manufactures several varieties of pasta. On January 1, 2020, had excess commodity inventories carried at acquisition cost of $1,000,000. 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 sold commodity futures, obligating the company to deliver the commodities in February for $1,100,000. The futures exchange requires a $20,000 margin deposit. On February 19, the futures price increased to $1,150,000 and the company closed out its futures contract. Spot prices continued to rise and sold its inventory for $1,175,000 in cash on March 2.

Required

a. Prepare the journal entries related to 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. All income effects for the inventories and related hedges are reported in cost of goods sold.