A Financial Accounting Question.?
At December 31, 2010, Stargell Company has outstanding noncancelable purchase commitments for 100,000 gallons, at $1.50 per gallon, of raw material to be used in its manufacturing process. The company prices its raw material inventory at cost or market price, whichever is lower.
Question 1) Assuming that the market price as of December 31, 2010, is $1.65, how would this matter be treated in the accounts and statements? Explain.
Question 2) Assuming that the market price as of December 31, 2010, is $1.35, how would this matter be treated in the accounts and statements?
Question 3) (a) Give the entry in January 2010, when the 100,000 gallon shipment is received, assuming that the situation given in (b) above existed at December 31, 2010 and that the market price in January 2010 was $1.35 per gallon. Give an explanation of your treatment.
This is the only problem that I cannot figure out on my Accounting Take-home exam, I have searched back and forth on the chapters it would pertain to, but I have yet to find it. If anyone has knowledge on this please place your insight on this, please and thank you.