Concord Company signed a long-term noncancelable purchase commitment with a major supplier to purchase raw materials in 2021 at a cost of $1,024,100. At December 31, 2020, the raw materials to be purchased have a market value of $978,600. In 2021, Concord paid $1,024,100 to obtain the raw materials which were worth $978,600. Prepare the entry to record the purchase. (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.)

Question

Gillian Irwin

Business

29 October, 10:41

Concord Company signed a long-term noncancelable purchase commitment with a major supplier to purchase raw materials in 2021 at a cost of $1,024,100. At December 31, 2020, the raw materials to be purchased have a market value of $978,600. In 2021, Concord paid $1,024,100 to obtain the raw materials which were worth $978,600. Prepare the entry to record the purchase. (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.)

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Oliver Bright · Answer 1

The journal entry is shown below:

Unrealized holding gain or loss A/c Dr $45,500

To Estimated liability on purchase commitments A/c $45,500

(Being the unrealized gain or loss is recorded)

The computation of the unrealized gain or loss is shown below:

= Purchase price of raw material - market value

= $1,024,100 - $978,600

= $45,500