Advanced Accounting 11th Edition by Paul Fischer,William Tayler, Rita Cheng

Exercise 1

Fair value hedges using futures. A large corporate farming operation is holding an inventory of corn and wheat and is concerned that excess harvests this season will lower the value of the commodities. In order to hedge against adverse market changes, the corporation acquired the following contracts on June 1:
• 30 contracts to sell 5,000 bushels of corn in December at a future price of $3.56 per bushel.
• 30 contracts to sell 5,000 bushels of wheat in December at a future price of $6.35 per bushel.