Snackums, Incorporated, purchases wheat for use in its food manufacturing process. Snackums operates in a highly competitive

industry and is rarely able to increase its sales price.

On January $1,2024,$ Snackums estimates that it only has enough wheat inventory to meet its manufacturing needs for the first

half of $2024,$ and forecasts the purchase of $20,000$ bushels of wheat on June $30,2024,$ from its supplier, Trigo Farms.

Because Snackums is concerned that the price of wheat will increase during the coming months it enters into four June wheat

futures contracts on January $1,2024,$ to purchase wheat.

Each futures contract is based on the purchase of $5,000$ bushels of wheat at $$6\mathrm{.}73$ per bushel on June $30,2024,$ and will settle

in cash at maturity. $($For purposes of this problem, the current spot price is also $$6\mathrm{.}73$ per bushel.$)$

The company must report changes in the fair value of its hedging instruments each quarter. The fair value of the futures contract

at inception is zero.

Snackums designates the futures contract as a hedge of the variability of cash flows attributed to changes in the spot price of

wheat for its forecasted purchase of wheat.

Since the critical terms of the forward contract and the forecasted purchase are exactly the same, Snackums concludes that the

hedging relationship is expected to be $100\%$ effective.

Required:

$1.$Calculate the net cash settlement at June $30,2024$ when $20,000$ bushels of wheat are purchased for $$6\mathrm{.}90$ per bushel.

$2.$Prepare the journal entries for the period January $1$ to June $30,2024,$ to record the forecasted purchase transaction, necessary

adjustment for changes in the fair value of the futures contract, and settlement of the contract. Assume that Snackums purchases

the wheat inventory from Trigo Farms on June $30,2024,$ as anticipated.

$3.$During the third quarter, Snackums uses all of the wheat it purchases in production and sells the related inventory. What

entry would Snackums make during the quarter ended September $30,2024,$ related to the hedged transaction $($Ignore the Sales

entry and net the two entries with Cost of Goods Sold to write only one entry$)?$

Please complete required $1,2,$and $3$ above. Required number $2$ has five entries:

$1.$ Record the forecasted purchase transaction. $01/01/2024$

$2.$ Record the change in fair value of the futures contract. $03/31/2024$

$3.$ Record the change in fair value of the futures contract. $06/30/2024$

$4.$ Record the net settlement of the futures contract. $06/30/2024$

$5.$ Record the purchase of wheat inventory at the spot rate. $06/30/2024$