Use the following information for problems 49-50. On December 4, 20X8, DoCo ente

Question

Use the following information for problems 49-50. On December 4, 20X8, DoCo enters into a contractual agreement to take delivery on January 25, 20X9 of 10,000 pounds of nuts at a cost of $2.20 per pound. On December 31, 20x8, DoCo finds that the market price of the nuts has declined to $1.90 per pound, and management decides that the decline is permanent. DoCo should show these developments on its 20X8 financial statements as ' . ' 49. a. a $22,000 liability b. a $19,000 liability $3,000 liability d. mo liability When DoCo takes delivery on January 25, 20X9, the market price of nuts is $1.75 per pound. As a result, DoCo should 50. a. debit Inventory $17,500 debit Inventory $22,000 c. debit Loss $4,500 debit Retained Earnings $3,000

Explanation / Answer

49)

Answer is d. no liability

Signing a contract causes a commitment but does not necessarily create a liability or asset at the time of signing.

50)

Purchase Price = 10000*2.20 = 22000

Market price of nuts = 10000*1.75 = 17500

Loss = 22000 - 17500 = 4500

Answer is c. $4,500

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