On May 1, 20X3, Keister, Inc., acquires 100,000 units of commodity futures contracts at $5/unit for delivery in 120 days. The commodity futures are at-the-money and require no initial investment.

Keister will buy the commodity from a supplier in 90 days and will sell it 30 days later at the prevailing spot price to a customer pursuant to a firm sales commitment.

Keister designates the futures contracts to protect the value of the firm sales commitment.

Spot and futures prices move in tandem. Keister has a May 30 fiscal year-end.

Required: Prepare entries, as needed, for each of the following events and dates:

1. May 1, 20X3 Keister acquires the commodity futures.

2. May 30, 20X3 adjusting entries related to the futures and the firm commitment. The futures price is $4.80 at that time.

3. On July 30, 20X3 Keister purchases the commodity for $460,000. The futures price is $4.75 on that day.

4. On August 28, 20X3, when the spot and futures price is $4.77, Keister closes out the futures contract and sells the commodity to their customer.

5. What gross profit did Keister earn on this sale? What gross profit would they have earned if they had not entered into the commodity futures contract?