Question 1: Chicharito Corporation, a manufacturer of Mexican foods, contracted in 2010 to purchase 1,000 pounds of a spice mixture at $5.00 per pound, delivery and payment to be made in Spring of 2012. By 12/31/10, the price per pound of the spice mixture had dropped to $4.60 per pound. By 12/31/11, the price per pound of the spice mixture was $4.75 per pound. In 2011, Chicharito should recognize:
a) a loss of $250
b) a gain of $250
c) a loss of $150
d) a gain of $150
Question 2: Chicharito Corporation, a manufacturer of Mexican foods, contracted in 2010 to purchase 1,000 pounds of a spice mixture at $5.00 per pound, delivery and payment to be made in Spring of 2012. By 12/31/10, the price per pound of the spice mixture had dropped to $4.60 per pound. By 12/31/11, the price per pound of the spice mixture was $4.75 per pound. In Spring of 2012 (on the day of purchase), the price per pound is $4.80. Chicharito's entry to record the purchase includes a:
a) debit to Inventory for $5,000
b) credit to Cash for $4,800
c) debit to Liability from Purchase Commitment for $150
d) debit to Inventory for $4,800
Question 3: A firm may factor its accounts receivable to a bank or other financial institution in exchange for cash. Which of the following is not true?
a) The lender physically controls the receivables and collects cash from customers.
b) Accounts receivable that the firm has factored do not appear on the balance sheet.
c) The firm has sold the accounts receivable.
d) The firm should disclose the factoring arrangement in its financial reports.
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