65. Use of futures contracts to hedge cotton inventory-fair value hedge On December 1, 2018, a cotton wholesaler purchases 10 million pounds of cotton inventory at an average cost of 95 cents per pound. To protect the inventory from a possible decline in cotton prices, the company sells cotton futures contracts for 10 million pounds at 86 cents a pound for delivery on June 1, 2019, to coincide with its expected physical sale of its cotton inventory. The company designates the hedge as a fair value hedge (i.e., the company is hedging changes in the inventory's fair value, not changes in cash flows from anticipated sales). The cotton spot price on December 1 is 94 cents per pound. On December 31, 2018, the company's fiscal year-end, the June 1 cotton futures price has fallen to 76 cents a pound, and the spot price has fallen to 85 cents a pound. On June 1, 2019, the company closes out its futures contracts. Following are futures and spot prices for the relevant dates: Date Spot Futures December 1, 2018..... $0.94 $0.86 December 31, 2018. $0.85 $0.76 June 1, 2019..... $0.67 n/a Prepare the journal entries to record the following: a. Purchase of cotton b. Sale of cotton futures contract c. Adjusting entry at December 31 d. Sale of cotton on June 1