On July 1,2020 a cotton wholesaler has 1 million pounds of cotton inventory on hand...
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Accounting
On July a cotton wholesaler has million pounds of cotton inventory on hand at an average cost of $ per pound. To protect the inventory from a possible decline in cotton prices, the company sells cotton futures contracts for million pounds at $ a pound for delivery on October to coincide with its expected physical sale of its cotton inventory. The Company designates the hedge as a fair value hedge ie The Company is hedging changes in the inventorys fair value, not changes in cash flows from anticipated sales. Following are futures and spot prices for the relevant dates: Date Spot Futures July $ $ September $ $ October $ na Required: Prepare the journal entries to record the following: a Sale of futures contract b Adjusting entry at September c Sale of cotton on October at spot price d How much cash does the company receive in total on this transaction?
On July a cotton wholesaler has million pounds of cotton inventory on hand at an average cost of $ per pound. To protect the inventory from a possible decline in cotton prices, the company sells cotton futures contracts for million pounds at $ a pound for delivery on October to coincide with its expected physical sale of its cotton inventory. The Company designates the hedge as a fair value hedge ie The Company is hedging changes in the inventorys fair value, not changes in cash flows from anticipated sales.
Following are futures and spot prices for the relevant dates:
Date
Spot
Futures
July
$
$
September
$
$
October
$
na
Required:
Prepare the journal entries to record the following:
a Sale of futures contract
b Adjusting entry at September
c Sale of cotton on October at spot price
d How much cash does the company receive in total on this transaction?
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