prior fiscal year, Jeremiah Corp. signed a long-term noncancellable purchase lio
ID: 2594999 • Letter: P
Question
prior fiscal year, Jeremiah Corp. signed a long-term noncancellable purchase lion to acquire the raw materials when the raw materials were 48. During the with its primary supplier to purchase $2.0 milion of raw materials. commitment Jeremiah paid the $ oaly worth S1.6 million. Assume that the purchase commitment was pro What is the journal entry to record the purchase? A) Debit Inventory for $1,600,000, debit Estimated Liability on Purchase 2.0 mil Commitments for $400,000 and credit Cash for $2,000,000. B) Debit Inventory for $2,000,000, and credit Cash for $2,000,000 C) Debit Inventory for $1,600,000, debit Unrealized Holding Gain or Loss for $400,000, and credit Cash for $2,000,000. Debit Inventory for $1,600,000, and credit Cash for $1,600,000. D) 49. Lower-of-cost-cr-market A) is most conservative if applied to major categories of inventory ) is most conservative ifapplied to individual items of inventory C) must be applied to major categories for taxes. D) is most conservative if applied to the total inventory. 50. Trade discounts are A) used to induce prompt payment. B) presented in terms such as 2/10, n/30. C) used to avoid frequent changes in catalogs D) recorded as other revenues and gains.Explanation / Answer
48.. ANSWER: B Debit Inventory 2000000 Credit Cash 2000000 49...Lower -of -cost-or market ANSWER: D) is most conservative if applied to the total inventory Each item of inventory is valued at lower of the two values,namely, cost & market values ,so as to present a most conservative total amount . 50...Trade discounts A. are offrered encourage early & prompt payment & reduces bad debts B. They are generally wriiten in short for 2%,if settled within 10 days , to settle certainly within a maximum of 30 days. C.are fixed so as to avoid frequent revision in prices or differential prices for different lots of purchases D)Trade discounts received are income for the business & hence recorded as revenues on the credit side of the income statement. ANSWER: All of the above.
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