How will event be handled in the financial statements

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In November, 2020, to secure supply of raw material vital to its manufacturing process, the Vice-President, Manufacturing was anxious to lock into a purchase commitment with the raw material supplier to cover all of its 2021 production. The contract would be for 800,000kg. with deliveries in 2021 to be coordinated with the production schedule. The contract cost to secure this long term supply is $26.50/kg. On January 20, 2021, while the financial statements for the year ended December 31, 2020 were still under audit, a new global supplier of the raw material caused a permanent drop (not a short term market supply and demand) in the price to $23.50/kg. LGL has yet to take any deliveries of the raw material in 2021.

Required:

Problem 1: Ignoring taxes, how will this event be handled/reported, if at all, in the financial statements for the year ended December 31, 2020? Be specific and provide any adjusting entries should they be required.

Reference no: EM132891124

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