At December 31, 2020, 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, 2020, is $5.90, how would you treat this situation in the accounts?
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At December 31, 2020, 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, 2020, is $5.90, how would you treat this situation in the accounts?
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- During 2019, R Corp., a manufacturer of chocolate candies, contracted to purchase 100,000 pounds of cocoa beans at 1.00 per pound, delivery to be made in the spring of 2020. Because a record harvest is predicted for 2020, the price per pound for cocoa beans had fallen to 0.80 by December 31, 2019. Of the following journal entries, the one that would properly reflect in 2019 the effect of the commitment of R Corp. to purchase the 100,000 pounds of cocoa is:Moore Company uses the LIFO cost flow assumption and carries Product A in inventory on December 31, 2019, at its unit cost of 9.50. Because of a sharp decline in demand for the product, the selling price was reduced to 10.00 per unit. Moores normal profit margin on Product A is 2.00, disposal costs are 1.00 per unit, and the replacement cost is 6.50. Under the lower of cost or market rule, Moores December 31, 2019, inventory of Product A should be valued at a unit cost of: a. 6.50 b. 9.00 c. 7.00 d. 9.50On January 1, 2019, Piper Company entered into an agreement with Save-Mart to sell its most popular product, the gadget. The contract stipulates that the price per unit will decrease as Save-Mart purchases higher volumes of the gadget, as follows: The contract states that Save-Mart pays Piper the unit price based on the current sales volume. Once a volume threshold is reached, the price is retroactively reduced to the applicable price per unit. Based on its past experience with similar contracts, Piper believes that the total sales volume for the year will be 1,800 units and uses the most likely amount approach to estimate variable consideration. In addition, Piper concludes it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur once the uncertainty surrounding the variable consideration is resolved. Required: 1. Determine the transaction price per unit that Piper should use to record revenue. 2. Assume that Save-Mart purchases 800 units in the first quarter of 2019 and 900 units in the second quarter of 2019. Prepare Pipers journal entries to record the sales in the first and second quarters. 3. Given the higher than expected sales volume in the first half of the year, Piper increases its estimate of the sales volume to 2,800 units. Prepare the journal entry to record this change in estimate.
- Berg Company began operations on January 1, 2019, and uses the FIFO method in costing its raw materials inventory. During 2020, management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed: Required: What is the effect on income before income taxes in 2020 of a change to the LIFO method?Fava Company began operations in 2018 and used the LIFO inventory method for both financial reporting and income taxes. At the beginning of 2019, the anticipated cost trends in the industry had changed, so that it adopted the FIFO method for both financial reporting and income taxes. Fava reported revenues of 300,000 and 270,000 in 2019 and 2018, respectively. Fava reported expenses (excluding income tax expense) of 125,000 and 120,000 in 2019 and 2018, which included cost of goods sold of 55,000 and 45,000, respectively. An analysis indicates that the FIFO cost of goods sold would have been lower by 8,000 in 2018. The tax rate is 21%. Fava has a simple capital structure with 15,000 shares of common stock outstanding during 2018 and 2019. It paid no dividends in either year. Required: 1. Prepare the journal entry to reflect the change. 2. At the end of 2019, prepare the comparative income statements for 2019 and 2018. Notes to the financial statements are not necessary. 3. At the end of 2019, prepare the comparative retained earnings statements for 2019 and 2018.At December 31, 2020, Indigo Girls Company has outstanding noncancelable purchase commitments for 36,000 gallons, at $3.00 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.Instructionsa. Assuming that the market price as of December 31, 2020, is $3.30, how would this matter be treated in the accounts and statements? Explain.b. Assuming that the market price as of December 31, 2020, is $2.70, instead of $3.30, how would you treat this situation in the accounts and statements?c. Give the entry in January 2021, when the 36,000-gallon shipment is received, assuming that the situation given in (b) above existed at December 31, 2020, and that the market price in January 2021 was $2.70 per gallon. Give an explanation of your treatment.
- 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?During 2020, BIOT Company signed a non-cancelable contract with BTS Company to purchase 5,000 units of goods at P 1,500 per unit with delivery to be made in 2021. On December 31,2020, the price had fallen to P 1,450 per unit. On March 1,2021, the price per unit further decreased to P 1,350. What is the amount of loss on purchase commitments recognized upon delivery of the 1,000 sacks on March 1,2021?During 2020, ABC Company signed a non-cancelable contract with XYZ Company to purchase 5,000 units of goods at P 1,500 per unit with delivery to be made in 2021. On December 31,2020, the price had fallen to P 1,450 per unit. On March 1,2021, the price per unit further decreased to P 1,350. What is the amount of loss on purchase commitments recognized upon delivery of the 1,000 sacks on March 1,2021?Required to answer. Single choice.
- During 2020, ABC Company signed a non-cancelable contract with XYZ Company to purchase 5,000 units of goods at P 1,500 per unit with delivery to be made in 2021. On December 31,2020, the price had fallen to P 1,450 per unit. On March 1,2021, the price per unit further decreased to P 1,350. What is the amount of loss on purchase commitments recognized upon delivery of the 1,000 sacks on March 1,2021? a. P 50 b. P 750,000 c. P 250,000 d. P 500,000Sheridan Company sells goods that cost $320,000 to Ricard Company for $403,500 on January 2, 2020. The sales price includes an installation fee, which has a standalone selling price of $38,500. The standalone selling price of the goods is $365,000. The installation is considered a separate performance obligation and is expected to take 6 months to complete.(a) Prepare the journal entries (if any) to record the sale on January 2, 2020. (b) Sheridan prepares an income statement for the first quarter of 2020, ending on March 31, 2020 (installation was completed on June 18, 2020). How much revenue should Sheridan recognize related to its sale to Ricard?Shaw Company sells goods that cost $300,000 to Ricard Company for $410,000 on January 2, 2020. The sales price includes an installation fee, which has a standalone selling price of $40,000. The standalone selling price of the goods is $370,000. The installation is considered a separate performance obligation and is expected to take 6 months to complete. Instructions a. Prepare the journal entries (if any) to record the sale on January 2, 2020. b. Shaw prepares an income statement for the first quarter of 2020, ending on March 31, 2020 (installation was completed on June 18, 2020). How much revenue should Shaw recognize related to its sale to Ricard?