At December 31, 2014, Indigo Girls Company has outstanding noncancelable purchas
ID: 2499156 • Letter: A
Question
At December 31, 2014, Indigo Girls Company has outstanding noncancelable purchase commitments for 56,700 gallons, at $4.05 per gallon, of raw material to be used in its manufacturing process. The company prices its raw material inventory at cost or market, whichever is lower.
Account Titles and Explanation
Debit
Credit
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Account Titles and Explanation
Debit
Credit
At December 31, 2014, Indigo Girls Company has outstanding noncancelable purchase commitments for 56,700 gallons, at $4.05 per gallon, of raw material to be used in its manufacturing process. The company prices its raw material inventory at cost or market, whichever is lower.
Explanation / Answer
Date Accounts and explanations Debit ($) Credit ($) Dec. 31, 2014 Unrealized loss (56,700 * $4.05 - $2.7) 76,545 Estimated purchase commitment liability 76,545 (To record the unrealized loss on estimated purchase commitment liability) Jan. 2015 Purchases (56,700 * $2.7) 153,090 Estimated purchase commitment liability 76,545 Accounts payable 229,635 (To record the purchase after receipt of materials on credit)
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