The Wendy Company Entered into a Non-Cancellable Fixed Price Purchase

question 4

Multiple Choice

The Wendy Company entered into a non-cancellable fixed price purchase obligation on July 20, 2010, to purchase 3, 000 assemblies at $6.50 per assembly to be delivered on March 2, 2012.On December 31, 2011, the replacement cost of the assembly was determined to be $5.90 per assembly.Which of the following adjusting journal entries would be correct as of December 31, 2011, to account for the price change?

• A)
• \(\begin{array}{cr}
• \text { Inventory (or Purchases) } & 17,700 \\
• \text { Loss on Purchase Commitments } & 1,800 \\
• \text { Accounts Payable } & 19,500
• \end{array}\)
• B)
• \(\begin{array}{cc}
• \text { Loss on Purchase Commitments } & 1,800 \\
• \text { Inventory (or Purchases) } & 1,800
• \end{array}\)
• C)
• Loss on Purchase Commitments \( \quad 1,800 \)
• Accrued Loss on Purchase Commitments \( \quad 1,800 \)
• D)
• \(\begin{array}{lrl}
• \text { Accounts Payable } & 1,800 & \\
• \text { Inventory (or Purchases) } & & 1,800
• \end{array}\)

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Definitions:

Power Of Suggestion

The psychological phenomenon where an individual’s thoughts, feelings, or behaviors are influenced by suggestive words, thoughts, or ideas from another person.

Conversion Symptoms

Physical symptoms that occur without a physiological basis, often resulting from psychological conflict or stress.

Conversion Disorder

A mental condition in which a person has blindness, paralysis, or other nervous system symptoms that cannot be explained by medical evaluation.

Spontaneous Self-hypnosis

The natural occurrence of hypnotic-like states without formal induction, often triggered by extreme focus or stress.