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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
Loss on Purchase Commitment During 2019, Boge Corporation signed a noncancelable contract to purchase 10,000 bushels of soybeans at $5 per bushel with delivery to be made in 2020. On December 31, 2019, the price of soybeans had fallen to $4.50 per bushel. On May 1, 2020, Boge takes delivery of the soybeans when the price is $4.75 per bushel.
Required:
Prepare the journal entries required on December 31, 2019, and May 1, 2020.
Journalize the entries required on December 31, 2019 and May 1, 2019.
Purchase obligation: The situation where a company commits to purchase goods on a future date at a fixed price is referred to as the purchase obligation.
Journalize the transactions of Company N:
| Date | Account title and Explanation | Post ref. | Amount | |
| Debit | Credit | |||
| 2019 | Â | Â | Â | Â |
| December 31 | Â Loss on purchase commitment | Â | $5,000 | Â |
| Â | Â Â Â Â Accrued loss on purchase commitment | Â | Â | $5,000 |
| Â | (To record the loss on purchase under non-cancelable purchase obligation ) | Â | Â | Â |
| Â | Â | Â | Â | Â |
| 2020 | Â | Â | Â | Â |
| May 01 | Accrued loss on purchase commitment | Â | $2,500 | Â |
| Â | Recovery of Accrued loss on purchase commitment | Â | Â | $2,500 |
| Â | (To record the recovery of loss from the purchase obligation) | Â | Â | Â |
| Â | Â | Â | Â | Â |
| May 01 | Inventory | Â | $47,500 | Â |
| Â | Accrued loss on purchase commitment | Â | $2,500 | Â |
| Â | Accounts payable | Â | Â | $50,000 |
| Â | (To record the purchase of soybeans under purchase obligation) | Â | Â | Â |
Table (1)
December 31, 2019: To record the loss on purchase under non-cancelable purchase obligation:
- Loss on purchase commitment (component of retained earnings) decreases the retained earnings...
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