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:

Trademarks

Symbols, names, or phrases legally registered or established by use as representing a company or product.

Product Differentiation

A strategy in which one firm’s product is distinguished from competing products by means of its design, related services, quality, location, or other attributes (except price).

Monopolistic Competition

A market structure in which many firms sell a differentiated product, entry is relatively easy, each firm has some control over its product price, and there is considerable nonprice competition.

Product Differentiation

A marketing strategy that involves distinguishing a product or service from others in the market to make it more attractive to a particular target market.