4. Accounting for Derivative Securities - Cash Flow Hedge (13 points) On November 1, 2018 Husky owned 1,000,000 barrels of oil that it wants to sell in March 2019. Husky acquired the oil for $50 per barrel in September from a local competitor that was going out of business. Husky management would like to hedge against a drop in the price by the time they sell the oil in March 2019. On November 1, 2018 the company enters into futures contracts to sell 1,000,000 barrels of oil in March 2019 for a price of $55 per barrel. Assume the future contracts have no value at inception, but that Husky makes a $30,000 deposit with a commodities broker on 11/1/2018. The company's managers designate this as a cash flow hedge, and the hedge is expected to be highly effective. (a) Assume that on December 31, 2018 the futures price for March 2019 delivery of oil has increased to $57.50 per barrel. Since Husky is a calendar year-end firm, how would Husky reflect the change in value of the futures contracts in their financial statements? (3 pts) (6) Assume that Husky sells the oil in March 2018 for $56.00 per barrel. $56/BBL is also the futures price at settlement of the futures contracts. Show the journal entries required to record both the sale of the oil and the settlement of the futures contracts with the broker in March 2019. Assume net settlement on the futures contracts. (10 pts)