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 2018, the Phillips Tool Company signed two purchase commitments. The first commitment requires
Phillips to purchase inventory for $100,000 by June 15, 2018. The second commitment requires the company to
purchase inventory for $150,000 by August 20, 2018. The company’s fiscal year-end is June 30. Phillips uses a
periodic 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 inventory
purchased was $120,000.
Required:
Prepare the
commitments. Assume that the market price of the inventory related to the outstanding purchase commitment
was $140,000 at June 30.
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