On December 1, 2015, Legoria Co. decided to hedge against potential fluctuations in the price of wheat [this wheat is a special type Wheat for PoBoy loaves] for its forecasted purchases in January of 2016 and bought a futures contract entitling and obliging Legoria Co. to purchase 1,000 bushels of wheat on January 2, 2012 for $4.00 per bushel. Since the market price on this date is also $4.00 per bushel, the intrinsic value is zero.
Required:
1) Prepare appropriate the appropriate journal entry on December 1, 2015 to record the purchase of this futures contract by Legoria Co.
2) On December 31, 2015 [the Balance sheet date], the actual price of wheat is $4.40 per bushel. Prepare any entry(s) required to account for the futures contract on this date.
3) On January 2, 2016, Legoria Co. acquires 1,000 bushels of wheat at $4.40 per bushel. Prepare any entry(s) required to account for this purchase and the futures contract on this date.
4) On January 31, 2016, Legoria Co. sells $10,000 worth of PoBoy Loaves. The COGS related to this sell is $6,000. Prepare the journal entry(s) to account for this sale and the futures contract on this date.