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Recording purchase commitments

(Purchase Commitments) Marvin Gaye Company has been having difficulty obtaining key raw materials for its manufacturing process. The company therefore signed a long-term noncancelable purchase commitment with its largest supplier of this raw material on November 30, 2008, at an agreed price of $400,000. At December 31, 2008, the raw material had declined in price to $365,000.

Instructions
What entry would you make on December 31, 2008, to recognize these facts?

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Solution Summary

The solution explains the journal entries to be made relating to purchase commitments

Solution Preview

The agreement is not subject to cancellation and is a formal purchase contracts or commitments where a firm price has been established. ...

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