In 2015, Orear Manufacturing Signed a Contract with a Supplier

question 23

Multiple Choice

In 2015, Orear Manufacturing signed a contract with a supplier to purchase raw materials in 2016 for $700,000.Before the December 31, 2015 statement of financial position date, the market price for these materials dropped to $510,000.The journal entry to record this situation at December 31, 2015 will result in a credit that should be reported

• A)as a valuation account to Inventory on the statement of financial position.
• B)as a current liability.
• C)as an appropriation of retained earnings.
• D)on the income statement.

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Definitions:

Depletion

The allocation of the cost of natural resources over their useful lives in a manner similar to depreciation of physical assets.

Uniform Grade

A standardization in the quality or level of a product, making it consistent across different units or batches.

Journal Entry

An accounting record of a business transaction, indicating the affected accounts, amounts, and whether those accounts are increased or decreased.

Unsold Units

Items that have been produced or acquired for sale but have not yet been sold during a specific period.