Question 23 Partially correct Mark 1.98 out of 10.87 Flag question Accounting for Cash Flow Hedge: Futures Contract In October, Rye Company, a producer of a grain-based product, determined that it would need 90,000 bushels of grain near the end of February of the following year. Rye Company expects the current price of $4 per bushel of grain to change and does not want to assume the risk of such market price changes. As a result, Rye Company enters into a futures contract with Chicago Clearing House Inc. (CCH) to hedge the risk of market price changes of grain. The cost of the cash flow hedge (futures contract) is zero. The futures contract provides that Rye Company purchases the grain at the date needed at market price, but CCH must pay Rye Company any differences above $4/bushel while Rye Company pays to CCH any differences below $4/bushel. Assume that the market price of grain is $4.20/bushel on December 31 and that Rye Company settles the futures contract with CCH and purchases the 90,000 bushels on February 20 of the following year in the market for $4.30/bushel. Required a. Prepare the journal entry required on November 1 (if any) related to the purchase of the futures contract. Note: If a journal entry isn't required, select "N/A-Debit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). Date Nov. 1, Year 1 N/A-Debit N/A-Credit Account Name To record initiation of futures contract Dr. Cr. 0 0 0 0 b. Prepare the journal entry required on December 31 (if any) for the futures contract. Note: If a journal entry isn't required, select "N/A-Debit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). Date Account Name Dec. 31, Year 1 Fair Value Adjustment Unrealized Gain or Loss-Income To record year-end adjustments Dr. Cr. 27,000 0 0 27,000 x