Question

*Exercise 9-12 b2-c2 (Part Level Submission) At December 31, 2020, Pharoah Company has outstanding noncancelable purchase commitments for 38,400 gallons, at $3.60 per gallon, of raw material to be used in its manufacturing process. The company prices its raw material inventory at cost or market, whichever is lower. *(62) Your answer is correct Assuming that the market price as of December 31, 2020, is $3.24, record the journal entry. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter o for the amounts. Round answers to o decimal places, e.g. 6,225.) Date Account Titles and Explanation Debit Credit Dec. 31TUnrealized Holding Gain or Loss - Incomel Dec. 31 Income 413,824 5 "Estimated Liability on Purchase Commitments 113,824 Attempts: 4 of 4 used *(c2) Your answer is partially correct. Try again. Give the entry in January 2021, when the 38,400-gallon shipment is received, assuming that the situation given in (b2) above existed at December 31, 2020, and that the market price in January 2021 was $3.24 per gallon. Prepare the journal entry for when the materials are received in January 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter o for the amounts. Round answers to o decimal places, e.g. 6,225.) Debit Credit Date Account Titles and Explanation Jan. 2021 Raw Materials TEstimated Liability on Purchase Commitments Cash

Answer 1

Answer -

(b2) Answer -

Date	Account Titles and Explanation	Debit	Credit
Dec. 31	Unrealized Holding Gain or Loss - Income	$13824
	Estimated Liability on Purchase Commitments		$13824

(c2) Answer -

Date	Account Titles and Explanation	Debit	Credit
Jan. 2021	Raw Materials / Purchase	$124416
	Estimated Liability on Purchase Commitments	$13824
	Accounts Payable		$138240

Calculation :

1. Contracted price = 38400 * $3.60

Contracted price = $138240

2. Market value = 38400 * $3.24

Market value = $124416

3. Purchase commitments loss = Contracted price - Market value

Purchase commitments loss = $138240 - $124416

Purchase commitments loss = $13824