FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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**Pearl Commodities Company Purchase Commitment Overview**

Pearl Commodities Company has entered into a long-term, non-cancelable purchase commitment with a major vegetable supplier. The agreement specifies the purchase of produce in 2021 at a cost of $637,000. However, as of December 31, 2020, the market value of the produce is $573,300.

**Accounting Entry Guidance for December 31, 2020**

To properly reflect this commitment in the company's financial statements, any necessary journal entry as of December 31, 2020, should be prepared.

- Credit account titles will be automatically indented once the amount is entered. Manual indentation is not required.

**Journal Entry Template**

Below is the template to record the necessary accounting entries:

| Date   | Account Titles and Explanation | Debit | Credit |
|--------|--------------------------------|-------|--------|
| Dec. 31|                                |       |        |
|        |                                |       |        |

This structure helps in maintaining accurate financial records by adjusting the entries as per the changes in market conditions and future commitments.
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Transcribed Image Text:**Pearl Commodities Company Purchase Commitment Overview** Pearl Commodities Company has entered into a long-term, non-cancelable purchase commitment with a major vegetable supplier. The agreement specifies the purchase of produce in 2021 at a cost of $637,000. However, as of December 31, 2020, the market value of the produce is $573,300. **Accounting Entry Guidance for December 31, 2020** To properly reflect this commitment in the company's financial statements, any necessary journal entry as of December 31, 2020, should be prepared. - Credit account titles will be automatically indented once the amount is entered. Manual indentation is not required. **Journal Entry Template** Below is the template to record the necessary accounting entries: | Date | Account Titles and Explanation | Debit | Credit | |--------|--------------------------------|-------|--------| | Dec. 31| | | | | | | | | This structure helps in maintaining accurate financial records by adjusting the entries as per the changes in market conditions and future commitments.
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Working:-

 

Estimated liability on purchase commitment = $637,000 - $573,300
         
Estimated liability on purchase commitment = $63,700  
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