Ask Question
31 May, 15:03

Paxton Co. signed contracts for the purchase of raw materials to be executed the following year at a firm price of $5 million. The market price of the materials dropped to $3 million on December 31. What amount should Paxton record as an estimated liability on purchase commitments as of December 31?

+1
Answers (1)
  1. 31 May, 15:07
    0
    Accrued Loss on Purchase Commitments $2,000,000

    Explanation:

    December 31, (recognition of loss on purchase commitments)

    Dr Loss on Purchase Commitments account 2,000,000 Cr Accrued Loss on Purchase Commitments account 2,000,000

    Since the price of raw materials lowered by 2,000,000, the company lost money on its purchase commitments:

    Purchase commitments loss = contracted price - market value = $5,000,000 - $3,000,000 = $2,000,000

    The loss on purchase commitments is an expense, and accrued loss on purchase commitments is a liability.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Paxton Co. signed contracts for the purchase of raw materials to be executed the following year at a firm price of $5 million. The market ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers