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Please help with what I have gotten incorrect so far. Cash Flow Hedge: Long in Commodity Futures The Hershey Company uses futures to lock in
Please help with what I have gotten incorrect so far.
Cash Flow Hedge: Long in Commodity Futures The Hershey Company uses futures to lock in the cost of cocoa products it needs to produce its products. Hershey forecasts that it will need 500 tons of cocoa beans in 90 days to manufacture its products. On February 10, 2020, it purchases 500 tons of cocoa bean futures at $2,000/ton for delivery on May 10, 2020, and makes a $5,000 margin deposit. The long futures position qualifies as a cash flow hedge of the forecasted purchase of cocoa beans, and is considered highly effective. On May 10, the spot price of cocoa beans is $2,050/ton, Hershey closes the contract and purchases 500 tons of cocoa beans on the spot market. Later in the year, products containing the cocoa are sold to retailers. Required Prepare the entries necessary to record the above events, including the cost of cocoa reported in cost of goods sold when products containing the cocoa are sold. Hershey is a calendar-year company. Debit Credit 1,000,000 X 0 0 x 1,000,000 x 0 5,000 X 0 5,000 X General Journal Date Description Feb. 10, 2020 Investment in futures Cash To record the margin deposit May 10, 2020 Investment in futures Other comprehensive income To record the gain on the long term position Cash Investment in futures To close the futures contract Commodity inventories Cash To record the purchase of cocoa in the spot market. At the time products containing cocoa are sold: Cost of goods sold Cash Commodity inventories To record the cost of the cocoa in products sold. 5,000 X 0 0 5,000 X x 1,025,000 0 0 1,025,000 1,025,000 x OX 0 1,000,000 x 25,000 X 0Step by Step Solution
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