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20 January, 22:04

During the current fiscal year, Sandhill Corp. signed a long-term noncancellable purchase commitment with its primary supplier. Sandhill agreed to purchase $1.92 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 $1.56 million. What is the journal entry at the end of the current fiscal year?

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  1. 21 January, 01:25
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    Journal Entry

    Explanation:

    The Journal entry is shown below:-

    Unrealized Holding Gain or Loss Dr, $360,000

    To Estimated Liability on Purchase Commitment $360,000

    (Being unrealized Holding Gain or Loss is recorded)

    Working note:-

    = $1.92 million - $1.56 million

    = $360,000

    So, at the end of the current fiscal year we simply debited Unrealized Holding Gain or Loss and credited Estimated Liability on Purchase Commitment.
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