Question

At December 31, 2020, Tamarisk, Inc., a manufacturer, has outstanding noncancelable purchase commitments for 85,500 pounds of raw material to be used in its manufacturing process. The purchase commitments require Tamarisk, Inc. to pay $18 per pound for the raw material. The company prices its raw material inventory at cost or market, whichever is lower.

(a2)

Assuming that the market price as of December 31, 2020, is $11.50, record the journal entry. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31	enter an account title for the journal entry on December 31	enter a debit amount	enter a credit amount
	enter an account title for the journal entry on December 31	enter a debit amount	enter a credit amount

Answer 1

Date	Account Title and Explanation	Debit	Credit
Dec-31	Loss on Inventory Write off	555,750		Income Statement Account
	Inventory Account		555,750	Current Asset
	(Inventory valued at market price as it is lower than the cost of purchase)
NOTE:
a)	Purchase Price of outstanding non cancellable purchase commitment		$18.00
b)	Market price of such raw material		$11.50
c)	Inventory valued at lower of (a) or (b)		$11.50
d)	Loss [(a) - (b)]		$6.50
e)	Quantity (given)		85,500 pounds
f)	Total Loss [(d) * (e)]		$555,750