Chapter 1 Problem 7-34
a. No adjustment is necessary because the market price is higher than the agreed price. Any gain on purchase commitment is not recognized.
b. No adjustment is necessary because the market price has not declined as of December 31, 2008. The market decline is only a possible loss.
c. Loss on purchase commitment (10,000 x 30) 300,000
Estimated liability for purchase commitment 300,000
d. Purchases (100,000 x 150) 1,500,000
Loss on purchase commitment 200,000
Estimated liability for purchase commitment 300,000
Accounts payable (10,000 x 200) 2,000,000
e. Purchases 2,000,000
Estimated liability for purchase commitment 300,000
Accounts payable 2,000,000
Gain on purchase commitment 300,000
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