Robo Corporation Entered into Noncancelable, Long-Term Material Contracts with Suppliers

question 85

Multiple Choice

Robo Corporation entered into noncancelable, long-term material contracts with suppliers for the purchase of raw materials beginning in the calendar Year 4.These contracts amounted to $500,000 at December 31, Year 4, relating to raw materials with a market price of $575,000.This amount was considered material for Robo.
(CMA adapted, Dec 95 #17) Refer to the Robo Corporation example.Assume the goods were received and the market price of the raw materials amounts to $450,000.Robo Corporation's financial statements at December 31.Year 4, for this transaction should

• A)not mention this commitment.
• B)reflect a liability of $500,000.
• C)reflect a liability of $50,000.
• D)reflect a liability of $450,000.
• E)reflect a liability of $400,000.

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