On July 10, 2018, Johnson Corporation signed a purchase commitment to purchase inventory for $200,000 on or before February 15, 2019. The company's fiscal year-end is December 31. The contract was exercised on February 1, 2019, and the inventory was purchased for cash at the contract price. On the purchase date of February 1, the market price of the inventory was $210,000. The market price of the inventory on December 31, 2018, was $180,000.
-The company uses a perpetual inventory system. At what amount will Johnson record the inventory purchased on February 1, 2019?
A) $210,000.
B) $200,000.
C) $180,000.
D) $190,000.

Question

On July 10, 2018, Johnson Corporation signed a purchase commitment to purchase inventory for $200,000 on or before February 15, 2019. The company's fiscal year-end is December 31. The contract was exercised on February 1, 2019, and the inventory was purchased for cash at the contract price. On the purchase date of February 1, the market price of the inventory was $210,000. The market price of the inventory on December 31, 2018, was $180,000. 
-The company uses a perpetual inventory system. At what amount will Johnson record the inventory purchased on February 1, 2019?
A) $210,000.
B) $200,000.
C) $180,000.
D) $190,000.

Quizplus · Accepted Answer

In 2018, loss of $20,000 recognized ($200,000 - 180,000) and liability established for the estimated loss on purchase commitment. When the inventory is purchased for $200,000, the following journal entry records the transaction: 11ea937b_3626_9521_a419_8f22b69ecb39_TB2599_00

On July 10, 2018, Johnson Corporation Signed a Purchase Commitment