At the End of the Fiscal Year, Apha Airlines Has

question 104

Multiple Choice

At the end of the fiscal year, Apha Airlines has an outstanding non-cancellable purchase commitment for the purchase of 1 million gallons of jet fuel at a price of $4.10 per gallon for delivery during the coming summer. The company prices its inventory at the lower of cost or market. If the market price for jet fuel at the end of the year is $4.50, how would this situation be reflected in the annual financial statements?

• A) Record unrealized gains of $400,000 and disclose the existence of the purchase commitment.
• B) No impact.
• C) Record unrealized losses of $400,000 and disclose the existence of the purchase commitment.
• D) Only disclose the existence of the purchase commitment.

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Definitions:

Revocation

The official withdrawal or cancellation of a right, privilege, license, or contract, often by the party who granted it or by law.

Renunciation

The formal rejection of a claim, right, or possession, often in a legal context.

Gratuitous Agent

A person who voluntarily undertakes to perform a service for another without receiving any compensation.

Undisputed Compensation

Payment or remuneration that is acknowledged and accepted by all parties involved as fair and just, without any objections.