Treetoo Limited wishes to buy 10,000 shares of \(\mathrm{YCo}\), a publiclytraded company. Treetoo enters into a contract, through a broker, to buy the shares in 40 days' time, at a price of \(\$ 3\) per share, the current fair value. The broker requires a \(10 \%\) margin to be maintained at all times. After 10 days, at the fiscal year-end, the price of the YCo shares is \(\$ 4\) per share, and is \(\$ 4.50\) per share at the end of 40 days. At that time, the shares are purchased and the contract is closed out.

Required:

1. Is this a forward contract or a futures contract? Explain.

2. What risk is the company hedging?

3. Prepare journal entries to record the inception of the contract, the change in its fair value at year-end and the additional margin payment, and its maturity.