Question

During the prior fiscal year, Jeremiah Corp. signed a long-term noncancellable purchase commitment with its primary supplier to purchase $2.0 million of raw materials. Jeremiah paid the $2.0 million to acquire the raw materials when the raw materials were only worth $1.6 million. Assume that the purchase commitment was properly recorded. What is the journal entry to record the purchase?

Answer 1

Jeremiah Corp. had a sales revenue of $1 million. After accounting for expenses of $600,000 on labor, $150,000 on capital, and $200,000 on materials, their accounting profit was calculated to be $50,000.

Step-by-step explanation:

To calculate the accounting profit for Jeremiah Corp., we must consider the firm's revenues and expenses. Jeremiah Corp. had sales revenue of $1 million last year. It incurred various expenses that are subtracted from the revenue to determine accounting profit.

These expenses include $600,000 on labor, $150,000 on capital, and $200,000 on materials. To calculate the accounting profit, the total expenses need to be summed up and then subtracted from the sales revenue.

The total expenses for Jeremiah Corp. are calculated as follows:
Labor: $600,000

Capital: $150,000

Materials: $200,000

Adding these expenses together gives us:
Total expenses = $600,000 + $150,000 + $200,000 = $950,000

The next step would be to subtract the total expenses from the sales revenue:
Accounting profit = Sales revenue - Total expenses

Accounting profit = $1,000,000 - $950,000

Accounting profit = $50,000

Therefore, the accounting profit for Jeremiah Corp. for the last fiscal year was $50,000.