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:

Operating Segments

Components of a business from which separate financial information is available and is evaluated regularly by the company’s decision makers.

US GAAP

United States Generally Accepted Accounting Principles, a common set of accounting principles, standards, and procedures that companies and their accountants must follow when they compile their financial statements.

ASPE

Accounting Standards for Private Enterprises; a set of accounting standards for privately held companies in Canada.

IFRS

IFRS, or International Financial Reporting Standards, are a set of accounting standards developed by the IASB that aim to ensure transparency, accountability, and efficiency in the financial statements of public companies globally.