Question

On July 10, 2018, Johnson Corporation signed a purchase commitment to purchase inventory for $390,000 on or before February 15, 2019. The company's fiscal year-end is December 31. The contract was exercised on February 1, 2019, and the inventory was purchased for cash at the contract price. On the purchase date of February 1, the market price of the inventory was $398,000. The market price of the inventory on December 31, 2018, was $367,000. The company uses a perpetual inventory system.How much loss on purchase commitment will Johnson recognize in 2018?A) $8,000B) $23,000C) $31,000D) none.

Answer 1

Answer:

correct option is  B) $23,000

Explanation:

given data

purchase inventory = $390,000

market price  inventory = $398,000

market price  inventory = $367,000

to find out

How much loss on purchase commitment will Johnson recognize

solution

we know here that market price of inventory on is given $367,000

and here agreed to purchase for $390,000

so that we can say that Johnson Company will recognize that

purchase commitment  recognize = purchase inventory - market price  inventory   ......................1

purchase commitment  recognize = $390,000 - $367,000

purchase commitment  recognize =  $23,000

so loss on purchase commitment is $23,000

so correct option is  B) $23,000