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On July 10, 2018, Johnson Corporation signed a purchase commitment to purchase inventory for $300,000 on...

On July 10, 2018, Johnson Corporation signed a purchase commitment to purchase inventory for $300,000 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 $311,000. The market price of the inventory on December 31, 2018, was $277,000. The company uses a perpetual inventory system.
    
How much loss on purchase commitment will Johnson recognize in 2018?

Multiple Choice

  • $11,000.

  • $23,000.

  • $34,000.

  • None.

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Answer #1 
Purchase commitments loss = Contracted price - Market value
Purchase commitments loss = 300000-277000

= 23000

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