Question

Sheridan Company signed a long-term noncancelable purchase commitment with a major supplier to purchase raw materials in 2021 at a cost of $1,001,800. At December 31, 2020, the raw materials to be purchased have a market value of $948,900. In 2021, Sheridan paid $1,001,800 to obtain the raw materials which were worth $948,900. Prepare the entry to record the purchase

Answer 1

Answer:

Explanation:

Before passing the journal entry, first we need to do the calculation which is shown below:

The unrealized holding gain or loss would be

= Raw material purchased - market value

= $1,001,800 - $948,900

= $52,900

The journal entry would be

Unrealized holding gain or loss  $52,900

      To estimated liability on purchase commitment  $52,900

(Being purchase is recorded)