A company expects to purchase 1,000,000 lbs. of a commodity in 30 days for resale to customers. To guard against potential increases in the cost of this commodity, the company purchases 1,000,000 lbs. of the commodity for delivery in 30 days at $2.75/lb., paying a margin deposit of $2,000 on the futures contract. The hedge qualifies as a hedge of the forecasted purchase. After 30 days, the futures price converges to the spot price of $2.80/lb. and the company closes out its long futures position. The company purchases 1,000,000 lbs. of the commodity on the spot market and subsequently sells the commodity to a customer for $2.82/lb. All income effects of the commodity inventory and the hedge are reported in cost of goods sold.
Required
Prepare the journal entries necessary to record the above events.

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The Answer of A company expects to purchase 1,000,000 lbs. of a commodity in 30 days for resale to customers. To guard against potential increases in the cost of this commodity, the company purchases 1,000,000 lbs. of the commodity for delivery in 30 days at $2.75/lb., paying a margin deposit of $2,000 on the futures contract. The hedge qualifies as a hedge of the forecasted purchase. After 30 days, the futures price converges to the spot price of $2.80/lb. and the company closes out its long futures position. The company purchases 1,000,000 lbs. of the commodity on the spot market and subsequently sells the commodity to a customer for $2.82/lb. All income effects of the commodity inventory and the hedge are reported in cost of goods sold.
Required
Prepare the journal entries necessary to record the above events.

A Company Expects to Purchase 1,000,000 Lbs