A Company Hedges Its Purchases of Oats, Expected to Occur

Multiple Choice

A company hedges its purchases of oats, expected to occur in 3 months, using oat futures expiring in 3 months. Which statement is true concerning value changes in the oat futures?

A) If the futures qualify as a fair value hedge of a firm commitment to buy oats, all gains and losses on the futures are reported in income with no offset from the hedged item.
B) If the futures are effective hedges of forecasted purchases, losses on the futures are reported in income, but gains adjust the value of the oat inventory.
C) If the futures are effective hedges of a firm commitment to buy oats, gains and losses on the futures adjust cost of goods sold as they occur.
D) If the futures are effective hedges of forecasted purchases, gains and losses on the futures adjust cost of goods sold as they occur.