Question

During the current fiscal year, Sandhill Corp. signed a long-term noncancellable purchase commitment with its primary supplier. Sandhill agreed to purchase $1.92 million of raw materials during the next fiscal year under this contract. At the end of the current fiscal year, the raw material to be purchased under this contract had a market value of $1.56 million. What is the journal entry at the end of the current fiscal year?

Answer 1

Answer:

Journal Entry

Explanation:

The Journal entry is shown below:-

Unrealized Holding Gain or Loss Dr,                         $360,000

        To Estimated Liability on Purchase Commitment              $360,000

(Being unrealized Holding Gain or Loss is recorded)

Working note:-

= $1.92 million - $1.56 million

= $360,000

So, at the end of the current fiscal year we simply debited Unrealized Holding Gain or Loss and credited  Estimated Liability on Purchase Commitment.