Sheridan Company signed a long-term non cancellable 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.

Question

Business

Henry Manning

17 July, 12:08

Sheridan Company signed a long-term non cancellable 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.

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Liam Mcpherson · Answer 1

Unrealized holding loss - Income (purchase commitments) $ 52,900 Dr

Estimated liability on purchase commitments ($ 1,001,800 - $ 948,900) $ 52,900 Cr

Explanation:

Unrealized holding loss - Income (purchase commitments) $ 52,900 Dr

Estimated liability on purchase commitments ($ 1,001,800 - $ 948,900) $ 52,900 Cr