Robo Corporation entered into noncancelable, long-term material contracts with suppliers for the purchase of raw materials beginning in the calendar Year 4.These contracts amounted to $500,000 at December 31, Year 4, relating to raw materials with a market price of $575,000.This amount was considered material for Robo.
(CMA adapted, Dec 95 #16) Refer to the Robo Corporation example.Robo Corporation's financial statements at December 31, Year 4,

Question

Quizplus · Accepted Answer

The financial statements should disclose the purchase commitment for raw materials as it is considered a material contract. Option A is incorrect as a contingent liability requires an uncertain event to occur, which does not apply here. Option C is incorrect as it would overstate the liability since the market price is higher than the contract price. Option D is incorrect as it is required to disclose the purchase commitment. Option E is incorrect as the correct answer is B.

Robo Corporation Entered into Noncancelable, Long-Term Material Contracts with Suppliers