The Marjorie Company Entered into a Non-Cancellable Fixed Price Purchase $\quad 36,250$

question 20

Multiple Choice

The Marjorie Company entered into a non-cancellable fixed price purchase obligation on August 19, 2010.The agreement was to purchase 2, 500 units of material at $16.00 per unit to be delivered on April 1, 2011.On December 31, 2010, and on April 1, 2011, the replacement cost is determined to be $14.50 per unit.Which journal entry would be correct to record the delivery on April 1, 2011?

• A)
• Inventory (or Purchases) \( \quad 36,250 \)
• Accrued Loss on Purchase Commitments \(\quad\)3,750
• Accounts Payable\(\quad\)\(\quad\)40,000
• B)
• \(\begin{array}{cr}
• \text { Inventory (or Purchases) } & 40,000 \\
• \text { Accounts Payable } & 40,000
• \end{array}\)
• C)
• \(\begin{array}{l}
• \text { Accrued Loss on Purchase Commitments } &3,750\\
• \text { Inventory }&3,750
• \end{array}\)
• D)No required entry

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Definitions:

Alternative Sources

Different or non-traditional means or options available for achieving a specific goal, typically referring to energy, materials, or information.

Petroleum

A natural, flammable liquid found beneath the Earth's surface that is refined into fuel and various chemical products.

Run Out Of Oil

A hypothetical scenario in which the world's reserves of petroleum are depleted, leading to potential energy crises.

Natural Resource Economics

A branch of economics that studies the optimal use and management of natural resources.