On January 1, a Company Receives a Purchase Order from a Customer

Essay

On January 1, a company receives a purchase order from a customer for 1,000,000 lbs. of a commodity, to be delivered in 90 days at the spot rate prevailing on the delivery date. The company sells 1,000,000 lbs. of commodity futures at a price of $3/lb. for delivery in 90 days, as a hedge of the sale proceeds, and pays a margin deposit of $30,000. The futures qualify as a fair value hedge of the sales commitment, and income effects of the sale and the futures are reported in sales revenue. On April 1, the company settles the futures contract and delivers the commodity to the customer at the current spot rate of $2.92/lb.
Required
Prepare the journal entries to record the events of January 1 and April 1. The company's accounting year ends December 31.