2 On September 30, 2020, Design inc. enters a futures contract to hedge the value of gold flakes which is used in their manufacturing process. The future contract is for the sale of gold bricks which has a slightly different price then gold flakes. The gold flakes are reported on the balance sheet at $350,000. On December 31, 2020, the market value of the gold flakes declines to $320,000. However, the futures contact increased in value by $25,000. On March 30, 2021, Design Inc sells their inventory (including the gold flakes) for $300,000. During March, the future increased in value by another $40,000. 1. Assume the correlation between the price of gold flakes and gold bars is 0.92. a. What accounting approach is required to record this derivative transaction (stand alone, fair value hedge, or cash flow hedge)? b. Record all the relevant entries for the derivative contract on December 31, 2020, and March 30, 2021. Assume Design Inc. is hedging the future price of their inventory. 2. Assume the correlation between the price of gold flakes and gold bars is 0.79. a. What accounting approach is required to record this derivative transaction (stand alone, fair value hedge, or cash flow hedge)? b. Record all the relevant entries for the derivative contract on December 31, 2020, and March 30, 2021. Assume Design Inc. is attempting to hedge the future price of | their inventory