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Use of futures contracts to hedge cotton inventory-fair value hedge 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 imventory. 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 company's 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: 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