3.[14 total points] Windham Inc. purchases wheat for use in its food manufacturing process. Windham operates in a highly competitive industry and is rarely able to increase its sales price. On January 1, 2024, Windham estimates that it only has enough wheat inventory to meet its manufacturing needs for the first half of 2024 and forecasts the purchase of 45,000 bushels of wheat on June 30, 2024, from its supplier, Seasons Farms. Because Windham is concerned that the price of wheat will increase during the coming months it enters into a June wheat futures contract on January 1, 2024, to purchase wheat. The futures contract is based on the purchase of 45,000 bushels of wheat at $5.50 per bushel on June 30, 2024, and will settle in cash at maturity. The company must report changes in the fair value of its hedging instruments each quarter. The fair value of the futures contract at inception is zero. Windham designates the futures contract as a hedge of the variability of cash flows attributed to changes in the spot price of wheat for its forecasted purchase of wheat. Since the critical terms of the forward contract and the forecasted purchase are exactly the same, Windham concludes that the hedging relationship is expected to be 100% effective. The spot and forward prices per bushel of wheat and the fair value of the forward contract are as follows: Date Spot Price (per bushel) Futures Price (per bushel) January 1, 2024 $5.45 $5.50 March 31, 2024 $5.49 $5.54 June 30, 2024 $5.70 n/a

Required: a)[6 points] Calculate the net cash settlement at June 30, 2024.

b)[8 points] Prepare the journal entries for the period January 1 to June 30, 2024, to record the forecasted purchase transaction, necessary adjustment for changes in the fair value of the futures contract, and settlement of the contract. Assume that Windham purchases the wheat inventory from Seasons Farms on June 30, 2024, as anticipated.