Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
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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.
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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.
Chapter 9 Solutions
Intermediate Accounting
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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- Dani Corporation signed a binding commitment on December 2 to purchase inventory for 300,000 cash on January 2. By December 31, the market price (replacement cost) of the inventory had declined to 280,000. Prepare Danis journal entries at year-end and at the date of purchase.arrow_forwardOn October 6, 2018, the Elgin Corporation signed a purchase commitment to purchase inventory for $60,000on or before March 31, 2019. The company’s fiscal year-end is December 31. The contract was exercised onMarch 21, 2019, and the inventory was purchased for cash at the contract price. On the purchase date of March21, the market price of the inventory was $54,000. The market price of the inventory on December 31, 2018, 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, 2018.2. Prepare the journal entry to record the purchase on March 21, 2019arrow_forwardGadubhiarrow_forward
- On July 10, 2021, Johnson Corporation signed a purchase commitment to purchase inventory for $350,000 on or before February 15, 2022. The company's fiscal year-end is December 31. The contract was exercised on February 1, 2022, and the inventory was purchased for cash at the contract price. On the purchase date of February 1, the market price of the inventory was $359,000. The market price of the inventory on December 31, 2021, was $324,000. The company uses a perpetual inventory system. How much loss on purchase commitment will Johnson recognize in 2021? Multiple Choice $26,000 335.000arrow_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_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_forward
- On September 5, 2021, Howard Corporation signed a purchase commitment to purchase inventory for $130,000 on or before March 31. 2022. The company's fiscal year-end is December 31. The contract was exercised on March 4, 2022, and the inventory was purchased for cash at the contract price. On the purchase date of March 4, the market price of the inventory was $116,000. The market price of the inventory on December 31, 2021, was $120,000. 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 to record the purchase on March 4, 2022. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare the necessary adjusting journal entry (if any is required) on December 31, 2021. (If no entry is required for a transaction/event, select No joumal entry reguired" in the first account field.) View transacion list Journal entry worksheetarrow_forwardOn October 6, 2016, the Elgin Corporation signed a purchase commitment to purchase inventory for $60,000 on or before March 31, 2017. The company’s fiscal year-end is December 31. The contract was exercised on March 21, 2017, 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, 2016, 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, 2016. 2. Prepare the journal entry to record the purchase on March 21, 2017.arrow_forwardOn September 1, 2014, Dockside Tacos signed a purchase commitment to purchase inventory for $400,000 on or before January 31, 2015. The company's fiscal year-end is December 31. The contract was exercised on January 5, 2015 and the inventory was purchased for cash at the contract price. On the purchase date of January 5, the market price of the inventory was $500,000. The market price of the inventory on December 31, 2014, was $300,000. The company uses a perpetual inventory system. The journal entry to record the purchase includes: A. A credit to gain on purchase for 200,000 B. A debit to inventory for 400,000 C. A debit to inventory for 300,000 D. A debit to inventory for 500,000 E. A credit to gain on purchase for 100,000 Please explainarrow_forward
- Crane Corporation sells item A as part of its product line. Information as to balances on hand, purchases, and sales of item A are given in the following table for the first six months of 2020. Date January 11 January 24 February 8 March 16 June 11 Quantities Purchased 1,300 630 Sold 330 605 Balance Unit Price of Purchase 430 1,730 1,400 795 1,425 $4.60 $4.80 $5.30 (a) Compute the ending inventory at June 30 under the perpetual LIFO inventory pricing method. Ending inventory $ Compute the cost of goods sold for the first 6 months under the periodic FIFO inventory pricing method. Cost of Goods Sold $arrow_forwardDollar-Value LIFO Belstock Company manufactures one product. On December 31, 2018, Belstock adopted the dollar-value LIFO inventory method. The inventory on that date using the dollar-value LIFO inventory method was $200,000. Inventory data for succeeding years are as follows: Year Inventory at RespectiveYear-End Prices Price Index(Base Year 2018) 2019 $220,500 1.05 2020 287,500 1.15 2021 276,000 1.20 Required: Compute the ending inventory using the dollar-value LIFO method for 2019, 2020, and 2021. Do not round your intermediate calculations. If required, round your answers to the nearest dollar. December 31, 2019 December 31, 2020 December 31, 2021arrow_forwardDollar-Value LIFO Belstock Company manufactures one product. On December 31, 2018, Belstock adopted the dollar-value LIFO inventory method. The inventory on that date using the dollar-value LIFO inventory method was $200,000. Inventory data for succeeding years are as follows: Inventory at Respective Price Index Year Year-End Prices (Base Year 2018) 2019 $220,500 1.05 2020 287,500 1.15 2021 288,000 1.20 Required: Compute the ending inventory using the dollar-value LIFO method for 2019, 2020, and 2021. Do not round your intermediate calculations. If required, round your answers to the nearest dollar. December 31, 2019 $ December 31, 2020 December 31, 2021 $arrow_forward
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