During the Current Fiscal Year, Jeremiah Corp

question 28

Multiple Choice

During the current fiscal year, Jeremiah Corp.signed a long-term noncancellable purchase commitment with its primary supplier.Jeremiah agreed to purchase $2.5 million of raw materials during the next fiscal year under this contract.At the end of the current fiscal year, the raw material to be purchased under this contract had a market value of $2.3 million.What is the journal entry at the end of the current fiscal year?

• A)Debit Unrealized Holding Loss for $200,000 and credit Purchase Commitment Liability for $200,000.
• B)Debit Purchase Commitment Liability for $200,000 and credit Unrealized Holding Gain for $200,000.
• C)Debit Unrealized Holding Loss for $2,300,000 and credit Purchase Commitment Liability for $2,300,000.
• D)No journal entry is required.

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Definitions:

Investment in Associates

A long-term investment in another company where the investor holds a significant but not majority stake, typically 20%-50% of the voting stock.

Equity Method

An accounting technique used to record investments in associate companies, where the investment is initially recorded at cost and adjusted thereafter for the post-acquisition change in the investor's share of net assets of the investee.

Equity Method

An accounting technique used to record investments in associate companies, whereby an investor adjusts the carrying amount of the investment to recognize its share of the earnings or losses of the associate.

Investment Account

An account held at a financial institution that is used to buy, hold, and sell investments such as stocks, bonds, and mutual funds.