Use of futures contracts to hedge a forecasted transaction—cash flow hedge As of
ID: 2558404 • Letter: U
Question
Use of futures contracts to hedge a forecasted transaction—cash flow hedge
As of January, our company plans to purchase 200,000 lbs. of copper on May 31 at the prevailing spot rate. To hedge this forecasted transaction, we purchase May futures contracts in January for 200,000 lbs. of copper at the futures price of $1.58/lb. On May 31, we close out our futures contracts by entering into an offsetting contract in which we agree to buy 200,000 lbs. of May copper futures contracts at $1.84/lb., the spot rate on that date. We also purchase 200,000 lbs. of copper at $1.84/lb. on that date. Finally, we sell the inventory in June for $2.06/lb. Our company operates on a calendar year and issues financial statements quarterly.
Following are futures and spot prices for the relevant dates:
Required
Prepare the journal entries to record the following:
(If no entry is required, select "No entry required" for both the debit and credit account titles.)
a. Purchase of copper futures contract in January
b. Adjusting entry at March 31
18,000c.
Purchase of copper on May 31
d. Sale of copper on June 1
To recognize deferred gain
I have all the answers for the journal entries bolded, also most entries numbers answered. I only need the question marks which are in part d for cogs/inventory/oci/cogs. Thanks.
Date Spot Futures January $1.44 $1.58 March 31 $1.52 $1.67 May 1 $1.84 n/aExplanation / Answer
368000
To recognize deferred gain
une 1 Cash 412000 Answer AnswerNo entry requiredCashInventoryFutures contractAccounts payableOther comprehensive incomeSalesCost of goods soldGain on InventoryLoss on inventory 368000 Answer Sales Answer 412000 AnswerNo entry requiredCashInventoryFutures contractAccounts payableOther comprehensive incomeSalesCost of goods soldGain on InventoryLoss on inventory Answer 368000 To record the sale of copper June 1 AnswerNo entry requiredCashInventoryFutures contractAccounts payableOther comprehensive incomeSalesCost of goods soldGain on InventoryLoss on inventory 368000 Answer AnswerNo entry requiredCashInventoryFutures contractAccounts payableOther comprehensive incomeSalesCost of goods soldGain on InventoryLoss on inventory Answer368000
To recognize deferred gain
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