Question: At December 31, 2011, Quality solvents, Inc. has outstanding non-cancelable purchase commitments for 100,000, at $1.50 per gallon, of raw material to be used in its manufacturing process. The company prices raw materials at the lower of cost or market.
a) Prepare the journal entry necessary at December 31, 2011 assuming that the market price of the raw material on that date is $1.65 per gallon.
b) Prepare the journal entry necessary at December 31, 2011 assuming that the market price of the raw material on that date is $1.35 per gallon.
c) Quality solvents takes delivery of the raw materials on January 19, 2012. Give the entry for the receipt of the raw materials assuming the market price on the date of delivery is $1.30 per gallon and that the market price at December 31, 2011 was $1.35 per gallon.