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Metlock Company signed a long-term noncancelable purchase commitment with a major supplier to purchase raw materials in 2021 at a cost of $902,900. At December 31, 2021, the raw materials to be purchased have a market value of $853,000. Prepare any necessary December 31, 2021 entry. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

User Veeman
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Answer:

Given that,

Cost of purchasing raw material in 2021 = $902,900

Market value of the raw materials to be purchased at December 31, 2021 = $853,000

Therefore, the journal entry is as follows:

On December 31, 2021

Unrealized holding Gain or loss - income A/c Dr. $49,900

To Estimated liability on purchase commitments $49,900

(To record the Gain or loss - income)

Workings:

Gain or Loss:

= Cost of purchasing raw material in 2021 - Market value of the raw materials to be purchased

= $902,900 - $853,000

= $49,900

User Neal Stublen
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