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23 November, 08:45

On July 10, 2018, Johnson Corporation signed a purchase commitment to purchase inventory for $390,000 on or before February 15, 2019. The company's fiscal year-end is December 31. The contract was exercised on February 1, 2019, and the inventory was purchased for cash at the contract price. On the purchase date of February 1, the market price of the inventory was $398,000. The market price of the inventory on December 31, 2018, was $367,000. The company uses a perpetual inventory system. How much loss on purchase commitment will Johnson recognize in 2018? A) $8,000B) $23,000C) $31,000D) none.

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  1. 23 November, 12:34
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    correct option is B) $23,000

    Explanation:

    given data

    purchase inventory = $390,000

    market price inventory = $398,000

    market price inventory = $367,000

    to find out

    How much loss on purchase commitment will Johnson recognize

    solution

    we know here that market price of inventory on is given $367,000

    and here agreed to purchase for $390,000

    so that we can say that Johnson Company will recognize that

    purchase commitment recognize = purchase inventory - market price inventory ... 1

    purchase commitment recognize = $390,000 - $367,000

    purchase commitment recognize = $23,000

    so loss on purchase commitment is $23,000

    so correct option is B) $23,000
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