Accounting for fair value hedge of inventory (ineffectiveness in the hedge) Our company reports commodities inventory on our balance sheet at $1 million. The inventory has a fair value of $1.1 million and we are concerned about a forecasted decline in the commodity price. We a financial derivative in order to mitigate this risk. On the last day of the period, the fair value of the inventory has declined by $25,000 whereas, the fair value of the derivative has increased by $22,500. All of the inventory is sold at its fair value and the derivative is settled on the last day of the period. Complete the following table of the required journal entries during the period:

Use a negative sign with your answers to indicate a credit entry.

	Debit (Credit)
	Cash	Derivative	Inventory	Earnings
Recognize the change in the fair value of the derivative	$Answer	$Answer	$Answer	$Answer
Recognize the change in the fair value of the inventory	Answer	Answer	Answer	Answer
Recognize revenue from the sale	Answer	Answer	Answer	Answer
Recognize cost of goods sold relating to the sale	Answer	Answer	Answer	Answer
Recognize settlement of the derivative	Answer	Answer	Answer	Answer