The Hershey Company uses futures to lock in the cost of cocoa products it needs to produce its products. Hershey forecasts that it will need 500 tons of cocoa in 90 days to manufacture its products. On February 10, 2016, it purchases 500 tons of cocoa futures at $3,200/ton for delivery on May 10, 2016, and makes a $1,600 margin deposit. The long futures position qualifies as a cash flow hedge of the forecasted purchase of cocoa, and is considered highly effective. On May 10, the spot price of cocoa is $3,250/ton, Hershey closes the contract and purchases 500 tons of cocoa on the spot market. Later in the year, products containing the cocoa are sold to retailers.

Required:

Prepare the entries necessary to record the above events, including the cost of cocoa reported in cost of goods sold when products containing the cocoa are sold. Hershey is a calendar-year company.

Answer rating: 100% (QA)

Date Particulars Debit Credit Feb 10 2016 Future contr... View the full answer