Gladstone Distributors Inc

question 76

Essay

Gladstone Distributors Inc.entered into a non-cancellable contract to buy 40,000 litres of linseed oil for $6 per litre for resale purposes.Gladstone intends to resell the oil to retail paint outlets for $10 per litre.The contract was entered into on October 31,2016 for delivery on January 15,2017.Gladstone's year-end is December 31.On December 12,2016,Gladstone's supplier reduces the price to $5.10 per litre due to adverse market conditions.
Requirements:
a.Outline the required accounting treatment assuming that Gladstone expects it can sell the oil for $6.45 per litre.
b.Outline the required accounting treatment assuming that Gladstone expects it can sell the oil for $5.55 per litre.

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Definitions:

Required Rate

The lowest acceptable return on an investment, determined by the investor's risk tolerance and alternative investment options.

Standard Deviation

A statistical measure of the dispersion or variability in a dataset, often used in finance to quantify the risk of investment.

Very Risky Stocks

Shares of companies with a high level of volatility and uncertainty, often associated with the potential for both high returns and significant losses.

Risk Averse

Characteristic of an investor or decision-maker who prefers to avoid risk, often choosing investments with lower potential returns to minimize the chance of loss.