INTERMEDIATE ACCT VOL.2>CUSTOM<
9th Edition
ISBN: 9781307165067
Author: SPICELAND
Publisher: MCG/CREATE
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Chapter 9, Problem 9.31E
To determine
Purchase Commitments: It refers to the commitments or contract made by a company with its suppliers to acquire goods or services at a fixed price in future dates. The company generally make purchase commitments to fix the unit price over a period of time to avoid continuous market fluctuations.
To Record: The
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In March 2018, the Phillips Tool Company signed two purchase commitments. The first commitment requiresPhillips to purchase inventory for $100,000 by June 15, 2018. The second commitment requires the company topurchase inventory for $150,000 by August 20, 2018. The company’s fiscal year-end is June 30. Phillips uses aperiodic inventory system.The first commitment is exercised on June 15, 2018, when the market price of the inventory purchased was$85,000. The second commitment was exercised on August 20, 2018, when the market price of the inventorypurchased was $120,000.Required:Prepare the journal entries required on June 15, June 30, and August 20, 2018, to account for the two purchasecommitments. Assume that the market price of the inventory related to the outstanding purchase commitmentwas $140,000 at June 30.
In March 2021, the Phillips Tool Company signed two purchase commitments. The first commitment requires Phillips to purchase inventory for $100,000 by June 15, 2021. The second commitment requires the company to purchase inventory for $150,000 by August 20, 2021. The company’s fiscal year-end is June 30. Phillips uses a periodic inventory system. The first commitment is exercised on June 15, 2021, when the market price of the inventory purchased was $85,000. The second commitment was exercised on August 20, 2021, when the market price of the inventory purchased was $120,000.
Required:Prepare the journal entries required on June 15, June 30, and August 20, 2021, to account for the two purchase commitments. Assume that the market price of the inventory related to the outstanding purchase commitment was $140,000 at June 30.
Problem 8
On November 23, 2019, Guava Company entered intoa non-cancellable commitment to purchase 120,000 barrels of aviation fuel for P35 per barrel on March 14, 2020. By December 31, 2019 the purchase price had fallen to P25 per barrel. However, by March 14, 2020, when the entity took delivery of the 120,000 barrels the price had risen to P40 per barrel.
How much is the recovery of loss on purchase commitment on March 14, 2020?
Chapter 9 Solutions
INTERMEDIATE ACCT VOL.2>CUSTOM<
Ch. 9 - Explain the (a) lower of cost or net realizable...Ch. 9 - What are the various levels of aggregation to...Ch. 9 - Describe the alternative approaches for recording...Ch. 9 - Explain the gross profit method of estimating...Ch. 9 - The Rider Company uses the gross profit method to...Ch. 9 - Explain the retail inventory method of estimating...Ch. 9 - Both the gross profit method and the retail...Ch. 9 - Define each of the following retail terms: initial...Ch. 9 - Explain how to estimate the average cost of...Ch. 9 - Prob. 9.10Q
Ch. 9 - Explain the LIFO retail inventory method.Ch. 9 - Discuss the treatment of freight-in, net markups,...Ch. 9 - Explain the difference between the retail...Ch. 9 - Prob. 9.14QCh. 9 - Prob. 9.15QCh. 9 - Explain the accounting treatment of material...Ch. 9 - It is discovered in 2018 that ending inventory in...Ch. 9 - Identify any differences between U.S. GAAP and...Ch. 9 - (Based on Appendix 9) Define purchase commitments....Ch. 9 - (Based on Appendix 9) Explain how purchase...Ch. 9 - Lower of cost or net realizable value LO91 Ross...Ch. 9 - Lower of cost or net realizable value LO91 SLR...Ch. 9 - Lower of cost or market LO91 [This is a variation...Ch. 9 - Lower of cost or market LO91 [This is a variation...Ch. 9 - Prob. 9.5BECh. 9 - Gross profit method; solving for unknown LO92...Ch. 9 - Retail inventory method; average cost LO93 Kiddie...Ch. 9 - Retail inventory method; LIFO LO93 Refer to the...Ch. 9 - Conventional retail method LO94 Refer to the...Ch. 9 - Conventional retail method LO94 Roberson...Ch. 9 - Dollar-value LIFO retail LO95 On January 1, 2018,...Ch. 9 - Dollar-value LIFO retail LO95 This exercise is a...Ch. 9 - Change i n inventory costing methods LO96 In...Ch. 9 - Change in inventory costing methods LO96 In 2018,...Ch. 9 - Inventory error LO97 In 2018, Winslow...Ch. 9 - Inventory error LO97 Refer to the situation...Ch. 9 - Lower of cost or net realizable value LO91 Herman...Ch. 9 - Lower of cost or net realizable value LO91 The...Ch. 9 - Lower of cost or net realizable value LO91 Tatum...Ch. 9 - Lower of cost or market LO91 [This is a variation...Ch. 9 - Lower of cost or market LO91 [This is a variation...Ch. 9 - Lower of cost or market LO91 [This is a variation...Ch. 9 - Prob. 9.8ECh. 9 - Prob. 9.9ECh. 9 - Prob. 9.10ECh. 9 - Gross profit method LO92 Royal Gorge Company uses...Ch. 9 - Prob. 9.12ECh. 9 - Retail inventory method; average cost LO93 San...Ch. 9 - Prob. 9.14ECh. 9 - Retail inventory method; LIFO LO93 Crosby Company...Ch. 9 - Prob. 9.16ECh. 9 - Conventional retail method; employee discounts ...Ch. 9 - Retail inventory method; solving for unknowns ...Ch. 9 - Dollar-value LIFO retail LO95 On January 1, 2018,...Ch. 9 - Prob. 9.20ECh. 9 - Dollar-value LIFO retail LO95 Lance-Hefner...Ch. 9 - Prob. 9.22ECh. 9 - Change in inventory costing methods LO96 In 2018,...Ch. 9 - Prob. 9.24ECh. 9 - Error correction; inventory error LO97 During...Ch. 9 - Prob. 9.26ECh. 9 - Inventory error LO97 In 2018, the internal...Ch. 9 - Inventory errors LO97 In 2018, the controller of...Ch. 9 - Concepts; terminology LO91 through LO97 Listed...Ch. 9 - Prob. 9.30ECh. 9 - Prob. 9.31ECh. 9 - Lower of cost or net realizable value LO91 Decker...Ch. 9 - Prob. 9.2PCh. 9 - Lower of cost or market LO91 Forester Company has...Ch. 9 - Prob. 9.4PCh. 9 - Prob. 9.5PCh. 9 - Prob. 9.6PCh. 9 - Retail inventory method; conventional and LIFO ...Ch. 9 - Prob. 9.8PCh. 9 - Prob. 9.9PCh. 9 - Dollar-value LIFO retail method LO95 [This is a...Ch. 9 - Dollar-value LIFO retail LO95 On January 1, 2018,...Ch. 9 - Retail inventory method; various applications ...Ch. 9 - Retail inventory method; various applications ...Ch. 9 - Prob. 9.14PCh. 9 - Inventory errors LO97 You have been hired as the...Ch. 9 - Inventory errors LO97 The December 31, 2018,...Ch. 9 - Integrating problem; Chapters 8 and 9; inventory...Ch. 9 - Purchase commitments Appendix In November 2018,...Ch. 9 - Judgment Case 91 Inventoriable costs; lower of...Ch. 9 - Integrating Case 93 FIFO and lower of cost or net...Ch. 9 - Prob. 9.4BYPCh. 9 - Prob. 9.5BYPCh. 9 - Prob. 9.6BYPCh. 9 - Prob. 9.7BYPCh. 9 - Real World Case 98 Various inventory issues;...Ch. 9 - Prob. 9.9BYPCh. 9 - Judgment Case 910 Inventory errors LO97 Some...Ch. 9 - Ethics Case 911 Overstatement of ending inventory ...Ch. 9 - Analysis Case 912 Purchase commitments Appendix...Ch. 9 - Continuing Cases Target Case LO93, LO94, LO95...Ch. 9 - Prob. 1CCIFRS
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- On October 6, 2021, the Elgin Corporation signed a purchase commitment to purchase inventory for $60,000 on or before March 31, 2022. The company’s fiscal year-end is December 31. The contract was exercised on March 21, 2022, 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 $54,000. The market price of the inventory on December 31, 2021, was $56,000. The company uses a perpetual inventory system.Required:1. Prepare the necessary adjusting journal entry (if any is required) on December 31, 2021.2. Prepare the journal entry to record the purchase on March 21, 2022.arrow_forwardOn September 5, 2024, Howard Corporation signed a purchase commitment to purchase inventory for $137, 000 on or before March 31, 2025. The company's fiscal year-end is December 31. The contract was exercised on March 4, 2025, and the inventory was purchased for cash at the contract price. On the purchase date of March 4, 2025, the market price of the inventory was $121, 600. The market price of the inventory on December 31, 2024, was 5126,300. The company uses a perpetual inventory system. Required: Prepare the necessary adjusting journal entry (if any is required) on December 31, 2024. Prepare the journal to record the purchase on March 4, 2025.arrow_forwardDollar-Value LIFO and Inventory Pools Webster Company adopted dollar-value LIFO on January 1, 2019. Webster produces three products: X, Y, and Z. Webster's beginning inventory consisted of the following: Type Quantity Cost perUnit Total Cost X 30,000 $4.25 $127,500 Y 10,000 3.50 35,000 Z 25,000 2.00 50,000 65,000 $212,500 During 2019, Webster had the following purchases and sales: Type QuantityPurchased Cost PerUnit QuantitySold Selling Priceper Unit X 110,000 $4.75 90,000 $10.00 Y 100,000 3.75 85,000 7.50 Z 75,000 2.10 70,000 5.00 285,000 245,000 Required: 1. Compute the LIFO cost of the ending inventory assuming Webster uses a single inventory pool. Round cost index to four decimal places.$arrow_forward
- 20. Di Ka Mahal Company reported total purchases of P2,500,000 in its cash basis financial statements on December 31, 2020. Additional information revealed the following: Accounts payable, January 1, 2020, P600,000 and Accounts payable, December 31, 2020, P800,000. Under the accrual basis, how much is the total purchases for the year ended December 31, 2020? Choices: P2,700,000 P2,300,000 P3,900,000 P2,500,000arrow_forwardIn March 2016, the Phillips Tool Company signed two purchase commitments. The first commitment requires Phillips to purchase inventory for $100,000 by June 15, 2016. The second commitment requires the company to purchase inventory for $150,000 by August 20, 2016. The company’s fiscal year-end is June 30. Phillips uses a periodic inventory system. The first commitment is exercised on June 15, 2016, when the market price of the inventory purchased was $85,000. The second commitment was exercised on August 20, 2016, when the market price of the inventory purchased was $120,000. Required: Prepare the journal entries required on June 15, June 30, and August 20, 2016, to account for the two purchase commitments. Assume that the market price of the inventory related to the outstanding purchase commitment was $140,000 at June 30.arrow_forwardIn November 2016, the Brunswick Company signed two purchase commitments. The first commitment requires Brunswick to purchase 10,000 units of inventory at $10 per unit by December 15, 2016. The second commitment requires the company to purchase 20,000 units of inventory at $11 per unit by March 15, 2017. Brunswick’s fiscal year-end is December 31. The company uses a periodic inventory system. Both contracts were exercised on their expiration date. Required: 1. Prepare the journal entry to record the December 15 purchase for cash assuming the following alternative unit market prices on that date: a. $10.50 b. $ 9.50 2. Prepare any necessary adjusting entry at December 31, 2016, for the second purchase commitment assuming the following alternative unit market prices on that date: a. $12.50 b. $10.30 3. Assuming that the unit market price on December 31 was $10.30, prepare the journal entry to record the purchase on March 15, 2017, assuming the following alternative unit market prices on…arrow_forward
- Task 1 On Friday 26th January 2018, the UK government held its weekly auction of government Treasury bills. The table below outlines prices for the one-, three- and six-month bills. Maturity Date Average Price Average Discount 26th February 2018 99.978223 30th April 2018 99.940167 30th July 2018 99.779994 Calculate the discount rates for the three bills. You must show the price using an appropriate mathematical formulation and take into account the difference between the auction date and settlement date when working out the terms to maturity. 2. The table below lists the principal amounts of each bill auctioned and the scale of bidding on 26th January 2018. Maturity Date Principal Amount Sold Aggregate Scale of Bids 26th February 2018 £500 million £2711.5 million 30th April 2018 £500 million £2869.0 million 30th July 2018 £2000 million £6134.5 million Calculate and comment on the significance of…arrow_forward61. On January 1, 2019, A Company purchased inventory with a list price of P4,400,000 and a cash price of P4,000,000 by issuing a noninterest-bearing note of P4,800,000 due on December 31, 2021. How much is the carrying amount of the note on initial recognition?arrow_forwardQuestion Content AreaOn January 1, 2019, Olvert Corp. signed a contract to have Bob's Builders construct a distribution center at a cost of $10,000,000. It was estimated that it would take two years to complete the project. Also on January 1, 2021, to finance the construction cost, Tolvin borrowed $10,000,000 payable in five annual installments of $4,000,000 plus interest at the rate of 6%. During 2021, Tolvin made the following construction-related expenditures: Date Amount 2/1 $2,200,000 5/1 $1,700,000 8/1 $ 700,000 11/1 $ 400,000 What amount should Tolvin report as capitalized interest at December 31, 2021? $300,000 $207,000 $150,000 $621,000arrow_forward
- Earnings Approach (Perpetual Inventory System) On April 1, Quick Construction enters into a contract with Ivan Builders to supply $20,000 of goods, terms n/30, FOB shipping point. The cost of the goods to Quick was $15,000. According to Quick's stated policy, items can be returned within 20 days of the purchase date. Quick expects that it will receive 95% of the sale amount and therefore estimated returns based on past experience are 5% of sales. The goods were ready for shipment to Ivan Builders on April 6. Prepare the Journal Entries to recognize revenue and for the returned goods.arrow_forwardCurrent Attempt in Progress Coronado Corporation began operations on December 1, 2019. The only inventory transaction in 2019 was the purchase of inventory on December 10, 2019, at a cost of $23 per unit. None of this inventory was sold in 2019. Relevant information is as follows. Ending inventory units December 31, 2019 165 December 31, 2020, by purchase date December 2, 2020 165 July 20, 2020 50 215 During the year 2020, the following purchases and sales were made. Purchases Sales March 15 365 units at $28 April 10 265 July 20 365 units at 29 August 20 365 September 4 265 units at 32 November 18 215 December 2 165 units at 35 December 12 265 The company uses the periodic inventory method. (a1) Correct answer icon Your answer is correct. Calculate average-cost per unit. (Round answer to 2 decimal places, e.e. 2.76.) Average-cost $…arrow_forwardOn October 1, 2021, Tyeso Company entered in a noncancellable purchase commitment to purchase inventory at P3,000 per unit. The 2,500 units of inventory will be delivered on February 28, 2022. On December 31,2021, the fair value of each inventory is at P2,850. On date of delivery, each unit of inventory is selling at P2,910. A. How much is the amount of liability on purchase commitment as of December 31, 2021? B. How much is the amount of inventory recorded on February 28, 2022? C. How much is the amount of gain or loss recognized on February 28, 2022?arrow_forward
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