Estimated liability on purchase commitments unrealized

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Reference no: EM13139803

Purchase Commitments)

Prater Company has been having difficulty obtaining key raw materials for its manufacturing process. The company therefore signed a long-term noncancelable purchase commitment with its largest supplier of this raw material on November 30, 2011, at an agreed price of $464,000. Under the long-term purchase commitment, all supplies are planned after December 31, 2011. At December 31, 2011, the raw material had declined in price to $423,400.

What entry would you make on December 31, 2011, to recognize these facts?

Description/Account Debit Credit

Accounts payableRaw materialsUnrealized holding gain or loss-Income(Purchase commitments)Estimated liability on purchase commitments

Estimated liability on purchase commitmentsUnrealized holding gain or loss-Income(Purchase commitments)Raw materialsAccounts payable

Reference no: EM13139803

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