Hi,

Could you help me answer setp by step ? Appreciate in advance!

3.Use of futures contracts to hedge cotton inventoryfair value hedge

On December 1, 2014, a cotton wholesaler purchases 7 million pounds of cotton inventory at an average cost of 75 cents per pound. To protect the inventory from a possible decline in cotton prices, the company sells cotton futures contracts for 7 million pounds at 66 cents a pound for delivery on June 1, 2015, to coincide with its expected physical sale of its cotton inventory. The company designates the hedge as a fair value hedge (i.e., the company is hedging changes in the inventorys fair value, not changes in cash flows from anticipated sales). The cotton spot price on December 1 is 74 cents per pound.

On December 31, 2014, the companys fiscal year-end, the June cotton futures price has fallen to 56 cents a pound, and the spot price has fallen to 65 cents a pound. On June 1, 2015, the company closes out its futures contracts by entering into an offsetting contract in which it agrees to buy June 2015 cotton futures contracts at 47 cents a pound, the spot rate on that date. Finally, the company sells its cotton for $0.47 per pound on June 1, 2015.

Following are futures and spot prices for the relevant dates:

Date	Spot	Futures
December 1, 2014	74	66
December 31, 2014	65	56
June 1, 2015	47	n/a

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 cotton

b .sale of futures contract

c.adjusting entry at December 31.

To adjust the carrying amount of the inventory 12/31/2014

d.sale of cotton on June 1 .