Question

g On November 1, 2020, 5M Corporation entered into a purchase contract (not subject to revision or cancellation) to purchase 750 units of inventory for $50 per unit before January 1, 2021. The company uses the LIFO inventory method. a. If the inventory has a market price of $45 per unit on November 30, 2020, what entry (if any) does 5M Corporation record

Answer 1

Answer and Explanation:

The journal entry is shown below;

Estimated loss on purchase commitment (750 units × ($50 - $45) $3,750

To Estimated liability on purchase commitment $3,750

(Being estimated loss is recorded)

Here the estimated loss is debited as it increased the loss and estimated liability is credited as it also increased the liability