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24 January, 16:12

At the end of the fiscal year, Apha Airlines has an outstanding non-cancellable purchase commitment for the purchase of 1 million gallons of jet fuel at a price of $4.10 per gallon for delivery during the coming summer. The company prices its inventory at the lower of cost or market. If the market price for jet fuel at the end of the year is $4.50, how would this situation be reflected in the annual financial statements?

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  1. 24 January, 16:37
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    Answer and Explanation:

    In the annual financial statements, the company should only disclose the existence of the purchase commitment.

    As the market price is greater than commitment price, the unrealized gains are not be recognized.
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