Snackums, Incorporated, purchases wheat for use in its food manufacturing process. Snackums operates in a highly competitive
Question:
Snackums, Incorporated, purchases wheat for use in its food manufacturing process. Snackums operates in a highly competitive industry and is rarely able to increase its sales price.On January ?Snackums estimates that it only has enough wheat inventory to meet its manufacturing needs for the first half of ?and forecasts the purchase of ?bushels of wheat on June ?from its supplier, Trigo Farms.Because Snackums is concerned that the price of wheat will increase during the coming months it enters into four June wheat futures contracts on January ?to purchase wheat.Each futures contract is based on the purchase of ?bushels of wheat at $ ?per bushel on June ?and will settle in cash at maturity. For purposes of this problem, the current spot price is also $ ?per bushel.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.Snackums 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, Snackums concludes that the hedging relationship is expected to be ?effective.Date Price for June ?Deliveryper bushelJanuary ?$March ?$ ?During the third quarter, Snackums uses all of the wheat it purchases in production and sells the related inventory. What entry would Snackums make during the quarter ended September ?related to the hedged transaction Ignore the Sales entry and net the two entries with Cost of Goods Sold to write only one entryplete this question by entering your answers in the tabs below.During the third quarter, Snackums uses all of the wheat it purchases in production and sells the related inveSnackums make during the quarter ended September ?related to the hedged transaction?