a possible decline in cotton prices, the company sells cotton futures contracts for 10 million pounds at $.86 a pound for delivery on June 1, 2019, to coincide with its expected physical sale of it cotton inventory. The company designates the hedge as a fair value hedge (i.e., the company is hedging changes in the inventory's fair value, not changes in cash flows from anticipated sales). The cotton spot price on December 1 is $.94 per pound. On December 31, 2018, the company's fiscal year-end, the June 1 futures price has fallen to $.76 per pound and the spot price has fallen to $.85 per pound. On June 1, 2019, the company closes out its futures contracts. Following are futures and spot prices for the relevant dates: Date Spot Futures December 1, 2018 $.94 9.86 December 31, 2018 $.85 5.76 June 1, 2019 S.67 n/a Ignore any time value of money issues or discounts or premiums. Prepare all the journal entries to record the following: 15 Points a. Purchase of cotton b. Sale of cotton futures contract c. Adjusting entry(ies) at December 31, 2018 d. Sale of cotton on June 1 including closing out the futures contract

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