The Frank Company entered into a noncancelable fixed price purchase obligation on July 20, 2006,...
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The Frank Company entered into a noncancelable fixed price purchase obligation on July 20, 2006, to purchase 3,000 assemblies at $6.30 per assembly to be delivered on March 2, 2007. On December 31, 2006, the replacement cost of the assembly was determined to be $5.80 per assembly. Which of the following adjusting journal entries would be correct as of December 31, 2006, to account for the price change?
| a. | Inventory (or Purchases) 17,400 Loss on Purchase Commitments 1,500 Accounts Payable 18,900 |
| b. | Loss on Purchase Commitments 1,500 Inventory (or Purchases) 1,500 |
| c. | Loss on Purchase Commitments 1,500 Accrued Loss on Purchase Commitments 1,500 |
| d. | Accounts Payable 1,800 Inventory (or Purchases) 1,800 |
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