One orange juice future contract is on $15,000$ pounds of frozen concentrate.

Suppose that in September $2017$ a company short sells a March $2019$ orange juice

futures contract for $120$ cents per pound. At the end of December $2017$ the futures

price is $140$ cents; at the end of December $2018$ the futures price is $110$ cents; and

in February $2019$ it is closed out at $125$ cents. The company has a December $31$

Risk: If the stock price rises instead of falling, you will lose money

because you have to buy the stock back at a higher price than you

sold it for.

Unlimited Loss Potential: If the stock price keeps going up$,$ your

losses can be unlimited because there$$s no limit to how high a

stock price can go$.$

An Example of Short Selling in the Futures Market:

You go short on a wheat futures contract at $$5$ per bushel.

If the price drops to $$4,$ you can buy back the contract and make a

profit of $$1$ per bushel.

year end. What is the company's profit or loss on the contract? How is it realized?

What is the accounting and tax treatment of the transaction if the company is

classified as a$)$ a hedger and b$)$ a speculator?