Question

Blossom Company signed a long-term noncancelable purchase commitment with a major supplier to purchase raw materials in 2021 at a cost of $1,077,300. At December 31, 2021, the raw materials to be purchased have a market value of $1,027,500. Prepare any necessary December 31, 2021 entry.

Answer 1

Answer and Explanation:

The necessary journal entry is shown below;

Unrealized holding loss - income Dr $49,800

To Estimated liability on Purchase commitment $49,800

(Being the non-realized holding loss is recorded)

The computation is shown below:

= $1,077,300 - $1,027,500

= $49,800

The above journal entry should be recorded and the same is to be considered