Question

"At the end of 20x4, a firm recognized a loss on a contractual commitment to purchase inventory for $60,000. The value of the inventory at the end of 20x4 is $52,000. When the inventory was actually purchased in 20x5, its value had risen to $62,000. Choose the correct statement concerning reporting in 20x5."

Answer 1

this is future commodity contract,Since the commitment is made in 20X4 the co. must post following Entries in the financial statements.

Step-by-step explanation:

Answer 2

this is future commodity contract,Since the commitment is made in 20X4 the co. must post following Entries in the financial statements.

1) Financial Asset Dr. 60000

Contractual Liability Cr. 60000

To record the future commitment.

2) At Year End 20x4

Profit and Loss Dr. 8000

Financial Asset Cr. 8000

To record the fair valuation of future commodity contract at reporting date.

3) At time of finalization of contract

Inventory Dr. 62000

Financial Asset 52000

Gain on Contract 10000

To record the purchase of inventory.

4)

Contract Liability Cr. 60000

Cash 60000

To Record the payment of liability.