Arlington Steel Company is a producer of raw steel and steel-related products. On January 3, 2022, Arlington enters into a firm commitment to purchase 10,000 tons of Iron ore pellets from a supplier to satisfy spring production demands. The purchase is to be at a fixed price of $77 per ton on April 30, 2022. To protect against the risk of changes in the fair value of the commitment contract, Arlington enters into a futures contract to sell 10,000 tons of iron ore on April 30 for $77/ton (the current price). The contract calls for net cash settlement, and the company must report changes in the fair values of its hedging instruments each quarter. Required: On March 31, the price of iron ore fell to $75/ton, and then to $74/ton on April 30. 1. Calculate the net cash settlement at April 30, 2022 2. Prepare the journal entries for the period January 3 to April 30, 2022, to record the firm commitment, necessary adjustments for changes in fair value, and settlement of the futures contract.
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Arlington Steel Company is a producer of raw steel and steel-related products. On January 3, 2022, A...
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