At December 31, 2017, Ashley Co. has outstanding purchasecommitments for 150,000 gallons, at $6.20 pergallon, of a raw material to be used in its manufacturingprocess. The company prices its raw material inventoryat cost or market, whichever is lower. Assuming that themarket price as of December 31, 2017, is $5.90, howwould you treat this situation in the accounts?

Question
Asked Jan 9, 2020
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At December 31, 2017, Ashley Co. has outstanding purchase
commitments for 150,000 gallons, at $6.20 per
gallon, of a raw material to be used in its manufacturing
process. The company prices its raw material inventory
at cost or market, whichever is lower. Assuming that the
market price as of December 31, 2017, is $5.90, how
would you treat this situation in the accounts?

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Expert Answer

Step 1

Describe the way in which the given situation is treated in the accounts:

Compute the loss on purchase commitment:

Accounting homework question answer, step 1, image 1
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Step 2

Compute the total loss on purchase commit...

Accounting homework question answer, step 2, image 1
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