During the prior fiscal year, Jeremiah Corp. signed a long-term noncancellable purchase commitment with its primary supplier to purchase $1.5 million of raw materials. Jeremiah paid the $1.5 million to acquire the raw materials when the raw materials were only worth $1.2 million. Assume that the purchase commitment was properly recorded. What is the journal entry to record the purchase?
A) Debit Inventory for $1,200,000, and credit Cash for $1,200,000.
B) Debit Inventory for $1,200,000, debit Unrealized Holding Gain or Loss for $300,000, and credit Cash for $1,500,000.
C) Debit Inventory for $1,200,000, debit Estimated Liability on Purchase Commitments for $300,000 and credit Cash for $1,500,000.
D) Debit Inventory for $1,500,000, and credit Cash for $1,500,000.

Question

Quizplus · Accepted Answer

The purchase commitment was recorded as a liability when the market value dropped. Now, the liability is realized, and the inventory is recorded at the market value.

During the Prior Fiscal Year, Jeremiah Corp