Cavalier Bicycles uses carbon fiber to produce its high-performance road and mountain bikes. Cavalier anticipates it will need to purchase 45,000 pounds of carbon fiber in July 2025 to make enough bikes to meet its fourth-quarter sales demand. However, if the price of carbon fiber increases, the cost to produce the bikes will increase and in turn lower Cavalier's profit margins. To hedge against the risk of rising carbon fiber prices, on June 1, 2025, Cavalier entered into a forward contract with a third party to buy 45,000 pounds of carbon fiber at the current spot price of $10 per pound. It designates the contract as a cash flow hedge of the anticipated carbon fiber purchase. The price in the contract expires on July 31, 2025, and the contract will be settled by an exchange of cash with the intermediary based on the spot price on the settlement date. On June 30, the spot price increased to 10.50.

Record journal entries on June 1, June 30, July 2, and July 31 (settlement of forward contract and related sale of inventory) for the above transactions.