American Italian Pasta Company (AIPC) manufactures several varieties of pasta. On January 1, 2016, AIPC had excess commodity inventories carried at acquisition cost of \($150,000.\) These commodities could be sold or manufactured into pasta later in the year. To hedge against possible declines in the value of its commodities inventory, on January 6 AIPC sold commodity futures, obligating the company to deliver the commodities in February for \($160,000.\) The futures exchange requires a \($10,000\) margin deposit. On February 19, the futures price increased to \($171,000\) and the company closed out its futures contract. Spot prices continued to rise and AIPC sold its inventory for \($473,500\) in cash on March 2.

Required

a. Prepare the journal entries related to AIPC’s futures contract and sale of commodities inventory. Assume a perpetual inventory system, that spot and futures prices move in tandem, and the futures position qualifies for hedge accounting.

b. By how much would AIPC’s profit increase if the hedge was not undertaken?