Shelby Organics produces bottled orange juice. Orange juice concentrate is typically bought and sold by the pound, and Shelby uses 50,000 pounds of orange juice concentrate each month. On December 1, 2013, Shelby entered into an orange juice concentrate futures contract to buy 50,000 pounds of concentrate on January 1 at a price of $0.95 per pound, which is also the market price of concentrate on December 1. Shelby designates the futures contract as a hedge of the forecasted purchase of orange juice concentrate in January.
Make all journal entries necessary on Shelby's books on December 1, 2013, December 31, 2013, and January 1, 2014, to record this futures contract and to record the purchase of 50,000 pounds of orange juice concentrate on January 1. On December 31, 2013, and on January 1, 2014, the market price of concentrate is $0.85 per pound.