On November 1, 2020, Yummy Cereal Inc. forecasts that it will purchase 1,000,000 bushels of oats in 4 months for use in the manufacture of its cereal products. To hedge against rising costs, Yummy Cereal Inc. buys 1,000,000 March 2021 call options for oats, with a strike price of $2.75/bushel. The options cost $0.10/bushel, and the spot price on November 1 is $2.72/bushel. Management designates the intrinsic value of the options as the hedge, and the options qualify as a cash flow hedge of the forecasted purchase. Yummy Cereal Inc. records all income effects of the inventory and the hedge in cost of goods sold. On December 31, 2020, Yummy Cereal Inc.s year-end, the spot price for oats is $2.77/bushel and the options are selling for $0.13/bushel. On March 1, 2021, the spot price for oats is $2.80/bushel and Yummy Cereal Inc. sells the options for their intrinsic value of $0.05/bushel. On March 3, 2021, Yummy Cereal Inc. purchases 1,000,000 bushels of oats at the spot price of $2.81/bushel. It sells products containing the oats on June 5, 2021.

Required) Prepare entries to record the above events, including the December 31, 2020 year-end adjusting entry. Assume Yummy Cereal Inc. reports the change in option time value directly in income.

Please display all your calculations.