Martins Cove Company employs 25 analysts who closely track news about supply and demand for livestock and agricultural commodities. Martins Cove uses that information to enter into futures contracts based on its prediction of which way agriculture prices are heading. On December 1, 2013, Martins Cove entered into the following three contracts:

All three of the contracts are to be settled on January 1, 2014.
Instructions:
1. Make the adjusting journal entries necessary on December 31, 2013, assuming the following market prices per pound on that date: feeder cattle, $1.53; pork bellies, $0.55; and milk, $0.67.
2. Martins Cove has much information about agricultural products. What advantages are there to using this information to trade derivative contracts rather than buying and selling cattle, hogs, and milk directly? What are the disadvantages?

Transcribed Image Text:

Futures Price per Pound Market Price per Pound on Dec. 1, 2013 Type of Contract 250,000 pounds 800,000 500,000 $1.65 0.45 0.70 Purchase feeder $1.65 0.45 0.70 Purchase milk.