Question

when a company records a loss on purchase commitment and the inventory market price later recovers, what occurs? multiple choice question.

Answer 1

When a business registers a loss on a buy commitment and the inventory market price later increases, prices fall after the commitment was made.

Which method can be applied to record a loss since the value of the goods has decreased in price?

The loss associated with the decrease in the value of inventory is recognized in the cost of goods sold account under the cost of goods sold method. Debiting the cost of goods sold account and crediting the inventory account reflect the drop.

What drives businesses to enter into purchase commitment contracts?

Companies enter into purchase commitments to lock in a specific price and occasionally to lock in a supplier's manufacturing capacity, which can be used to as a defensive measure to prevent rivals from making use of the production capability.

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