Question

During the prior fiscal year, lindon inc. signed a long-term noncancellable purchase commitment with its primary supplier to purchase $1.7 million of raw materials. lindon paid the $1.7 million to acquire the raw materials when the raw materials were only worth $1.4 million. assume that the purchase commitment was properly recorded. what is the journal entry to record the purchase?

Answer 1

In this item, since the purchase has been made and that it was due to the agreement that that said amount is paid rather than a smaller one, the element that should be taken to the journal should be $1.7 in cash out column. The money is used to pay the liability. In this manner, the corporation will not have the need to physical call on someone to explain when the numbers in the journal do not match.