Question

On October 6, 2018, the Elgin Corporation signed a purchase commitment to purchase inventory for $66,000 on or before March 31, 2019. The company's fiscal year-end is December 31. The contract was exercised on March 21, 2019, and the inventory was purchased for cash at the contract price. On the purchase date of March 21, the market price of the inventory was $56,000. The market price of the inventory on December 31, 2018, was $60,000. The company uses a perpetual inventory system.

Required:
1. Prepare the necessary adjusting journal entry (if any is required) on December 31, 2018 and entry to record the purchase on March 21, 2019. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

Date	Particulars	Debit ($)	Credit ($)
Mar 31	Inventory	56,000
	Loss due to contract commitment	10,000
	Cash		66,000
	Inventory purchased and recorded at market value
Dec 31	No entry required

Note:

1. In first entry inventory should be recorded at market value and excess payment should be booked as loss

2. No entry is required for increase in market value of inventory