On December 1, 2021, a cotton wholesaler purchases 8.4 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 8.4 million pounds at 86 cents a pound for delivery on June 1, 2022, 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 inventorys 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, 2021, the companys 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, 2022, the company closes out its futures contracts.

Following are futures and spot prices for the relevant dates:

Date	Spot	Futures
December 1, 2021	$0.94	$0.86
December 31, 2021	$0.85	$0.76
June 1, 2022	$0.67	n/a

Required 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 Note: If no entry is required, select "No entry required" for both the debit and credit account titles.

General Journal
Date	Description	Debit	Credit
12/1/21	Accounts payableAccounts receivableCashCosts of goods soldCotton inventoryCotton salesFutures contractNo entry required
	Accounts payableAccounts receivableCashCosts of goods soldCotton inventoryCotton salesFutures contractNo entry required
	To record purchase of cotton.
12/1/21	Accounts payableAccounts receivableCashCosts of goods soldCotton inventoryCotton salesFutures contractNo entry required
	Accounts payableAccounts receivableCashCosts of goods soldCotton inventoryCotton salesFutures contractNo entry required
	To record sale of futures contract.
12/31/21	Accounts payableAccounts receivableCashCosts of goods soldCotton inventoryCotton salesFutures contractNo entry required
	Accounts payableAccounts receivableCashCosts of goods soldCotton inventoryCotton salesFutures contractNo entry required
	To adjust carrying amount of inventory.
12/31/21	Accounts payableAccounts receivableCashCosts of goods soldCotton inventoryCotton salesFutures contractNo entry required
	Accounts payableAccounts receivableCashCosts of goods soldCotton inventoryCotton salesFutures contractNo entry required
	To adjust the futures contract.
6/1/22	Accounts payableAccounts receivableCashCosts of goods soldCotton inventoryCotton salesFutures contractNo entry required
	Accounts payableAccounts receivableCashCosts of goods soldCotton inventoryCotton salesFutures contractNo entry required
	Futures contract
	To close out futures contract.
	Accounts payableAccounts receivableCashCosts of goods soldCotton inventoryCotton salesFutures contractNo entry required
	Accounts payableAccounts receivableCashCosts of goods soldCotton inventoryCotton salesFutures contractNo entry required
	To adjust carrying amount of inventory.
	Accounts receivable
	Accounts payableAccounts receivableCashCosts of goods soldCotton inventoryCotton salesFutures contractNo entry required
	Cotton Sales
	Accounts payableAccounts receivableCashCosts of goods soldCotton inventoryCotton salesFutures contractNo entry required
	To record sale of cotton inventory.