Question

Flint Company signed a long-term noncancelable purchase commitment with a major supplier to purchase raw materials in 2018 at a cost of $990,700. At December 31, 2018, the raw materials to be purchased have a market value of $942,000. Prepare any necessary December 31, 2018 entry.

Answer 1

Answer:

JOURNAL ENTRY :

Unrealized holding loss on purchase commitment - - - - - $48,700 Dr.

Estimated liability on purchase commitment ($990,700 - $942,000) - - - - 48,700 Cr.

Explanation:

Given the following :

Agreed purchase price of raw materials in 2018 = $990,700

Market value of raw material at 31, December 2018 = $942,000

JOURNAL ENTRY :

Unrealized holding loss on purchase commitment - - - - - $48,700 Dr.

Estimated liability on purchase commitment ($990,700 - $942,000) - - - - 48,700 Cr.