On October 6, 2018, the Elgin Corporation signed a purchase commitment to purcha

Question

On October 6, 2018, the Elgin Corporation signed a purchase commitment to purchase inventory for $117,000 on or before March 31, 2019. The company's fiscal year-end is December 31. The contract was exercised on March 21, 2019, and the inventory was purchased for cash at the contract price. On the purchase date of March 21, the market price of the inventory was $73,000. The market price of the inventory on December 31, 2018, was $94,000. The company uses a perpetual inventory system. Requirec 1. Prepare the necessary adjusting journal entry (if any is required) on December 31, 2018 and entry to record the purchase on March 21, 2019. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet 2 Record any necessary adjusting entry related to the purchase commitment

Explanation / Answer

Answer

1.Adjusting entry:

loss on purchase commitment =Signed value of inventory - market price of the inventory

=$117000-$94000

=$23000

2.Journal entry to record the purchase:

Loss on purchase commitment =market price of inventory dec.31,2018 - maket price of inventory on march 21,2019

=$94000-$73000

=$21000

Date Particulars Dr Cr Dec.31,2018 Estimated loss on purchase commitment $23000 Estimated liability on purchase commitment $23000 (Being record the loss on purchase commitment )

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