During the current fiscal year, Jeremiah Corp. signed a long-term noncancellable purchase commitment with its primary supplier. Jeremiah agreed to purchase $1.5 million of raw materials during the next fiscal year under this contract. At the end of the current fiscal year, the raw material to be purchased under this contract had a market value of $1.2 million. What is the journal entry at the end of the current fiscal year?

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Business

Karly Baird

26 May, 02:45

During the current fiscal year, Jeremiah Corp. signed a long-term noncancellable purchase commitment with its primary supplier. Jeremiah agreed to purchase $1.5 million of raw materials during the next fiscal year under this contract. At the end of the current fiscal year, the raw material to be purchased under this contract had a market value of $1.2 million. What is the journal entry at the end of the current fiscal year?

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Nolan · Answer 1

The journal entry is shown below:

Not realized gain or loan A/c Dr $300,000

To Estimated liability on purchase of raw material $300,000

(Being the difference is recorded)

The difference is computed by

= Purchase value of raw material - market value of raw material

= $1,500,000 - $1,200,000

= $300,000